China's Industrialization
The pace of economic change in China has been exceptionally rapid since the start of its economic reform in 1978 under the influence of Deng Xiaoping. Since then its Gross Domestic Product (GDP) has grown at an unprecedented 9.5 percent a year, making China’s the longest and most sustained growth experienced by any country within modern history. Such growth has been a result of various aspects, including a profound change within China’s economic policies, reform of the state-owned sector, and rapid growth of physical and human capitol. China also has the advantage of a good infrastructure, an educated workforce, and most importantly an extremely open economy. However, as the country’s economy rushes forward, so does the pile of social and economic contradictions threatening the future growth of China. To begin, China lacks a stable macroeconomic environment necessary for a strong medium-term growth, resultant of China’s fixed foreign exchange rate. China also runs the risk of political and social instability caused by the widening of geographic income inequalities. Environmentally speaking, the country is also the world’s largest consumer of raw materials and leads the way in emissions of carbon dioxide. This paper will address these issues with respect to their causes, the impact they have on China (and where applicable globally), as well as discussing the issues involved within resolving them.
China’s Exchange Rate Regime
China, as have other Asian countries, has long managed its exchange rate by intervening in foreign exchange markets to limit appreciation of its currency in order to sustain a growth-oriented trade surplus. To put it more simply, China has undervalued its currency, and this is evident upon observing the recent large build up of foreign exchange reserves in China. From 1994, when China adopted a fixed exchange rate-pegging its currency to the American dollar, to 2001 China’s current account surplus totaled an average of only 1.8
China’s Exchange Rate Regime
China, as have other Asian countries, has long managed its exchange rate by intervening in foreign exchange markets to limit appreciation of its currency in order to sustain a growth-oriented trade surplus. To put it more simply, China has undervalued its currency, and this is evident upon observing the recent large build up of foreign exchange reserves in China. From 1994, when China adopted a fixed exchange rate-pegging its currency to the American dollar, to 2001 China’s current account surplus totaled an average of only 1.8
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