Iran and Competitiveness of China
22 Aug 2018 19:04
Author : Bahram Amirahmadian
China is currently known as the world’s second biggest economic power after the United States of America. According to figures released in 2016, the United States’ gross domestic product stood at about 18 trillion dollars in 2016, while that of China was about two-thirds of America’s gross domestic product at more than 12 trillion dollars, thus coming after the United States as the world’s second biggest economic power. These figures, however, do not reflect the entire reality when economic powers of the United States and China are put to comparison. The absolute value of a country’s gross domestic product (GDP) does not reflect its economic power on its own. The volume of China’s economy is two-thirds of the United States at a time that its population is more than four times that of the United States.
Therefore, if the per capita GDP of the United States is compared with China, we would see that the share of every Chinese from the country’s GDP stands at 8,000 dollars while the corresponding figure for every American is 58,000 dollars per year. Therefore, if the per capita income is taken as a norm, China not only fails to be the world’s second biggest economy, but will be also placed among average countries of the world.
In order to provide for this huge population, China needs hefty revenues. It is not easy to provide for and meet the needs of a population of over 1.4 billion people. To do this, China has to boost its global reach in order to export its products and meet the needs of its people through its revenues. This is why the most urgent requirements facing China in its effort to meet its people’s needs is first of all to have access to all countries as potential buyers of Chinese products, and secondly, increasing competitiveness of Chinese goods. All the effort made by the Chinese officials is aimed at ensuring that the commodity, which they produce, will be of higher competitive value compared with its counterparts from other countries. This means that it must be less expensive, more available, and more durable.
This competitiveness is exactly the same point that stirs concerns among China’s rivals in global markets about the economic power of China. This is why we see that both in Europe and in the United States, movements are taking shape to counter trade in Chinese products. We have seen in past months that US President Donald Trump, whose main motto is “America First,” has been taking strong and sharp measures in the face of China’s trade capability. Levying new tariffs on the Chinese goods practically means that Chinese products would reach the final American consumer at a higher price and this will reduce competitiveness of China in the face of the US economy.
During the past one and a half years, we witnessed that although the traditional image of the United States was that of a symbol of capitalism and the leader of globalization, the current US president has resorted to protectionist slogans and speaks against globalization. On the contrary, China, which was once the symbol of communism, is now flag-bearer of globalization. This turn of events emanates from new needs of the two countries. At the present time, China sees such international institutions as the World Trade Organization as efficient levers to be used in global market rivalries. This organization allows Chinese products to be sold and offered at global markets with the lowest tariffs and in an unrivaled manner. China’s rivals, on the other hand, are trying to reduce the competitiveness of Chinese products in global markets. The first step to do this is to increase the price of goods and raw materials imported to China. China imports the lion’s share of raw material that it needs, especially energy, from other countries in order to turn them into final products through various industrial processes.
The United States has been using two methods to increase the price of imports to China. One method is to increase the risk of commodity transportation to China, because it will increase the cost of insurance. China relies on international waters and oceans for a large part of its transportation both for imports and exports. Therefore, the increased cost of transportation and rising risk of commodity transfer can have a serious effect on the cost price of commodities imported to this country. Another method used by the United States is to mount pressure on China’s monetary system. Americans claim that by interfering in the foreign exchange market, China causes the value of Yuan to remain constant compared to foreign currencies. By manipulating the value of the national currency, Chinese officials can reduce the cost price of their goods compared to what is produced outside their borders.
In this way, when the value of the money that a Chinese worker is being paid is lower than the value of the money that is paid for buying the final product that he/she has produced, more pressure is exerted on Chinese workers to produce more expensive goods in return for a low wage. Therefore, on the one hand, the Chinese government is coming under increasing pressure through instigation of lower classes when the United States raises human rights issues. On the other hand, military and security tensions stoked by the United States in international waters surrounding China increase the risk of transporting Chinese products. This is why the South China Sea has turned into a major dispute at international level during the past few years. China is trying through building artificial islands in this sea to expand its national waters while there are a number of rival countries in this region, supported by the United States, who are disturbing security of international waters surrounding China.
China’s vulnerability to transportation problems has motivated its officials to launch the ambitious “One Road-One Belt” project, which can potentially connect many land and sea routes around China to the rest of the world. By doing so, Chinese officials intend to diversify their access routes to global markets and reduce their vulnerability in international waters of the Pacific Ocean and the Indian Ocean. At the same time, China seeks to diversify its markets, because a large part of the country’s gross domestic product relies on global trade and if China’s exports and economic transactions with any country are cut, its economic growth will decrease in proportion. Iran, therefore, can help increase China’s competitiveness in global markets in three ways: as supplier of inexpensive energy; as one of the proposed routes for the “One Road-One Belt” project; and as a market for the consumption of Chinese products.
© Iran Review
Bahram Amirahmadian, an assistant professor at The University of Tehran, is the senior fellow at IRAS.
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