China Growth Model

This essay will critically evaluate and discuss various growth models and their effects on the coexistence of economic growth, sustainable development and migration. The position taken is in support of the coexistence of these factors. The country of choice is China and the growth models selected are trade liberalization and race to the bottom.

Economic growth is the increase in the Gross Domestic Product (GDP), or the total production or output of a country. Growth can be classified as endogenous and exogenous. Indicators of economic growth include GDP, unemployment rates, inflation rates and the Balance of Payments (BOP). A country benefits from economic growth if the GDP rises for two or more consecutive quarters. A recession in contrast

Economic growth is enhanced via trade liberalization as it involves the removal of protectionist barriers, increases market, labour and raw material access. China has flourished since market reform in 1978, "GDP growth averaging about 10 percent a year has lifted more than 500 million people out of poverty" (World Bank 2015). These structural changes resulted in "increased openness to other market economies" (Wu 2009 p10). The reform included an increase in the various enterprises allowed to trade, the development of trade policies such as tariffs, quotas and duty exemptions, removal of their two-tiered foreign exchange system and price reformation. Duty exemptions liberalized imports for the production of goods, quotas on the export of textiles and clothing was removed and the expansion of labour-intensive industries provided increased wages for locals. (Ianchovichina and Martin 2001)

"Foreign trade plays a more prominent role in the Chinese economy than in most other large economies: its exports-to-GDP ratio is about 37 percent" (Wu 2009 p40). As the demand for goods increases among trading regions a lot of focus revolves around China as a low-cost assembler, this involves the receipt of components from the US or Europe. In order to facilitate this growth China has expanded and improved their railway lines to operate at maximum speeds, roads and

Ho also revealed that the tax authorities in China have granted "favourable tax treatment to foreign invested companies that develop and own technologies in China, conduct local R&D activities to maintain such intangible assets, and interface with the Chinese customers directly to tailor goods or services for the domestic markets" (Mehra 2012). These tax rebates will sustain the economic growth of China and will not act as a deterrent to MNCs as the business and tax costs are significantly reduced. A pilot program in Shanghai was introduced whereby Value Added Tax (VAT) was replaced Business Tax (BT). This program enhances cross-border transactions and it has been successful in the modernization of China thus far. MNCs have targeted the technologically aware Chinese market; the Chinese community is renowned for online shopping (Mehra