The world is becoming increasingly interconnected and interdependent, and China’s financial policies have a major impact on the global economy. As the second-largest economy in the world, China’s policies have the power to influence markets, currency, and the development of multinational corporations. In this article, we will examine the impact of China’s financial policies on the global economy.
China’s Growing Influence on the Global Economy
China is the world’s largest exporter, accounting for 11.8% of global products in 2017 alone. In addition to production and export, it is also the largest holder of foreign currency reserves, with the total estimated at $3.1 trillion. Its large population and avid consumer base give it an ability to influence markets around the world, as seen with its investments in the automotive industry and a number of technology companies.
China has also been increasing its monetary power and financial control. The country’s central bank holds more control over the exchange rate and foreign reserves than any other, and it is part of the International Monetary Fund (IMF) and the World Bank, both of which have important decision-making power.
Impact on Financial Markets
China’s financial policies have a major impact on financial markets around the world. The country has increasingly adopted a laissez-faire approach to the financial and banking system, allowing the market to determine the value of the renminbi—the Chinese currency—without much interference. This has led to questions about the value of the currency and its impact on exchange rates around the world.
Additionally, China’s increasing willingness to invest in foreign markets has had a major impact on global markets. The country’s investments in new technology and venture capital led to a “stampede of investments” in the United States, and its emergence as a major investor in Europe has led to speculation that the country may be pursuing a broader economic agenda.
Impact on Global Trade
China’s financial policies have had a significant effect on global trade as well. The country’s laissez-faire approach to the exchange rate has led to a “currency war,” in which countries look to devalue their currencies in order to boost exports, which can lead to trade disputes. In addition, China’s industrial policies and state subsidies have been blamed for depressing global prices, which can lead to retaliatory tariffs from other countries.
Moreover, China’s influence on global trade has also been felt in its use of tariffs. The country has used a series of tariffs and quotas to protect its markets and to ensure that exports remain competitively priced, which can put pressure on other countries’ economies. For example, the U.S.’s tariffs on Chinese imports have had wide-reaching effects on global markets, leading to retaliatory tariffs, a global trade slowdown, and political tension.
Impact on Development of Multinational Corporations
Thanks to the size, wealth, and direct access to the world’s financial markets, China has been an attractive market for multinational corporations. Companies are especially keen to make use of the Chinese consumer base, with its rising incomes and growing demand for goods and services, and this has led to a series of mergers, acquisitions, and joint ventures between Chinese and international corporations.
The Chinese government has also implemented a number of incentivizing policies aimed at encouraging multinationals to invest. These include tax incentives, preferential treatment for foreign investments, and relaxed regulations. As a result, a number of multinational corporations have established a foothold in the Chinese market, including Apple, Coca-Cola, and McDonald’s.
China’s financial policies have had a significant impact on the global economy, from influencing financial markets and global trade, to encouraging multinational corporations to establish a presence in China. The country’s increasing economic power and influence has made it a key player in the world economy, and its policies will continue to have far-reaching effects in the years to come.
