China has made significant strides in the last few decades because the nation’s economy has been growing by double digits. This accelerated growth in the country’s GDD has made to be the world’s largest economy, thus toppling the US and other EU nations. China’s economic success has been fueled by venturing into low-cost exports in equipment, machinery, and consumer goods and investing in cheap labor. While these strategies have improved China’s economic standing, its products are yet to appeal to clients since they are of low quality. Despite 120 Chinese corporations making it to the Fortune 500 list in 2018, brand recognition is still low, an outcome that depicts a poor economic model. Therefore the country needs to review its fiscal, business, and environmental strategies to ensure that it competes effectively on the global scene.
Definition and Problems of an Economic System
An economic system refers to the means that governments or societies adopt to organize and distribute services, resources, or goods to consumers. Essentially, these systems regulate production factors that include capital, physical resources, land, and labor. Apart from this regulation, the system comprises agencies, decision-making processes, institutions, consumption patterns, and entities, all of which comprise a community’s economic structure. No matter the format they take, economic systems are associated with several problems that impact negatively on populations. One of the problems revolves around what should be produced and the quality of final products, especially if the society has limited resources at its disposal (Bretschger & Pittel, 2020). The other basic problem is deciding the most favorable production method that would optimally utilize the available resources and guarantee high-quality products. Lastly, the economic system cannot satisfy all human wants, meaning that a decision has to be made to establish which populations would be prioritized.
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Features of a Mixed Economic System
Global economies have the option of adopting various economic systems based on the GDP, population size, and the available resources and means of production. The mixed economic system which combines aspects of capitalism and socialism is a global norm. The main characteristic of the mixed system is that private entities own and control some factors of production (Dopp et al., 2019). The other feature associated with this system is that governments are free to intervene through tariffs, subsidies, redistributive policy, and prohibitions to achieve social aims. Governments that adopt this system align with several economic policies evidenced by entitlement programs, regulation by a central bank, legal tender laws, and public infrastructure projects (Dopp et al., 2019). Lastly, mixed systems are characterized by purposeful and reactionary economic policies which result from political pressures.
Role of Government in Solving Problems that Arise from Different Economic Systems
The government has a responsibility to ensure that the economic system that it adopts is favorable to its citizens. In the case of a capitalist market system, the role of the government is to eliminate restrictions that would be interfering with the concept of competitive and free-market ideology (Xiang, 2020). In a socialist economy, the government plans and regulates all activities related to production to eliminate the concept of the free market, which could trigger price wars. In the case of a mixed economic system, the government enacts a law to restrict private entrepreneurs from investing in industries that are reserve for the public sector (Xiang, 2020). More so, governments restrict privatization by designing strategies for nationalizing private ventures to expand the public sector. This role depicts that governments step in to ensure that both private and public entities do not violate the existing regulations on ownership.
History of Privatization
Privatization, which is an economic strategy for enhancing economic efficiency, refers to the decision to move an entity that previously was under government control to the private sector. Privatization’s history could be traced to the mid-1930s when the Nazi regime was keen on denationalizing some of the sectors in the German economy to benefit the elite (Estrin & Petlier, 2018). Friedrich Hayek and Milton Friedman contributed to the initial idea in the 1970s and 1980s by arguing that privatization did not reduce the consumption of public services. These ideas paved the way for nations to adopt privatization in the 2000s, with China and the EU playing a predominant role in the economic process. Estrin & Pelletier (2018) note that processes from privatization totaled $1.1 trillion in November 2014, this pointing to the fact that countries have adopted the concept as a way y of divesting assets.
Routes of Privatization
Privatization as a strategy for enhancing efficiency may take different routes depending on the size of an economy and its financial capabilities and needs. One of these routes is complete privatization, where the government sells its assets to the private sector, thus foregoing its ownership responsibilities (Mercille & Murphy, 2017). The other route is privatizing operations marked by handing the running of publicly owned facilities over to firms in the private sector. Contracting out, the other form of privatization is where the government pays a private firm to produce designated services under contract terms. The other route is franchising, an arrangement where a governmental unit awards a private firm with exclusive rights to perform services and collect user fees as in electricity generation companies (Mercille & Murphy, 2017). Lastly, there is the open competition route where private firms compete for customers, as in the case of internet and telephone service providers.
Pros and Cons of Privatization
Privatization is a beneficial economic model since it is associated with improved efficiency, considering that they are more profit-oriented, meaning they will be focused on reducing costs. The other advantage of privatization is that entities will be free from political interference, which is linked with poor decision-making, as in the case of the public sector (Mercille & Murphy, 2017). More so, privatization has been linked with increased competition, which reduces costs of services and goods in favor of consumers. However, there are downsides to privatization, with the main one being a natural monopoly, especially in economies with few efficient companies. Such a scenario paves the way for private corporations to set higher prices as the consumers have no other option to stick with the company. The other disadvantage is that private companies are more interested in profits, meaning that is a likelihood to forego public interest and wellbeing (Mercille & Murphy, 2020). Lastly, governments lose out on significant dividends that private companies raise since they are usually shared among few wealthy stakeholders.
The uniqueness of China’ Privatization
China plays a dominant role in global privatization despite having a usual approach that aligns with its political leaning to socialist democracy. This political stance means that the free market cannot thrive since the leadership focuses more on promoting the public interest. In as much as the private sector is taking shape, the state wields much control meaning that the players in the sector have no autonomy. Estrin and Pelletier (2018) note that Communist party officers resist privatization since they believe that it would pave the way for the collapse of state-owned corporations. This assertion means that China is keen on adopting fiscal strategies that would prevent private entities from overtaking public ones, a stance that is unique to this Asian country.
Nature and Causes for Globalization of Business
Globalization refers to the development, growth, and flow of services, ideas, goods, people, information, and capital across economies. Globalization in business results from improved transportation and communication, which facilitates connectivity and exchange of ideas, services, and other resources among economies (Petricevic & Teece, 2019). The other cause of globalization is multinationals' growth, which takes their business operations to other countries, thus creating new linkages and collaborations. Differences in tax systems, protectionism, and economies of scale are attractive factors that encourage companies to venture into other countries that promise higher returns.
Stages Involved in the Economic Transition of Globalization
There are four stages in the economic transition of a company in the globalization discourse: domestic, international, multinational, and global. A domestic business is limited to its home country, with the focus being on satisfying local needs. An international business expands its operations to other countries through franchising, exporting, global outsourcing/offshoring, direct investments, and joint ventures (Petricevic & Teece, 2019). On the other hand, a multinational has its business operations in other countries as a way of producing goods that meet the needs of those customers. The last stage, which is becoming a global company, is characterized by marketing products throughout the world.
Impact of Globalization on China’s Economy
Globalization had had significant impacts on China’s economy, considering that this nation is a leading economic powerhouse globally. The most notable impact is the GDP growth by up to 9.7% in the last 20 years due to a rise in foreign direct investments (Xiang, 2020). The other impact is that China has reviewed its fiscal policies in a bid to promote global trade as well as economic cooperation. A change in policies means that Chinese businesses can expand to all corners of the world, which would translate to accelerated economic growth. Han (2019) notes that globalization has also improved Chinese living conditions, considering that the government has built a social welfare system give top priority to building a social assistance system, improve the modern social insurance system, perfect the labor protection mechanism and accelerate the social welfare construction in rural areas.
Strategies used for Globalizing a Business
Businesses that are keen on expanding their operations beyond their host countries may adopt various strategies depending on their scope and resources. One of the strategies that may be adopted is exporting surplus goods or services to customers in other countries. The other strategy would be joint ventures with individuals or businesses from target countries to market their products. More so, businesses could engage in franchising where they seek the services of dealers in a bid to sensitize customers about products and services being offered. Lastly, businesses could opt for offshoring where they import raw materials from other countries as a way of creating linkages.
China’s Natural Resources
China has various natural resources which have contributed to its economic growth and standing in the global market. The most notable of these resources are natural gas, oil, and coal, which provide the requisite energy to run various industries with the surplus being exported to other countries. The other natural resources include aluminum, antimony, talc, magnesium, barite, salt, fluorspar, cement, steel, graphite, lead, coal, mercury, iron, molybdenum, and zinc. Shen et al. (2018) note that these mineral accounts for up to 80% of the total global production, meaning that they support the Chinese economy.
China’s Government Policies towards Management of Their Natural Resources
The Chinese government has designed policies that aim to regulate the mining of its natural resources in a bid to conserve the environment. The country developed a long-term strategic plan that protects against utilization and exploitation of natural resources, including water catchment areas. In particular, the country created the National Mineral Resources Commission to ensure that the state was the legal owner of all-natural resources (Khan & Chang, 2018). This decision meant that the resources would not be exploited since doing so would have legal ramifications. The country has been passing various legislation as a way of protecting both onshore and offshore oil resources.
Impact of Economic Development on Environmental Issues
Economic development has significant impacts on environmental issues, considering that a country must use natural resources to support this growth. For instance, industrialization means that a nation would require various energy and raw materials to support it. In such cases, they would revert to the environment to mine coal, natural gas, or oil to ensure that the industries are running. Apart from tapping into the energy sources, economic development would translate to urbanization which would, in turn, constrict the existing social services. The result of urbanization would be the exhaustion and pollution of water bodies, land, and air which may cause significant damage to the environment.
References
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Dopp, A.R., Mundey, P., Beasley, L.O., Silovsky, J. F., & Eisenberg, D. (2019). Mixed-method approaches to strengthen economic evaluations in implementation research. Implementation Science , 14 (2), 30-47. https://doi.org/10.1186/s13012-018-0850-6
Estrin, S., & Pelletier, A. (2018). Privatization in developing countries: What are the lessons of recent experience? The World Bank Research Observer, 33 (1), 65–102. https://doi.org/10.1093/wbro/lkx007
Han K. (2020) Impact of economic globalization on China’s social welfare policy . Palgrave Macmillan.
Khan, M. I., & Chang, Y. (2018). Environmental challenges and current practices in China: A thorough analysis. Sustainability, 10 (3), 2547-2559. doi:10.3390/su10072547
Mercille, J., & Murphy, E. (2017). What is privatization? A political economy framework. Environment and Planning A: Economy and Space, 49 (5), 1040–1059. https://doi.org/10.1177/0308518X16689085
Petricevic, O., Teece, D.J. The structural reshaping of globalization: Implications for strategic sectors, profiting from innovation, and the multinational enterprise. Journal of International Business Studies, 50 (7), 1487–1512. https://doi.org/10.1057/s41267-019-00269-x
Shen, Y., Moomy, R. & Eggert, R. G. (2020). China’s public policies toward rare earths, 1975–2018. Miner Economics, 33 (5), 127–151. https://doi.org/10.1007/s13563-019-00214-2
Xiang, J. (2020). Market disputes and government intervention: An explanatory framework of risk transformation. The Journal of Chinese Sociology, 7 (3), 31-47. https://doi.org/10.1186/s40711-020-0115-z
