the rising power of china

8/6/2019 The Rising Power of China

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Siddhartho Mukherjee, National EMBA 2012 student

THE RISING POWER OF CHINA - ITS IMPACT ON GLOBAL BUSINESS

In this assignment paper I am going to write about the rising power of China, which though an

ongoing discussion but has been specially highlighted, in recent times, due to slow currency

appreciation and global imbalances.

Description of the activity, event, etc., a brief explanation of its controversial nature

The rising power of China is a controversial issue as it has both been appreciated by some and

simultaneously raised eyebrows of many. China, a civilisation of 5,000 years, was very much

isolated through its strong ‘Chinese Walls’ and grew quietly from within. It has been under

communism regime since late 1940 and was not much on international focus until it started to

rise as an economic power. Presently, with a consistent GDP growth at an average 8 % per

year, they have established themselves as second largest economy. Infact in 2010 Chineseeconomy overtook the Japanese economy.

With economic advancement they have gained themselves much attention of the global

economic forum and have started to realise its power. “We used to hide our power—deny our

power,” a Chinese scholar told David Lampton of the School of Advanced International Studies

in Washingtoni. The success story of China was initiated through its alliance with America but

with its recent growth, coupled with the economic crisis in United States and Europe, it has

started to rethink its strategy. China has realised it is a power that the world cannot deny and

the rest part of its growth can go without support of America.

A combination of economic and political reasons has made this entire growth story

controversial. Growth of China and other emerging economies are welcome from business

perspective, but the line between economic power and political power gets thinner as the

country grows year after year. Adding to the controversy is China’s perception that the western

world is hostile to China’s development and they should be strong from all aspects including

military power, to be prepared for any challenge.

Identification of major stakeholders (and their interests)

The biggest stake holder is the United States as it is benefited from the gain in business through

the American companies operating in China. It has a two part aspect, one by American

companies setting up manufacturing facilities in China and gaining access to the cheap labour

pool; these companies can compete better in the world market. Majority of electronic and




consumer goods of the American brands (like HP, Dell, Whirlpool and many others) are

manufactured in China and shipped worldwide from there. The other advantage to American

business is in the form of expanding the market base into China and selling its brands to the

advancing1 Chinese population. Ford and GM combinedly has 17.5% market share of the

automobile market in Chinaii, while sales of various American brands like GE, KFC, McDonald,

Gap has an increasing trend.

Other Asian and emerging countries are sponsoring the growth too. Chinese growth has helped

India and other emerging countries to develop trade relationship with China and reduce

dependency on the western world. Several African countries have fuelled China`s growth as

they find it easier to trade with China than with European or American businesses.

Analysis of the situation and a clear indication of your position on the issue

Broadly speaking the growth of China has initiated various speculations from the developed

world; the most being a possibility of power struggle with the current power centre - United

States. In this paper, the discussion is limited to business perspective and its impact on the

global economics. The rising power of China has created several controversies starting from the

currency devaluation, to trade imbalance and other subjects, as discussed in section below.

o Foreign reserves & currency war - At the time of writing this paper, China holds US$

2.8 trillion foreign exchange reserve (65% of it is in USD iii) which calls for

appreciation of their currency. The accusation by other leading economies, like

United States, is China has kept its currency undervalued for other bigger gains.

China would not like to appreciate its currency in fear of losing the competitive edge

in global exports. The graph below shows the gap between real and nominal value

of the Yuan against the Dollar.

1 ‘Advancing Chinese population’: the growing middle‐class population those have the buying power and are tech‐

savy.



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the middle market but after acquisition of IBM computers in 2005 it has positioned itself as the

world`s third largest PC manufacturerv.

China’s growth is not to be frowned upon but to be taken seriously as with more Chinese

companies emerging as global players (CITIC, Haier, Lenovo), the competition scenario ischanging fast. China has been an active player in the region to develop business with its

neighbours and have been growing strong to invest in infrastructure and the resource industries

of Africa. From purchasing big corporations to medium or small resource companies China has

well rounded strategies to span its growth across the globe. Recently a Chinese photo-voltaic

cell company, Suntech, has started manufacturing in Arizona to protect itself from import

embargosvi.

With these rapid developments, the business scenario has much changed in recent times.

Chinese people’s preferences, affordability and style of living are changing and it creates an

expanding market for the global companies to focus on this emerging economy. In some fields

of business, like technology, it is a ‘survival of the fittest’ situation where if the major players are

not watchful of China’s growth, they could either be squeezed out of business or would be taken

over by them. Another growth strategy Chinese companies have taken is to manufacture

products as per the regional standards. They are aware of the quality consciousness and

affordability of customers in different part of the world, and deliver their products accordingly.

Thus a Chinese brand of toy being sold in North America will be of much superior quality than

what China sells to its neighbouring countries. While this indicates their thoroughness in

studying customer behaviour pattern, it also speaks about their aggressiveness to penetrate

markets globally and not to limit their market to few segments.

The impact of this rising power is not limited to takeovers and competition but will spread to

other aspects of society as well. With power shifting to the east, western governments will be

losing political grip on many parts of the world around and there will increasingly be more

penetration of foreigners in their society. However not everything is lost in the game; by

emergence of new great powers and rising number of Indians, Chinese and Brazilians who can

afford to buy costlier products and services, it will help the companies to grow in newer markets.

The growth of China has stimulated the global business environment and has opened doors of

opportunities to companies to expand their business in China, and for Chinese companies to




expand outside China. The benefit is shared across the globe and now when there is a financial

crisis on Europe or America, they can look up to some new countries for helping them out.

i The Economist “Less biding and hiding”, December 2nd, 2010

ii http://www.thestreet.com/story/10966500/fords-china-sales-rise.html (accessed on January 11, 2011)

iii The Economist “China does not know where to put all its dollars”, October 14

th, 2010

iv Bloomberg Businessweek, “Charlie Rose talks to John Huntsman”; paper print edition, January 10‐16,

2011.

vThe Battle for China`s Good-Enough Market – Harvard Business Review (included in MBUS 971 course

binder)

vi Bloomberg Businessweek “Chinese Plants Grow on US Turf” – paper print edition, January 3‐9, 2011

the rising power of china

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