Gross domestic product (GDP) is the total value of all goods and services

produced in a country in a given year. It includes the value of exports minus the
value of imports. GDP is a popular
measure and is often used as the basis of comparison for economies of different
countries. GDP is
often expressed as GDP per capita, which divides the total GDP by the population of
the country.
Per capita data is often used for all the measures listed below.
Gross national product (GNP) is the total value of goods and services produced
in a given
country in a given year plus income earned by residents from their overseas
activities minus the
income earned by non-residents in that country. The GNP of France will therefore
include income
derived from French firms operating in other countries but will not include the
income gained by,
for example, Japanese or US firms in France. GDP is the most commonly used
measure when we
compare different nations. Table 3.1 shows the GDP for the 30 countries with the
highest GDP
in 2016 as measured by the World Bank.
Gross national income (GNI) is GDP plus income received from other countries
(usually in the
form of interest payments or dividends) less income paid to other countries. GNI will
therefore
include income from a UK firm operating in other countries but would deduct
income sent home
by, for example, a Korean firm operating in the UK.
Purchasing power parity (PPP) is a measure of the purchasing power in different
countries and is a
good measure of the relative cost of living in those different countries. Indeed it is
used by the World
Bank as one of its indicators of poverty. PPP compares the purchasing power of the
currency of one
country for a basket of goods with the purchasing power of another currency in
another country for
the same basket of goods. More recently it has been expressed in international
dollars, seen by many
as a more accurate comparison of standards of living. Table 3.2 shows the PPP of a
selected range
of countries including the highest and lowest ranked, members of the G6 and the
BRIC economies.

A shift in global economic power?

For most of the 20th century the global economy has been dominated by the USA,
for this reason
the 20th century has been referred to as the American century. Nonetheless, writers
are keen to
champion the latest economic growth phenomenon with the assumption that the
world order
is being or is about to be challenged. Cases have been made at various times for
the growth of
the Japanese economy, the rise of the Asian tiger economies, the challenges offered
by the BRIC
economies of Brazil, Russia and especially India and China. More recently O’Neill
(2013) has
identified the N-11, an attempt to identify the next growth economies following on
from the
BRICs. These are Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the
Philippines,

TABLE 3.1 Top 30 countries by GDp in 2016

Ranking Economy 2016 GDP ($US bn)

1 United States 18 596
2 China 11 199
3 Japan 4 939
4 Germany 3 466
5 United Kingdom 2 618
6 France 2 465
7 India 2 263
8 Italy 1 849
9 Brazil 1 796
10 Canada 1 529
11 Republic of South Korea 1 411
12 Russian Federation 1 283
13 Spain 1 232
14 Australia 1 204
15 Mexico 1 045
16 Indonesia 932
17 Turkey 858
18 Netherlands 771
19 Switzerland 660
20 Saudi Arabia 646
21 Argentina 546
22 Sweden 511
23 Poland 470
24 Belgium 466
25 Thailand 407
26 Austria 386
27 Norway 371
28 United Arab Emirates 349
29 Denmark 306
30 South Africa 295
Source: World Bank 2017.
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THE ECONOMY AND BUSINESS 65
the Republic of South Korea, Turkey and Vietnam. As we see in Table 3.1 the
strongest economically of these countries to emerge are South Korea, Mexico and
Indonesia.
In this section we look at the economic rise of post war Japan and the more recent
growth of
the BRIC economies. We focus particularly on the factors behind the rapid economic
growth in
China and end with a re-examination of the USA and its role in the global economy.

purchasing power parity per capita in international dollars for selected

TABLE 3.2 countries
in 2017

Country
PPP per capita
(International dollars) 2017 Rank
Qatar 124 927 1
Luxembourg 109 192 2
Singapore 90 531 3
Brunei 76 743 4
Ireland 72 672 5
Norway 70 590 6
USA 59 495 11
Germany 50 206 17
Denmark 49 613 20
Canada 48 141 22
Belgium 46 301 23
UK 43 620 26
France 43 550 27
Russia 27 890 48
China 16 624 79
Brazil 15 500 81
South Africa 13 403 89
Egypt 12 994 92
India 7 174 122
Zambia 3 997 142
Kenya 3 496 149
Sierra Leone 1 791 174
Liberia 867 184
Democratic Republic of Congo 785 186
Central Africa Republic 681 187 and lowest ranked nation
Source: World Economic Outlook, January 2018, IMF.org (Accessed March 2018).
The influence of Japan
Reconstruction after the Second World War saw Japan emerge as the world’s second
largest economy
behind the USA, a position it maintained until the end of the first decade of the 21st
century when
it was overtaken by China. There is a widely held view that this is some kind of
miracle in which a
modern Japanese economy arose from the ashes of a devastated country at the end
of the Second
World War, but the foundations of a strong economy were laid much earlier.
Nevertheless, post
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66 CHApTER 3 THE ENVIRONMENT AND BUSINESS: THE ECONOMY AND THE STATE
war growth has been significant and in Japan’s case, particular advances were made
from the 1950s.
This growth was built upon by a rapid increase in overseas investments as shown by
Table 3.3.

TABLE 3.3 The Japanese economy 1950–87

1987 GDP
$US bn
1987 GDP
per capita
$US
1950–87
compound
annual GDP
growth %
1950–87 compound
annual industrial
production
growth %
1950–87
average
unemployment
Japan 1 371 11 225 7.2 9.7 1.7
USA 3 679 13 541 3.2 3.8 5.7
UK 629 11 049 2.5 2.2 4.7
Germany 899 14 691 4.6 4.6 3.5
South Korea 63 1 528 7.9 14.1 5.0
Singapore 15 885 8.3 9.7 4.1
Source: IMF adapted by Porter (1990).
In addition, the focus on certain types of manufacture, exports and FDI meant that
by the
1990s Japan had emerged as the world leader in product markets such as home
audio, robotics,
fax machines, cameras and video games (Porter et al., 2000). The net result was to
lift Japan from
the world’s fifth largest economy in 1960 to the second largest by 1980 (Dicken,
2015).
The explanation for the growth of the Japanese economy in the 1950s and 1960s
has been
attributed to a number of factors:
• Japanese manufacturing firms had cost advantages that were derived initially from
a
labour force that worked long hours for low wages. This enabled Japanese
manufacturers
to make inroads into the markets of its rivals.
• The Japanese control of imports enabled the same firms to dominate the home
market.
• Firms became cash-rich, which enabled them to invest in new methods and new
technologies
to reduce the build time of their products. As wages rose and hours of work
reduced,
competitive advantage was maintained by further investments in process
technology and
product development.
Other explanations that have been put forward include a supportive state, a
supportive banking system, human resource management policies and practices,
the core cultural values of the
Japanese and the close relationship between suppliers and manufacturers. We will
return to some
of these issues in Chapter 5, when we discuss culture and in Chapter 11, when we
discuss operations management.
The success of Japan has had significant influence on western management
practices and led
to a substantial increase in Japanese FDI in Europe and the USA as indicated by
Table 3.4. However, while Japan is currently the third most powerful economy in the
world, it endured economic
problems during the decade from 1992, when the average growth was only 1 per
cent and both
wages and prices fell (Stewart, 2004). Massive trade surpluses during the boom
years had forced
up the value of the yen. This in turn led to the easy credit of the late 1980s, which
created a
bubble economy in Japan, typified by land and property speculation and wasteful
investment
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THE ECONOMY AND BUSINESS 67
by manufacturers. In terms of the labour market, Japan had moved from a low to a
high wage
economy. In manufacturing industry, efficiency gains had kept pace with wage rises,
but to some,
many of the leading firms had reached the limits of cost reduction. Moreover,
Japanese firms were
faced with increasing competition both from lower wage economies in the region
and from firms
in advanced economies, whose efficiencies had improved, largely through the
adoption of Japanese
techniques such as just in time. As a result:
• there was a crisis of confidence in the financial sector and the state was blamed
for a lack
of regulation
• profits fell in most companies accompanied by redundancies and closures
• there was a rise in unemployment
• domestic spending fell dramatically. This stimulated price cutting by the
department stores
and the influx of cheaper imports, many from China
• there was increased competition globally, particularly with the re-emergence of a
strong US
economy. Low wage economies also posed a threat to high wage Japan. There is a
particular
concern about the growth of the Chinese economy.

TABLE 3.4 Growth of Japanese overseas direct investments 1962–90 in $US billion

1962 <1
1970 1.0
1975 3.5
1980 4.9
1985 11.0
1989 66.0
1990 57.0
Source: Ministry of International Trade and Industry, Japan.
The BRIC report
In an influential report in 2003, researchers at Goldman Sachs, led by Chief
Economist Jim
O’Neill, identified four countries, Brazil, Russia, India and China, where they
predicted that the
combined economic growth would outstrip the combined value of the G6 (France,
Germany,
Italy, Japan, UK and USA). They called these four countries the BRIC economies after
the first
letter of each country (Wilson and Purushothaman, 2003). Their initial predictions
are presented
in Table 3.5.
The researchers predicted that China would overtake Japan by 2015 and the USA by
2039.
India was predicted to overtake all the G6, bar Japan and USA, by 2025 and Japan
by 2035.
Indeed, India was shown to have the fastest growth rate of all, largely because the
decline in numbers of working age population would affect India much later than
either China or Russia. China
and India were predicted to be the dominant economies for manufactured goods
and services,
while Russia and Brazil would dominate in terms of energy and raw materials.
However dramatic the predicted growth rates appear, the Goldman Sachs report
argued that
people in the emerging nations will still be poorer on average than those in the G6.
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68 CHApTER 3 THE ENVIRONMENT AND BUSINESS: THE ECONOMY AND THE STATE
Table 3.6 lists the GDP per capita for the BRIC economies and the G6 for 2050. This
shows
that the per capita GDP of the BRIC economies will be much lower than that of the
G6 by 2050,
with the exception of Russia.

TABLE 3.5 The original predicted growth of the BRIC economies against the G6

Predicted GDP in $US billions

2010 2020 2030 2040 2050
Brazil 668 1 333 2 189 3 740 6 074
Russia 847 1 741 2 980 4 467 5 870
India 929 2 104 4 935 12 367 27 803
China 2 998 7 070 14 312 26 439 44 453
France 1 622 1 930 2 267 2 668 3 148
Germany 2 212 2 524 2 697 3 147 3 603
Italy 1 337 1 563 1 671 1 788 2 061
Japan 4 601 5 221 5 810 6 039 6 673
UK 1 876 2 285 2 649 3 201 3 782
USA 13 271 16 451 20 833 27 229 35 165
Source: Wilson and Purushothaman (2003).

The predicted GDp per capita of the BRIC economies against the G6 in
TABLE 3.6
2050

Predicted GDP per capita in $US

2050

Brazil 26 592

Russia 49 646

India 17 366

China 31 357

France 51 594

Germany 48 952

Italy 40 901

Japan 68 805

UK 59 122

USA 83 710

Source: Wilson and Purushothaman (2003).

Several economic commentators believe that Goldman Sachs had underestimated
the growth
rates for China. This is acknowledged by Jim O’Neill in a later report (O’Neill and
Stupnytska,
2009) and book (O’Neill, 2013). The researchers themselves at the time recognized
that the predictions were dependent on a large number of variables, not least on
the impact of political
change and the policy decisions of the BRIC governments on matters such as
investment, inflation,
trade and education.
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THE ECONOMY AND BUSINESS 69
The BRIC predictions in perspective
We are now in a position to evaluate the original Goldman Sachs prediction against
actual GDP
data. In Table 3.7 we compare the Goldman Sachs prediction for 2010 against the
actual GDP for
the four BRIC nations and the G6.
Table 3.7 shows that Goldman Sachs underestimated the economic growth not only
of the G6
but also of the BRIC economies.

Goldman Sachs prediction versus actual GDp for BRIC and G6

TABLE 3.7
economies for 2010

Predicted GDP in $US billions

GS prediction Actual Actual
2010 2010 2016
Brazil 668 2 143 1 796
Russia 847 1 488 1 283
India 929 1 684 2 263
China 2 998 5 931 11 199
France 1 622 2 549 2 465
Germany 2 212 3 259 3 466
Italy 1 337 2 044 1 849
Japan 4 601 5 488 5 867
UK 1 876 2 252 2 618
USA 13 271 14 447 18 569
Source: Wilson and Purushothaman (2003).
However, the level of underestimation was far greater for the BRIC countries. For
example, the
actual GDP for Brazil in 2010 was 220 per cent more than predicted by Goldman
Sachs in 2003. For
China the 2010 GDP was 98 per cent higher than the predicted figure. The table
also shows that the
GDP growth of China and India continued at a similar rate into 2016 while that of
Russia and Brazil
showed a slow-down due to economic problems in the former and economic and
political problems
in the latter. By contrast, among the G6, the actual GDP rates, although higher,
were much nearer
the original prediction. The actual figures for the UK and USA were only 17 per cent
and 8 per cent
higher than those predicted and even the highest variance, in the case of France,
was 36 per cent.
Since the initial Goldman Sachs predictions there have been three follow-up reports.
Goldman
Sachs followed up with their own (O’Neill and Stupnytska, 2009) and this was joined
in 2011 by
reports from PricewaterhouseCoopers (PwC, 2011) and Citigroup (Buiter and
Rahbari, 2011). The
new Goldman Sachs report emphasized that the BRIC economies had withstood the
banking crisis
of 2008 in much better shape than the G6 economies and predicted an even faster
acceleration for
the Chinese economy than they originally predicted with a new estimate of parity
with the USA
by 2027. The PwC report offers broad support to the Goldman Sachs predictions and
emphasizes the importance of the growing number of middle classes in the
emerging economies and the
increasing power of multinationals from the emerging economies. The Citigroup
report highlights
predicted growth in an even wider range of emerging markets. They see the growth
of China and
India continuing but feel there will be more opportunity for rapid growth for nine
other countries
including Indonesia, Nigeria and Egypt. All three reports predict that only the USA,
UK and Japan
will remain in the top 7 of the top 10 ranked economies by 2050. This is shown in
Table 3.8.
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70 CHApTER 3 THE ENVIRONMENT AND BUSINESS: THE ECONOMY AND THE STATE
Is BRICS more than a Goldman Sachs construct?
Although the BRIC countries were identified by the Goldman Sachs report in 2003,
official links
at government level between the four countries did not take place until 2006. In
2010 the group
was expanded to include South Africa, a country that was not remotely comparable
in physical or economic size or rate of economic growth with the existing four
members. Its inclusion
was however seen as important politically. Post-apartheid South Africa was gaining
significant
influence within the African continent, thus offering the existing BRIC economies
trade and FDI
expansion opportunities. As a consequence the BRICs (small ‘s’) are now referred to
as BRICS
(large ‘S’) The five BRICS countries are also now members of the G20, a grouping
that includes
Indonesia, Mexico, Argentina, Saudi Arabia and the EU.
Since 2006 there has been increased trade between the original members. There is
significant
energy trade between China and Russia. China is Brazil’s main market. There is a
clear wish to
have a greater voice in world affairs based perhaps on a shared dissatisfaction with
the old global
order. The BRICS share an interest in the Middle East, in Africa and in developing
countries in
general.
However there is little sign at present that the BRICS countries are developing as a
collective
political force. There are significant variations politically, economically and socially
and there
appears to be a lack of collective vision on such issues as climate change and the
current conflict
(as at 2018) in Syria. Of the BRICS only China clearly seems to have the potential to
emerge as
a major global political power.
Is BRICS more than an invention of Goldman Sachs?
REFLECTION pOINT

TABLE 3.8 predicted economic rankings in 2050 according to economic forecasts

Rank 2016 PwC Citigroup Goldman Sachs

(2011) (2011) (2009)
1 USA China India China
2 China India China USA
3 Japan USA USA India
4 Germany Brazil Indonesia Brazil
5 UK Japan Brazil Russia
6 France Russia Nigeria UK
7 India Mexico Russia Japan
8 Italy Indonesia Mexico France
9 Brazil Germany Japan Germany
10 Canada UK Egypt Italy
Source: Straw and Glennie (2012).
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THE ECONOMY AND BUSINESS 71
Reflecting on the rapid growth of the BRIC economies, O’Neill (2013) feels there are
several reasons for optimism both for their continued economic growth and the
opportunities that
provides for other countries. In particular he argues:
1. The rise of the BRIC economies was not a surprise. China, India, Brazil and Russia
constitute roughly half the world’s population and historically large countries that
can harness
large workforces with efficient methods of production will achieve economic growth.
2. The BRIC economies are not without their problems that include the economic
problems
in Russia, political upheaval in Brazil, pollution and corruption in China and
continued
high levels of poverty in India. Nonetheless, there is evidence that economic growth
in
these countries has brought several millions out of poverty. Furthermore, the BRIC
countries and other growth economies such as Mexico, Korea and Indonesia
emerged from the
global financial crisis better than most.
3. For O’Neill the ‘compelling evidence’ for continued growth both in terms of GDP
and
individual wealth (O’Neill, 2013 p.133) lies in patterns of consumption by BRIC
nationals
both at home and overseas. He predicts that by 2020, 70 per cent of all cars bought
in the
world will be in BRIC countries.
4. As a consequence, these patterns of consumption in the BRICs and other growth
economies market opportunities have increased for both Western and Japanese
firms.
China: the future world order?
Since the government introduced strategies of economic liberalization in the late
1970s, China has
enjoyed both rapid economic growth and social development and 800 million
Chinese have been lifted
out of poverty (World Bank, 2017). In 1985, China’s annual GDP was US$305 billion.
That was
more than doubled by 1995 and increased fourfold 2001–2011. In approximately the
same period
domestic spending increased by US$1.5 trillion (O’Neill, 2013). By 2016 the GDP
was US$11 199
billion. In 2009, following the global financial crisis, China contributed 18 per cent of
the world’s
growth compared to the USA at 14 per cent. China is the world’s largest exporter of
manufactured
goods and the second largest importer (CIA Factbook, 2017). With an average
annual growth rate of
just under 10 per cent in 1980–2000 and having the fastest sustained growth of any
nation in history
since 1978 many commentators have predicted a leading role for China in the new
global economy.
This is clearly supported by the BRIC data presented in the previous section. In this
section we will
examine the nature and extent of economic change in China, explore some key
factors behind that
change and examine a number of significant issues that have arisen as a result.
Economic change and economic growth
In the late 1970s China began a process of economic liberalization to move from a
centrally
planned state controlled economy under a communist political regime to a free
market economy
still under a communist regime. This differed from most other transition economies
in that the
focus was on economic and social change without political change. The approach
was gradual
and pragmatic, largely to appease potential communist party opposition. The model
used by
China became known as the ‘Beijing consensus’ a termed coined by Ramo (2004) to
describe
a model that was different from the ‘Washington consensus’, a term used to define
the liberal
market democratic models of the West.
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72 CHApTER 3 THE ENVIRONMENT AND BUSINESS: THE ECONOMY AND THE STATE
The Beijing consensus was typified by:
• ‘equitable, peaceful, high quality growth’ (Ramo, 2004) within a system of state
controlled
capitalism
• a centralized legislation working together with a decentralized administration
• support for innovation and experimentation at local level
• strong financial backing for state owned enterprises (SOEs).
The liberalization process under the ‘Beijing consensus’ created a mixed economy
reflected by
the different types of business organization. These can be classified as follows.
SOEs Here the entire assets are owned by the state which also appoints the
managers. Variations
of state ownership exist as collective enterprises (COEs) under the control of local
authorities and
township/village enterprises (TVEs).
Private enterprises These are shareholder owned, limited liability companies and
comprise larger
companies at a more mature stage of their development and private individual
enterprises (PIEs),
which are usually small businesses and start-ups. The PIEs could be individually
funded, funded
by cooperatives or funded by shareholders.
Foreign owned enterprises (FIEs) This classification includes all businesses
where 25 per cent of
assets are owned by a foreign investor. The Chinese government differentiates Hong
Kong, Macau
and Taiwan FIEs from the investment coming from other countries.
Data on the actual number of firms in each category is difficult to obtain but Table
3.9 shows
how these different types of firm are distributed across the Chinese economy.

Classification and economic contribution of firms in China by ownership

TABLE 3.9
2007

Type of firm % of total Approximate % contribution to GDP

SOE 3.5 35
Collective enterprises 5.77 N/A
Private enterprises 70.68 50
Foreign enterprises 20.05 15
Source: Chinese Industrial Database 2012.
A number of points need to be made here.
1. The data reveals the extent of liberalization and privatization that has taken
place ina China.
Most firms are now privately owned and contribute 50 per cent towards Chinese
GDP.
2. The data shows that although the SOE sector is relatively small (3.5 per cent), its
contribution to the Chinese economy is significant at 35 per cent. The size and
assets of individual
SOEs is much larger than those of firms in the private sector. This is due to the
presence
of strategically significant companies such as those in defence, the power industry,
petrochemicals, coal, telecoms, shipping and banking. Since the financial crisis of
2008, large
centralized SOEs have been acquiring other companies as part of a wider strategy
to create
national champions. SOEs have a privileged access to state financial backing to
enable them
to compete with the best in the world in a global economy (Eaton, 2015).
Companies such as
National Grid, Sinopec Group and China National Petroleum are in the top five of
Fortune
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THE ECONOMY AND BUSINESS 73
Global 500 companies in 2017 and 4 Chinese banks feature in the top 50.
Government strategy and financial backing to allow some SOEs to be marked out as
potential national champions has led to such as the USA, EU and Japan bringing
cases before the WTO claiming that
Chinese government policy has created unfair competition (see Case 3.2 for more
details).
3. The large number of private enterprises include many small business start-ups
that are a
direct result of liberalization policies.
4. FIEs need only comprise 25 per cent foreign ownership and many are joint
ventures with a
Chinese partner. This partner may be either state owned or, increasingly, privately
owned.
Hence the picture may be more complex than indicated by this table.
The significance of economic growth in China has been the speed at which it took
place following early gradual reforms and, in comparative terms, the consistency of
its growth over a large
number of years to become the world’s second largest economy behind the USA.
Tables 3.10
and 3.11 show the extent of that growth.

TABLE 3.10 The growth of GDp in China in US$ billion 1980–2012

1980 189.4
1985 306.7
1990 356.9
1995 728.0
2000 1 198.5
2005 2 256.9
2010 5 949.8
2012 8 358.3
Source: World Bank (2013).

TABLE 3.11 percentage annual GDp growth 2008–2012 in selected countries

2008 2009 2010 2011 2012

China 9.6 9.2 10.4 9.3 7.8
USA (–0.4) (–3.1) 2.4 1.8 2.2
UK (–1.0) (–4.0 1.8 1.0 0.3
Germany 1.1 (–5.1) 4.2 3.0 0.7
Japan (–1.0) (–5.5) 4.7 (–0.6) 1.9
Brazil 5.2 (–0.3) 7.5 2.7 0.9
India 3.9 8.5 10.0 6.3 3.2
Russian Federation 5.2 (–7.8) 4.5 4.3 3.4
Hong Kong 2.1 (–2.5) 6.8 4.9 1.5
Source: World Bank (2013).
Table 3.11 shows clearly the consistent level of growth of the Chinese economy
compared
to that of other nations. It reveals also how China has coped better than most with
the global
economic crisis of 2008. There are significant differences here between China and
Hong Kong,
which also features in the table. Hong Kong is part of China but is treated differently
as a special
economic region. Part of that different treatment is the presence of many overseas
firms in Hong
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74 CHApTER 3 THE ENVIRONMENT AND BUSINESS: THE ECONOMY AND THE STATE
Kong, many of them in banking and other financial services. The isolation of China
from the
global economic crisis is undoubtedly a function of the significant involvement of
the Chinese
government in the running of the economy.
By 2005 China had become the world’s largest producer of computers, steel, TV
sets, fish and
meat (Chen and Yao, 2006) and by 2009 cars could be added to that list (see Table
3.17). In ten
years from 1999 the number of cars made in China increased from 565000 to 10.4
million. By
2016, China produced over 24 million cars, when the next largest producer, Japan,
turned out
7.9 million cars. Some sectors are still heavily protected by the state, especially
financial services
and agriculture and, in the case of cars, foreign investment is not allowed to exceed
50 per cent
of the total ownership. In this section we will look at further measures of growth, the
reasons
behind the growth and the issues the economic growth has raised.
Tables 3.10 and 3.11 indicate the speed and volume of China’s economic growth.
We have
seen earlier in this chapter that such data led Goldman Sachs researchers to predict
that China
would overtake the USA by 2040. In 2011 the IMF forecast, based on PPP and not
GDP, that
China would overtake the USA by 2016 (Rasiah, Zhang and Kong, 2013), although
the authors
acknowledge the difficulties of basing forecasts on PPP.
Rasiah, Zhang and Kong identify general indicators of growth including: GDP growth;
productivity increases, especially those between 2000–2009; increases in savings
and investment; stability
of the exchange rate; a strong balance of payments and the holding of international
reserves; the
shift to higher value added work, especially in technology industries.
More specific measures of growth can be found in terms of exports and of Chinese
acquisitions
of foreign companies. In terms of exports Table 3.12 shows China’s rising share of
global exports
in selected industries.

TABLE 3.12 China’s percentage share of global exports 1980–2009

1980 2009
Clothing 4.0 34
Textiles 4.6 28
Office and telecoms 0.1 26
Source: Rasiah, Zhang and Kong (2013).
Three major acquisitions are a further indication of China’s status as a major
economic power.
In 2005 Lenovo acquired IBM’s personal computer business for US$1.25 billion as
well as taking
over a $0.5 billion debt. In doing so they acquired the ThinkPad brand as well as
manufacturing
technology and IBM’s global sales network. Although the IBM brand was initially
important the
brand name switched to Lenovo after 3 years. This acquisition demonstrates the
importance of
acquiring high technology businesses. In 2014 Lenovo followed this up by buying
Motorola from
Google for US$2.9 billion to extend its growth in the smartphone sector and to
access Motorola’s
position in the US market. However, the largest Chinese acquisition to date has
been in the food
industry. In 2013 Shuanghui International acquired Smithfield Foods (USA) for $4.7
billion.
Smithfield was the world’s largest producer and China is the world’s largest
consumer of pork
products offering a sound strategic rationale for the acquisition.
The acquisitions are part of a ‘Going Global’ government initiative which began in
2000. However,
a majority of acquisitions, like IBM, have involved foreign companies in some
financial difficulty.
Furthermore, inward foreign investment in China still exceeds outward investment
by some margin.
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THE ECONOMY AND BUSINESS 75
The economic growth has changed the nature of the Chinese economy as shown by
Table 3.13.
While Table 3.13 shows a dramatic shift away from agriculture, this sector was still,
in 2008,
the major source of employment in China with 300 million employed, compared to
260 million
in industry and 210 million in services (Rasiah, Zhang and Kong, 2013).

TABLE 3.13 Structural change in the Chinese economy 1963–2008 (%)

1963 2008
Agriculture 40 10
Industry 33 46
Services 27 44
Source: Rasiah, Zhang and Kong (2013).

TABLE 3.14 Top 5 exporters and importers by value in US$ (millions) 2016

Country ranking by export Country ranking by import

1. China 2077109 1. USA 1945159
2. USA 1292436 2. China 1261714
3. Germany 1145973 3. Germany 916090
4. Japan 661678 4. UK 610647
5. France 488925 5. Hong Kong 582557
Source: World Bank, wits.worldbank.org (Accessed March 2018).
The reasons for growth
There are a number of reasons for growth, most of which are interrelated. The main
ones are the
factors involved in globalization such as trade, FDI and the activities of multinational
firms; and
the policies of the Chinese government to encourage economic growth, support
privatization and
investment in human capital.
Trade and FDI Many of the main reasons for the rapid growth of the Chinese
economy are interlinked by the processes of globalization, especially trade and FDI.
In 1973 China was ranked 23rd
in terms of world trade. By 2004 it was in 3rd place behind the USA and Germany.
As we can
see in Table 3.14, China is the top ranked country as far as the value of its exports
are concerned
and the second in terms of the value of its imports.
Trade was in turn stimulated by FDI as foreign owned enterprises contributed 50 per
cent of
Chinese exports. FDI was in turn stimulated by the need of MNCs to access cheap
Chinese labour
to manufacture their products and who saw great potential in China’s domestic
market. The
growth in FDI took off after 1992 and by 2004 China had not only become the
largest recipient
of foreign investment of all developing economies but was second only to the USA
globally
(Chen and Yao, 2006). The stimulation in terms of access to cheap labour has been
superseded
by access to both a growing Chinese market and a rapid increase in the spending
power of the
Chinese population.
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may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect
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76 CHApTER 3 THE ENVIRONMENT AND BUSINESS: THE ECONOMY AND THE STATE
WTO membership While China’s growth as a trading nation was boosted by it
operating as a low
cost manufacturer of goods that were then exported, its acceptance as a WTO
member in 2001
gave a further boost. Before entry the contribution of trade to Chinese GDP was 43
per cent, but
by 2007 it had reached 68 per cent (Panitch and Gindin, 2013). Case 3.2 will explore
China’s
membership of the WTO in more detail.
Privatization A key element in the liberalization of the Chinese economy has been
the creation
of a private sector. This began with joint ventures between foreign MNCs and
Chinese SOEs as
with the creation of the Beijing Jeep (Case 2.1). However, since then the number of
private firms,
involving local as well as international investment has grown significantly, which in
turn has led
to the growth in both the size and activity of the stock market in China. In Table 3.9
we can
see the extent of the private sector and its contribution to the Chinese economy.
Privatization
has followed a different route in China fro