The Rise of China--China's economic development has undermined or compromise economic development of the countries around the world and created new problems for people in China. Dictatorship in China, which has been assisted politically by United States and supported economically by investors from around the world, has been responsible both for China's remarkable economic ascent and for troubling problems associated with it.
I.	 Stagnation, Recognition, and Reform
A.	In late 1960s, Chairman Mao launched a political initiative-- the Great Proletarian Cultural Revolution (GPCR) intended to remove bureaucratic and ideological obstacles to development and force pace of change.
1.	in the 1950s, the Great Leap Forward as a failure, rapid industrialization disrupted agricultural production that led to food shortages and famine, contributing to death of between 14 million 26 million people.
B.	Regime increased grain production from 195 million tons in 1957 to 304 million tons in 1978. This allowed China to feed its population, which grew from 574 million to 962 million and improved diets slightly (Schaeffer, 182).
C.	In 1972 Pres. Richard Nixon traveled to China and established new diplomatic relations with the communist leaders.
1.	United States agreed to recognize communist China (and its claim to Taiwan as part of China), admitted to United Nations, and made a permanent member, with veto powers, of the UN Security Council.
a.	Bringing to end China's decades – long political isolation provided regime new political legitimacy, both at home and abroad.
(1)	Nixon wanted to divide the two major communist countries (the Soviet Union and China) and use China to pressure the Soviet Union and its allies in North Vietnam (Schaeffer, 183).
2.	In 1976, Deng Xiaoping emerged as a regime's new leader and instituted reforms
a.	The regime abandoned policies that encourage population growth and in 1979 adopted a strict one – child – per – family policy
b.	Regime abandoned its collective approach agriculture lease public land to farm households for long periods
(1)	Government increase prices paid to farmers for produce delivered to the state allowed farmers to sell food produced in excess of their quotas on the open market for even higher prices
(2)	By giving farmers more control over the land, higher prices, and economic incentives, regime hoped to increase productivity and grow more food.
(a)	in first six years of reform, grain production in China increased from 305,000,000 tons in 1978 to 407,000,000 tons in 1984.
c.	Régime borrowed money from abroad to invest in industry, permitted foreign investors to build factories, devalued the currency to make these goods cheaper and easier to sell, allowed Chinese entrepreneurs to set up businesses that could produce goods for sale in domestic markets.
(1)	Foreign loans totaled $40 billion the first decade of reform, and foreign investment amounted to $20 billion, the dictatorship was able to modernize and expand industry, providing jobs for urban and rural workers.
(a)	Value of China's exports grew fivefold, from $9.7 billion in 1978 $52.5 billion in 1989 (Schaeffer, 184).
D.	Reform, Crisis, and Tiananmen Square
1.	Using higher prices to increase food production, the gunmen drove up the price of food for urban workers, and rising prices lead to inflation.
2.	Influx of money and credit from foreign loans, foreign investment, and heavy government spending on development increase the money supply and contribute to inflation.
a.	By 1988 half of all urban households saw their incomes fall. As one Shanghai worker explained, "I wish we could go back to Mao's day. At that time, we had no inflation and were guaranteed a certain living standard. Now I can hardly afford to feed my family"(Schaeffer, 184).
3.	As support for economic reform declined and inflation increased, the context of Tiananmen Square was formed.
a.	Activists call for political reforms that would yield greater democracy. They were joined by workers upset about the adverse effects of inflation and economic reform.
(1)	after negotiations, threats, internal debates, dictatorship ordered military forces to solve peaceful demonstrators on June 3-4;
(a)	They killed about 2600 demonstrators during the night and morning. A few days later, Deng proclaimed victory: "this was a test [for the regime], and we passed"(Schaeffer, 185).
i)	Regime survived because it retained the support of the rural peasantry, which had benefited from rising food prices and because regime drew political support from United States and foreign investors after the crisis
ii)	Pres. George Bush was committed to Pres. Nixon's China policy, having served as US ambassador to China under Nixon in 1974-1975.
(1)	He wanted to protect US investments in China, which had become substantial during the first decade of reform under Deng, and to reap future economic benefits of trade with China
E.	China's Comparative Advantage
1.	Late 1980s and early 1990s, capitalist and communist dictatorships around the world collapsed. Civilian, democratic government that took power embraced globalization adopted policies that open their economies to foreign investment and trade.
a.	Hard-working, low – wage workers around the world offered to employers who produce goods for domestic and global markets.
b.	China obtained a global "comparative advantage" low– wage workers and convince foreign businesses to invest in the dictatorships in China, not in emerging democracies
2.	Labor Control
a.	In 1955 the dictatorship establish control over workers by creating a residential permit system (hukou) assigning households to particular residence allowed members to move to a different location-- to marry, take a job, care for relatives--- only with government official permission
(1)	Government sent urban workers to rural areas as punishment for political "heirs" or ideological "crimes"
b.	During the first 20 years of reform (1978 1997) , rural and urban wages increased substantially, providing workers with better diets, higher living standards, increased disposable income.
(1)	Rural and urban wages increased 16 fold during this period
(2)	Rural per capita incomes grew from $16 a year 1978 to $261 annually 1997, from five cents a day to less than a dollar a day, urban per capita incomes from $.10 a day to about two dollars a day (Schaeffer, 187) .
(3)	in China the "poverty line" is $75 year, in which 85 million people fall, and 203 million more still live on less than two dollars a day (Schaeffer, 187).
3.	Migration
a.	Regime estimates that 114 million workers are migrants in China.; Shanghai, China has 3 million migrants
b.	"Blind drifters"(aka mangliu) will do unpleasant work better workers are unwilling to do
(1)	Are employed on temporary basis and can be easily dismissed
(2)	Forced to work in hazardous environments
(3)	did not qualify for minimum-wage, cuts in their children's school or obtain food rations or any health and pension benefits associated with legal employment
(4)	if injured on the job, they receive less compensation than regular workers (Schaeffer, 188).
c.	Difficult for legal workers to demand higher wages because they know employers might replace them with desperate, illegal migrants.
4.	Repression
a.	China's dictatorship outlaws individual dissent and political protest, union organizing and collective bargaining, religious practices and proselytizing, and any other activity a questions or challenges its authority
b.	The Communist Party cadre monitors citizens and in 1989, the regime could count on 45 million party members.
(1)	After Tiananmen Square, party recruited heavily and by 2008 account on 68 million members to monitor the population: report this sense; manage schools, businesses, and government bureaucracy; and disseminate government propaganda.
c.	Government imprisons millions of people and executes thousands each year for political and civil crimes that are not regarded as capital crimes in most other countries: and 92% Chinese surveyed "did not regard China as a country ruled by law"(Schaeffer, 188).
II.	Democratization Elsewhere Advances Dictatorship in China
A.	In democracies workers can raise the direct cost of doing business (by demanding higher wages) an increase in direct costs of doing business (by imposing taxes on businesses to pay for unemployment insurance and contribute to healthcare and pension funds or by adopting laws requiring business spend money to comply with safety or environmental regulations
1.	Business investors understand when hiring low – wage workers in democratic countries, the cost of doing business there will rise over time will rule
2.	If China democratized, as it might've done in 1989, it would not have secured a decisive global, comparative advantage in low – wage workers.
a.	It  remained a dictatorship while other countries democratized, thus keeping wages and benefits low over time.
B.	South Korea and Taiwan
1.	As they democratized, investors began to really relocate many businesses to low– wage China
a.	In 1987 when democratization process began, 60% of the goods imported by United States came from South Korea and Taiwan, and only 5% from China.
b.	By 1991, US imports of these goods from South Korea and Taiwan have fallen to 30%, while imports from China had risen to 30%.
c.	By 1999, China produced 60% of all US imports, and only 5% originated in South Korea and Taiwan (Schaeffer, 191).
C.	Mexico
1.	During the 1990s, Mexico "lost nearly half a million manufacturing jobs and 500 maquilladora manufactures" to China, where workers earn one quarter of the wages paid to Mexican workers
D.  Not just wage levels that affected business decisions to abandon low – wage workers in East Asia and Latin America, but also democratization
1.	Investors voted with their money against democracy in South Korea, Taiwan, Mexico, and for dictatorship in China. Choice!!
E.	India
1.	350 million people are less than one dollar a day, and 40 million are unemployed.
2.	India's "comparative advantage" is its 34 million workers proficient in English
a.	Outsourced US jobs in computer software, accounting, customer support, insurance claims
(1)	early 2000, firms providing the services employed about one newly workers in India
3.	Has not persuaded foreign investors to choose India over China
a.	Between 1990 and 2000, foreign businesses invested $4 billion in India, but over 10 times that amount, 40 billion in just one year in China
b.	Workers in India can move freely, organize collectively, and shift jobs in search of higher wages are better working conditions
c.	in China, there is little upward pressure on wages and indirect business costs found in a democracy, where upward pressure on wages and benefits is stronger (Schaeffer, 192-3).
F.	The Foreign Investment Flood
1.	After Tiananmen Square (1989), foreign investment soared.
a.	In 1991 foreign investment doubled to $12 billion, quadrupled the next year to $58 billion, and doubled again in 1993 to $111 billion
b.	By 1993, China had captured one third of all global foreign direct investment (FDI)
G.	Admission to the World Trade Organization (WTO)
1.	China sought to enter the WTO to lower trade barriers to goods made in China
a.	Labor – intensive industries: textiles, apparel, and shoe manufacturing (Schaeffer, 195).
2.	Why did US government support dictatorship in China?
a.	US firms invested heavily in China during the 1990s. Was largely goods made in China that were being taxed or restricted by US trade barriers.
(1)	12% of China's exports to the United States and up on Walmart's shelves, and Walmart's trade with China accounts for 1% of that country's gross domestic product
(a)	US businesses--- General Electric, target, IBM, Boeing, and Ford, produce goods in China import them into United States wanted to lower US tariffs on imported goods
3.	Since 1972, both Republican and Democratic presidents have supported investment in and trade with China
a.	Establish and develop diplomatic relations with dictatorship and admitting it to United Nations
b.	Promoting US investment in China, particularly after massacre in Tiananmen Square
c.	By sponsoring China's admission to the WTO (Schaeffer, 195). 
III.	Problems Ahead: Inflation, Exchange Rates and Trade, Food and Migration
A.	Inflation: foreign investment, while providing benefits for China's economy, has contributed to rising inflation
1.	Foreigners investing in China have hard currencies converted into yuan, China's currency, increasing the supply of money and credit and contribute to inflation
2.	Prices rise through growing demand for food, energy, raw materials, consumed by growing industries
3.	Massive migration to cities drives up urban rents
4.	Rising inflation is also a political problem, contributed to widespread dissent and support for protesters at Tiananmen Square
B.	Exchange rates-- since 1994, the yuan has been fixed at a rate of 8.27 yuan to the dollar
1.	Resulted in economic advantage for China as their imports were cheaper to sell foreign markets
a.	Created a trade surplus United States, where devaluations contributed to a trade deficit with China amounting to $125 billion in 2004
2.	Regime used dollars earned from trade surpluses with the United States to buy US treasuries, helping to keep the value of the dollar high, the yuan low, exchange rate and change.
a.	Economists believe that China has purchased$400-$600 billion in US treasuries
b.	Chinese have used dollars they earn from United States to keep US manufacturers at a disadvantage, both in US and in Chinese markets
(1)	"With this currency manipulation, my customers, my employees are being slaughtered by unfair competition," argued Bill Hickey, president of a steel company. "It's like running 100 yard dash against a team that starts on the 50 – yard line."
(2)	A 25% raise in the value of the yuan "would ultimately add 500,000 high – paying jobs to the American economy" (quoted in Schaeffer, 200).
c.	Many US firms support China's efforts to keep exchange rates as they are, since many goods imported from China are made by US manufacturers based in China
3.	Food and Migration--Annual grain production grew from 276 million tons in 1979 to 461million tons in 1997
a.	Reforms resulted in conversion of farmland to other uses, business build factories, cities built housing, and government built new roads and dams
b.	Rising incomes increased demand for food, diets improve, the population continued to grow, although it is slower pace
c.	China lost 2% of its farmland in 2003, where they produced 401 million times down 18% from the record for 486 million tons produced in 1998
(1)	2003 China consumed 40 million tons of imported grains, contributing to rising food prices, up 28% in China during that year
d.	Farm consolidation and technology-- increasing productivity and crop yields would displace hundreds of millions of rural people.
(1)	Experts estimate there are 200 million surplus laborers in agriculture, any effort to consolidate or mechanize agriculture would force them off the land.
(2)	Economic growth may force it to increase food imports, driving up prices in China and around the world
(3)	Increasing food production in China could unleash a flood of low – wage workers into the cities displaced by mechanization (Schaeffer, 202).