Asian Impact on the Global Change: Implications for the Developing World - Essay Example

Asian Drivers of Global Change: Implications for the Developing World Student’s Name Institution Date Asian Drivers of Global Change: Implications for the Developing World Introduction Several Asian economies have experienced high rates of growth in the last two decades which has transformed their economies. For instance, China, India and other emerging economies have witnessed more prosperity than ever before because there economic sectors have registered a lot of positive growth. China has managed to register economic growth at a rate of more than 10 % in more than two decades and this has uplifted the standards of living for hundreds of millions of its citizens.1 Their goods are able to compete favourably against products from other nations on the world stage because they are cheaper. Many Latin American and African economies have for a long time depended on high commodity prices to drive their economic agenda. It is argued that rising incomes and high population growth will increase global demand for goods and this will have a positive effect on many global economies. This paper will discuss the implications of economic development in major Asian economies to other countries in Africa and Latin America. Discussion The developments witnessed in newly industrialised nations have both beneficial and harmful effects on economies of other developing countries. For a long time, the impacts of the development of NIC’s in the global economy has been mainly compared to the performance of major economies in Europe and North America. 2 However, their impacts on other developing economies in Africa and Latin America have not been given a lot of consideration. Since Chinese and Indian economies are mainly dependent on the exportation of manufactured goods, they have increased their GDPs in the last decade. As a result, many people in different countries are able to access low priced manufactured products. The two countries together with other nations in Asia adopted liberal economic policies that enabled them to increase their competitiveness on globally. They benefited from technology transfer programs that helped them replicate western modes of industrial production to manufacture commodities targeting mass markets. Figure 1 showing GDP and merchandise trade by region, 2007-10 Annual % change. Source: http://www.wto.org/english/news_e/pres11_e/pr628_e.htm Many Latin American economies are experiencing recovery after years of poor economic performance due to different factors. Several Latin American countries experienced poor economic performance in the 1980’s and 1990’s which made their economies not to register high growth rates. It is estimated that in the 1980’s China’s GDP was just about 14% of the total Latin American GDP. By 2007, China’s GDP was more than 90% of the total Latin American GDP. In a period of about two decades, China has managed to increase its economic growth due to the fact that since the 1980’s, the country registered economic growth at an estimated 10%. Its ability to sustain economic growth rates close to 10% over a period of 30 years has helped China to improve its economic performance globally.3 The free market reforms which were introduced in China helped it increase the volume of its exports by about 20% from the year 1995 to 2005. This push turned around the country’s fortunes positively because it helped it transition from a primary agricultural economy that was mainly dependent on extractive industries to a modern industrialised economy. The growing influence of China and other Asian economies is driven by a large demand for natural resources. The country has created economic partnerships with many African states to obtain oil, minerals and other natural resources in exchange for low interest loans targeting various infrastructural projects.Many Asian countries are preferred manufacturing destinations producing a wide range of products targeting different global markets.4 Some economic experts have argued that the growth of China is likely to harm many economies in Africa and Latin America. Countries which do not have large industrial capacities may not be able to produce commodities which can compete effectively with products from China and India in various global markets. However, the implications for growth in Asian economies may have a positive effect on some Latin American and African economies. Countries which export a lot of primary commodities are likely to experience an increase in earnings and this will have a positive contribution to heir economies. The increase in consumption in Asian economies is projected to have a positive impact on developing countries which are likely to benefit from the commodities boom in the international market. Implications of China’s Economic Growth on Latin American Economies Rapid industrial development in China helped it to move from a traditional economy whose main exports were agricultural products and minerals. India has also registered rapid advances in industrial development albeit on a lower scale compared to that of China. Just like many other Asian economies, they continue to attain positive growth even when the US, Britain, Japan, Germany and other major EU economies are experiencing low growth. Many Asian governments have improved their local economic sectors to make them compete on an equal footing with other industries in Europe and North America.5 China has strong economic relations with other countries in Latin America and by 2007, it is estimated that about 10% of the region’s exports were sold in China. Figure 2 showing monthly merchandise exports and imports of Brazil and India from Jan. 2006 to Jan. 2011(Billion dollars). Blue line- exports, red line- imports. Source: http://www.wto.org/english/news_e/pres11_e/pr628_e.htm Many Latin American countries have strong diplomatic ties with many Asian countries, which have impacted positively on their economic performance. China exports a lot of commodities to this region which has significantly improved its influence in several Latin American countries.6 This relationship has also benefited farmers in several Latin American countries who export food and other agricultural products to China which serve as raw materials and meet the country’s food needs. As a result, both China and India have intense manufacturing systems that require a lot of raw materials to help them satisfy high local and foreign demand for their products. Many Asian nations have high levels of industrial productivity due to their large populations, which serve as a source of cheap labour. They are able to produce large quantities of commodities at low prices which are then exported to different foreign destinations. Even though Latin American exports to China and other Asian countries comprise mostly of primary products, this relationship has benefited both parties in different ways. Latin American countries that do not have well developed industrial systems export their products to China and other countries where they are manufactured into finished goods. These states depend on few major primary products which help their economies to obtain foreign currency from various foreign markets.7 Therefore, they are vulnerable to global price fluctuations of important commodities and they also lack stable foreign currency reserves to cushion them from international financial problems. Argentina is heavily dependent on beef and soybean exports; Chile is heavily dependent on copper exports while Peru’s economy depends heavily on copper and fishmeal. These countries do not have well developed industrial capacities to enable them process different commodities on a large scale for global markets. Some countries have increased their agricultural output because the demand for raw commodities in China has increased significantly. However, many countries in the region are net importers and they experience large trade deficits. The only country in the region that has managed to develop its industrial capacity is Brazil, whose manufacturing sectors compete effectively with those of other newly industrialised countries. Cuba, Brazil, Argentina, Chile and Peru have the largest trade relations with China in the region.8 However, Mexico, Ecuador and Paraguay have the lowest amount of trade relations with China and other Asian countries. The impact of China on domestic producers in these countries has been immense. Many have found it difficult to compete on equal terms with Asian imports due to low prices. They find it difficult to produce goods that can be sold in Europe, North America and Africa because these destinations are already flooded with cheap exports from Asia. Extractive industries in Latin America have experienced an increase in revenues because the prices of precious metals and other commodity prices have gone up in the last decade. For instance, Chile has registered high revenues from copper prices due to high prices in the global market.9 Brazil’s balance of trade figures have also been reducing compared to the 1990’s because top Asian economies are more dominant in global trade than they were in the past. The demand for other commodities such as iron ore, oil and food products has increased due to large scale industrial expansions in China and other Asian countries. This has brought about a commmodities boom in the global market which has been beneficial to several countries. The United Nations Economic Commission for Latin America estimates that the region registered an average growth rate of between 4% to 6.2% from 2004 to 2007. The World Economic Forum’s, Global Competitiveness Report of 2006 ranked Chile among the top 50 most competitive countries in the world. The country was ranked as the most competitive economy in Latin America. Implications of Asia’s Economic Growth on African Countries African economies have improved their economic and trade relationships with Asian countries in the past two decades. In the past 10 years, there have been a lot of Chinese investments in Africa which have impacted positively on growth. African countries have been exporting a lot of commodities to China and this has strengthened multilateral relations between them and China.10 China’s hunger for mineral resources has made it build strong partnerships with different nations to increase its industrial output. It will soon overtake USA and European Union countries to become Africa’s largest trading partner. Many African countries have also awarded large infrastructural contracts to China to build roads, airports, sea ports and power stations. In the past seven years, the scale of economic development projects being initiated on the continent is the largest since the time many African countries attained their independence from colonial powers. This situation has made many countries to view China favourably because its conditions for foreign and development aid in many African countries is not tied down to economic or political reforms. The increase in China’s trade relations with African countries has made the US and EU take note of their waning influence on the continent. Many African countries are building positive economic partnerships with China and other Asian nations because they are inspired by their economic transformations. 50 years ago, many Asian economies were at par with African economies because they were heavily reliant on primary commodities. However, in the last three decades, many Asian economies have already taken off yet many African countries still register poor economic performance.11 In particular, many African countries in the 1980’s and 1990’s registered poor economic performance which increased poverty levels among their citizens significantly. Many countries on the continent were heavily affected by civil wars, corruption, economic mismanagement, inadequate infrastructure and unnecessary foreign interference by western nations. It is a paradox that a continent which is endowed with the largest amount of natural resources in the world has the highest poverty rates. It is estimated that trade between Africa and China exceeded 100 billion dollars from 2008 to 2010.12 Some African countries have active Chinese participation in their economies and they have continued to register high economic growth rates. For instance, Angola sells a lot of crude oil in China and Chinese firms are involved in large infrastructure projects in the country’s capital, Luanda. Strong bilateral relations between China and Angola have been beneficial to both countries because Chinese firms are heavily involved in the country’s oil industry. However, many African countries are also suffering from huge trade deficits because China and other Asian countries have flooded African markets with cheap commodities. On average, more than 10% of Africa’s foreign trade is with China while only 4% of China’s foreign trade is with African countries. More than 80% of African exports to China are in form of oil, precious metals and other minerals. African economies are highly dependent on primary commodities and this exposes them to global price fluctuations. Many countries in Africa have low development index and this makes their citizens live in a lot of poverty. As a result, they do not have large middle class driven economies with high purchasing power which is the case in many developed and emerging economies. In the next decade, the export volume of Chinese commodities to African countries is likely to increase from the current 3% to 10%. The continent has registered an average of 5% economic growth from 2006 to 2011 and this will turn around economic sectors of many African countries. China’s foreign policy of not interfering in the political affairs of other countries has served it well. In the past, Western donors tied their development aid to various conditions which many African leaders were not happy with.13 As a result, there are unprecedented levels of Chinese infrastructure developments in form of long term loans and technical partnerships. China’s economic involvement in Africa has come at a price for many countries on the continent. For instance, some economic experts have argued that China has a poor record of sustainable development and its involvement in Africa is likely to lead to total disregard of environmental, human rights and labour laws. 14 However, other economic experts have argued that the increasing involvement by Asian economies in Africa will have a positive effect in the long run. African economies may benefit from technological transfer of vital skills due to their cooperation with major Asian economies, which is likely to stimulate economic growth positively. There is also the question of political and economic reform in countries which China engages with. 15As a result, they may not be able to reduce high rates of poverty and unemployment which afflict their citizens. In conclusion, both African and Latin American countries need to understand how to engage with China and other emerging economies to protect their national interests. 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