Made by: Jim Wezendonk

Danny Breunissen

Ingeborg Houterman

Class: BTH5A

Subjects: Economy

History

Teacher: Ms Wetering

Hand-in date: 17th of February 2012

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Table of Content

Foreword Page. 3

Introduction 4

Chapter 1: The growth of the Chinese Economy 6

§1.1 What is a planned economy? 6

§1.2 Beginning of the changes 7

§1.3 Chinese version of the free market economy 7

§1.4 Joint-ventures 8 §1.5 Effects 8

Chapter 2: The influences of China on the international trade 9

§2.1 The unfair economic competition 9

§2.2 The disadvantages of the comparative advantage 10

Chapter 3: The influences of China on the Dutch companies 13

§3.1 Trade 13

§3.2 Low-wage country 13

§3.3 Unemployment 14

§3.4 Increase in welfare 14

§3.5 Trade and doing business with China 15

Chapter 4: Research on Philips 18

§4.1 Philips 18

§4.2 The interview 19

§4.3 Why did we chose an interview 19

§4.4 How does this interview reflect on our questions 19

Chapter 5: Conclusion 21

§5.1 The planned-economy 21

§5.2 The Free Market economy 22

§5.3 Influences on the international trade 23

§5.4 China’s influence on Dutch companies 24

Chapter 6: Sources 25

§6.1 Site used 25

§6.2 Literature list 25

Chapter 7: Attachments 26

§7.1 The interview 26

§7.2 The interview with answers 27

§7.3 Logbook 29

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Foreword

We are glad to present you this personal project: The growth of the Chinese economy.

The choosing of a subject was pretty hard for us. We already knew we wanted a subject which

had to do with economy. First we thought of choosing the crisis which is still going on today,

but that was not broad enough and not very original. After a long and comprehensively

orientation we decided to take the mayor economy power of today and the future: China. All

of us are interested in the subjects history and economy so we could focus on these aspects of

China.

We saw on the news channel that China had a rapid growing economy and maybe the best

economy in the world. This made us interested in China and made us choose this subject.

We already decided to choose this subject and like it was meant to be, two weeks later we

started with China in history lessons, which had a good impact on or view and knowledge of

China.

In our day to day life’s we are in indirect contact with China because almost every product

you buy nowadays like shoes, televisions, clothes etc., are import products coming from

China. This makes China the sweatshop of the world. And even though lost of people won’t

believe it: China is more important than America now days.

We would like to thank Misses Wetering as our personal advisor for guiding us through the

process and helping to finish this project.

Our cooperation went pretty smoothly. Sometimes there were some misunderstandings but we

always got to a solution together and motivated each other afterwards. By working together

we got to finish our project perfectly and in time.

‘But why is there still no Disneyland in China?

No one's tall enough to go on the good rides.’

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Introduction

Our subject is the growth of the Chinese economy. It is a country about which you do not hear

a lot. It is almost never on the television, in newspapers or magazines. That makes this subject

even more interesting.

China is officially called People’s Republic of China. It is the second-largest country in the

world by land area, and third- or fourth-largest in total area. In this big country are living a lot

of people, around 1,3 billion.

The capital city is called Beijing, formerly romanized as Peking.

China is only governed by the Communist Party of China so the country is a single-party

state. The country has 22 provinces, but also claims the island Taiwan as its 23rd province. It

has five regions, which have their own local government, and four cities with the highest

classification: Beijing, Tianjin, Shanghai and Chongqing. There are also two mostly self-

governing regions, Hong Kong and Macau.

Population of China

The inhabitants in China are just called Chinese (people). China has the most inhabitants of

all countries in the world, 1,3 billion, and every year this number increases with 15 million.

This means that approximately as much as people living in the Netherlands are born there in

one year. Because the population is growing so fast the government decided that a family can

only have one child. But this rule does not count for everybody in China. Some areas have

other rules, like on the countryside.

Chinese language and alphabet

The official language in China is Mandarin, this is also called Guanhua. This language is

spoken by most Chinese people. But it is not the only language spoken and written. There are

about 14 other different languages used in China. You could call these 14 languages together

the Chinese language. Because of the amount of people living in China is the language spoken

by a lot of people so you could call it a world language.

The alphabet that we are using is very different from the Chinese one. They use characters

and they look like little paintings to us but they are obviously not. The characters are called

Hanzi. There are about 56.000 different Hanzi characters. Of course it is a bit hard to learn all

of them so the Chinese people know just a small part of this alphabet.

Chinese civilization

China has an ancient history. They have writing dating back 4.000 years. Their civilization is

recognized as one of the four great ancient civilizations of the world. Special is that it is the

only ancient civilization continued to this day. Modern China is experiencing a completely

new society in which respect for science and inventions and encourage creativity have

become the guiding principles

Culture and sports

We all know the Chinese wall; this is an example of the Chinese architecture. The ‘Forbidden

City’ and some big temples are also an example of this special architecture.

In Xi’an you can find very special objects. There is a big terracotta army of the grave from the

1st emperor of China. This is also a part of the culture.

China is musically known for its operas.

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Furthermore is China a very important country for the ‘martial arts’. The sport Kung Fu is one

of the sports that come from the Republic.

The popular sports are martial arts, weightlifting, table tennis, diving and gymnastics.

Our project is structures as following:

- How did the Chinese economy grow so quick when they moved away from the plane-

economy to the free market economy?

Here is the history of the Chinese economy described and in this sub questions is also

explained why this economy started growing so fast.

- What effect has the huge economic growth of china on the international trade?

Here is described why we are on an unfair competition position with China and if the

influences of this are negative or positive for us and our living standard.

- What are the consequences of the recent growth of China’s economy for the Dutch

economy and Dutch businesses?

Here is described how the Netherlands are linked to China, if this brings any

consequences with it and if these consequences are positive or negative for us.

- Philips

Here is described what kind a company Philips is and the research we did. Here is also

described why we did this research.

- How and why did the Chinese economic grow so quick recently, and how does this

economic growth influence the companies of Europe, the United Sates and the Dutch

companies (for example Philips)?

The answer on this question is the answer on the main question. This means that this is

the conclusion of our project.

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How did the Chinese economy grow so quick

when they moved away from the plane-

economy to the free market economy?

What is a planned economy?

Planned economy is “an economic system in which decisions regarding production and

investment are embodied in a plan formulated by a central authority, usually by a government

agency.”

Planned economy is a sort of economy in which the government decides how much is allowed

to be produced and how much is allowed to be sold. Next to that the prices are kept

unnaturally high. This means that the government gave itself the right to decide the height of

the prices. Of course this is all controlled by the government. During this planned economy

there is no competition between the existing companies. Due to the fact that everything is

controlled, there isn’t a wide selection of brands. That was also the reason why almost

everyone had the same living standards and was using the same brands. China had till 1950 a

very weak economy. China had a high inflation rate and to decrease this used very efficient

controls on the money supply and budgets. After that China launched the Three-anti & Five-

anti campaigns. The Three-Anti campaign was launched in 1951 and had to be effective on

the on-going corruption, the bureaucracy and the wasting of money. This was especially

aimed at the members within the Communistic Party, the former Kuomintang members and

bureaucratises. The Five-anti campaign was launched a year later and had to reduce the tax

evasion, bribery, theft of state property, cheating on government contracts and the stealing of

the state economy. This was going to be a real war on all capitalists. Many were send to

labour camps, locked up or murdered.

Then in 1953 the first 5 years plan was launched. This led to an economic growth till 1957.

May 1958: Mao launched “Great Leap Forward”.

What did the people need to do?

- Increase the agricultural production;

- Destroying the 4 plagues to increase the agricultural production (sparrows, flies,

mosquitoes and rats). Because only the sparrows were massacred the flies formed a

big plague destroying lots of the crops;

- This plan failed and caused a famine;

- Next to that people had to increase the steel production;

- So everyone blast furnaces to melt every piece of metal they had;

- This plan also failed because the steel was of a very bad quality;

- In total 18 to 40 million people died and the economy didn’t increase that much.

After this, several new 5-year plans were launched but those also failed. The reasons for this

were fiddling of numbers and because of bad harvests.

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Beginning of the changes

Then in 1960 when the economy really almost capsized Mao finally stepped to the side-line.

The coming year China gained some stability. Agricultural and industrial production returned

to normal levels, and labour productivity began to rise. Then in 1966 Mao returned to power

and he then destroyed the economy again. Mao led a cultural revolution and gave orders to

destroy the “Four Olds” (old thoughts, old cultures, old habits and old customs). That’s why a

lot of schools closed and the students all got “Red Guards” of Mao. They went all around the

country to correct everyone who didn’t agree just a slight bit with the ideas of Mao.

After the great depression around 1930, the economic destroying of the Great Leap Forward,

the Cultural Revolution and the death of Mao, China needed a new economy. Almost directly

after the dead of Mao in 1976 Deng Xiaoping comes to power. He wanted to bring China up

top again after this horrible Cultural Revolution. And he succeeded. Deng invented an

economy which was based on the western economy but still had this controlling task and was

more communistic. Deng introduced several aspects of a capitalistic economy. Political and

social stability, economic productivity and public and consumer welfare were considered

paramount and visible. After these reforms the government raised the personal incomes and

the spending and introduced a new management system to increase the productivity. The main

goal was that the government concentrated on the trade with foreign countries. Then China

tried a combination between a planned economy and a market orientated economy. This was

to increase productivity, living conditions and technological quality without increasing the

inflation and with a decreasing unemployment. Reforms began in the agricultural, industrial,

fiscal, financial, banking, price setting and labour systems.

Chinese version of the free market economy

This is when the Chinese version of the free market economy is introduced.

The free market economy is “an economy in which the prices of goods and services are

determined in a free price system. This is often contrasted with a state-directed or planned

economy.” Small township enterprises which were owned by the local government expanded

fast and they began to gain market share. Deng also reopened the Shanghai Stock Exchange

which was closed by Mao 40 years earlier. Then inflation caused for several problems in

1985, 1988 en 1992 which caused for minor decreases. Then the economy of China increased

very much. Even after his death Deng’s reforms were still in progress. Businesses were

privatizing more and more by the end of 2004 less than 40% of businesses were stated owned.

During 2001 and 2004 the successors of Deng, Jiang and Zhu, reduced tariffs, trade barriers,

regulations and reforming the banking, dismantling the social welfare system. After that they

reduced inflation and joined the World Trade Organization.

Now China has since 2010 the 2nd largest economy of the whole. It has the fastest growing

economy with a growth of 10% a year. Next to that, China is the world leader in exporting

and the 2nd largest importer. China has a PPP (GDP per capita) of $7600.

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In this Chinese version of a free market economy private businesses are allowed to compete

on the free market. This version plays a major worldly role. This caused that state price

controls were removed. But because it is a Chinese version it doesn’t mean that the control on

everything was removed. So the local and provincial government got some rights for

economic control on several businesses.

China constructed several special economic zones at coastal areas in which the free market

economy was tested with a special influence factor: the outside world. This was done so that

the export was very high, and that China could import advanced products.

Next to that some economic zones were established for foreign investments which would

yield China lot of money.

This Chinese market is way different from the European market, for example the difference

between both cultures is enormous but also the way of trading, selling, etc. The European

market has 4 freedoms: Free movement of goods, persons, services and capital. Next to that

we have a free trade across Europe. The western markets also have capitalism in which all

production products deliver profit. The investments, distribution, income, production and the

price making of products and services are determined by the operations of the market

economy.

Joint-ventures

Whilst we have an economic crises China is still getting richer and wealthier, although you

might think that all the companies located in China would also make a huge profit, but these

companies aren’t allowed on the free market by themself, they need to have a joint venture

with other Chinese companies. This has a lot of risks and failures, for example you are not

allowed to choose the company and location and there may be a lot of power relations within

the bureaucracy which can be very bad for your company. Next to that everything you make

in China isn’t yours, because China doesn’t know the copyright system in which your own

invented products are protected. Next to that every company which has a joint venture in

China can’t continue working with the western model because there is a lot of differences in

culture and a collision between these cultures appear often. But this growth has also a lot of

positive and negative effects.

Effects

This growth brings a lot of damage to the environment because of the high pollution levels

which have dramatic effects on China’s ecosystems. Next to that the western market has now

a new threat: China is going to be responsible for 60% of the steel production and

consumption, China has a lot of possibilities in which they directly can compete with Japan,

USA and European businesses. One of the most concerning negative effects is that China

can’t keep up with this growth and therefor China needs foreign investments which cause that

the foreign debt will increase. There aren’t only negative sides of this growth, for example

because of this growth China could invest in education which caused illiteracy to be

extinguished. Other positive effects are the low wages and lots of employees which made this

high production rate.

So we think that China has had this enormous growth because of Deng who wanted to

stabilise the Chinese economy. The communists played also a role in this because they helped

China by getting on top again. The western countries already had a free market economy and

the only thing China had to do was invent it and adapt it. Next to that China was very clever

to invent these joint ventures in which the Chinese companies profit from big western

companies.

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What effect has the huge economic growth of

china on the international trade?

“The China price.” They are the three scariest words in U.S. industry.

In general, it means 30% to 50% less than what you can possibly

make something for in the U.S. In the worst cases, it means below your cost of

materials. Makers of apparel, foot ware, electric appliances, and plastics products,

which have been shutting U.S. factories for decades, know well the futility of trying to match

the China price. It has been a big factor in the loss of 2.7 million manufacturing jobs since

2000. Meanwhile, America’s deficit with China keeps soaring to new records. […] Now,

manufacturers and workers who never thought they had to worry about the China price are

confronting the new math of the mainland. These companies had once held their own against

imports mostly because their businesses required advanced skills, heavy investment, and

proximity to customers. The China price is even being felt in high tech. Chinese exports of

advanced networking gear, still at a low level, are already affecting prices and there’s talk by

some that China could eventually become a major car exporter.” Source: The China Price, Business Week, December 2004

The unfair economic competition

December 2004 the Business Week published this article, the authors conclude that the United

States can’t win this economic clash due to unfair competition.

This is partly true, the government of China supports their company very much, they get

subsidies and the taxes are very low. In China it’s allowed to copy someone his/her idea so

the investing costs are also low. In comparison to the Chinese, the western countries have to

pay more for the environment and have to obey to better safety rules. Concluding the western

companies have to pay a lot more than the Chinese companies, making this economic clash

unfair.

Another reason why this economy is ‘unfair’ is

because of the Chinese currency intervention,

they control their Yuan so it will stay low. With

an easy progress the government makes sure

their products stay very low. When someone in

Europe buys a product from China, the

manufacturers are paid in Euros. Those Euros

are than deposit on an European bank account

and then the central bank of China buys those

Euros from the commercial bank. On this graph

on the right you see that China lowers his

import/export rate by buying their own Yuan,

so the currency will stay low.

The trade is now unbalanced, there is a shortage

of Yuan and a surplus of Euros. So the Chinese

banks are going to sell the Euros and buy their

Yuan. The Euros then will weaken and the

Yuan will grow much stronger.

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How does this influence the International trade? Well, it’s clear that everyone wants to buy

products as cheap as possible, but then mostly the quality isn’t that good.

But what happens if the new generation of China which is all well-schooled makes higher

quality product and services than the western countries? Logically you would think that China

would have the most profit if they didn’t trade and keep their wealth in their country. China

would be the world economic with low wages and high quality products and services.

So if China would be so superior there won’t be international trade with them? That’s what

people fear the most, we wouldn’t be able to afford the huge costs of our own economy.

Luckily this isn’t what China is planning to do, there is always international trade just because

that’s the most profitable. This economic phenomenon is called the Comparative advantage,

this theory was first described by David Richard who explained it in his 1817 “book On the

Principles of Political Economy and Taxation” in an example involving England and

Portugal.

The reason why I’m telling a lot about the USA is because there are the effects visible, you

can notice the struggle in the economy. While in Europe we haven’t noticed much to none

from the growth of China, maybe it’s a sign that we, the European Union, also will get in this

economic struggle. But till now we only make our own struggles, like the wrong financial

calculation with Greece. Greece knew they could never pay back their national debt, the

European Union just didn’t see this. Our main sectors nowadays are the secondary and tertiary

sectors, most of the secondary sector is the car manufacturing. Our tertiary sectors are very

varied: From Chirurgic till teacher and from prison guard till baby-sitter.

The disadvantages of the comparative advantage

An easy example of this comparative advantage: A woman is the best lawyer of a city, but she

is also the best secretary of the city. She could split up the jobs, 50% Lawyer and 50%

secretary. Obviously the woman would chose for being all time a lawyer, than she will earn

way more. So she hires a secretary, and takes a fulltime job as lawyer. Her profit is higher as

lawyer with a hired secretary, than doing both.

This comparative advantage happens also in countries, China can’t dominate all economic

sections, and they have to specialize in some certain sectors.

For example China specializes in car export, their cars are a better quality and are cheaper

than European and American cars. The American and European car export would fall and

Chinese companies will push BMW, Mercedes, Audi, Ford, Jeep and Dodge out of the

economy. An unfair competition.

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So if China keeps growing like this we will lose our best companies?

The balances are changing, China is taking the more profitable economy sectors. Thereby

leaving western countries with the lower economy sectors.

The European Union is used to dominating the tertiary sector, we have a great health care and

education. Our new generation is well studied. China had a very low economy when they all

were primary workers, most of the population had rice fields or worked on one of those fields.

When they changed to the secondary sectors China started growing. Chinese companies

mainly invested in the manufacturing of clothing, making them the ‘sweatshop of the world’.

When they noticed this secondary sector would earn lots of money for them they started

investing in computers, mobiles, GPS etc. Luckily China didn’t claim the tertiary sector yet,

this would be a disaster for the European Union.

The most dangerous effect of the huge economic growth of China is that they will take over

the Western economy sectors. Western countries will then start to collect raw materials and

star making products. We will change from a Tertiary sector economy to a primary and

secondary country.

“Does USA/Canada really benefit through comparative advantage?

We turn into a bunch of dumb tree cutters as opposed to highly skilled tech producers.” Source: An article By Jennifer Schonberger on August 9, 2010

The comparative advantage usually has an advantage on both countries but now we are used

to our great economy, like I said earlier: “The balances are changing”

The graph is clear China is the country with the most export, due to their low costs and their

growing quality.

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Our question was: ‘What effect has the huge economic growth of china on the international

trade’.

We have to conclude that this effect isn’t positive for the western countries but very positive

for the China. There will always be international trade because of the comparative advantage,

due to this comparative advantage the western countries will lose a lot of their better

economic sectors to China.

The growth of China won’t have effect on the quantity we trade, China and the western

countries are switching sides. China isn’t just a country where you can buy cheap products, it

are products which have a very high quality and are affordable.

In short, China will take over the international trade if they can keep this growing line, using

their quality products which are cheap while western countries struggle with the high costs of

their own products. The only option to stop this is to lower our wages and lower the taxes for

the western companies, but I don’t think this will ever happen in our ‘spoiled’ society.

Shown in the cartoon beneath: the government keeps on giving money to their companies to

keep up with the Chinese companies.

Referring to our main question: ‘How and why did the Chinese economic grow so quick

recently, and how does this economic growth influence the companies of Europe, the United

Sates and the Dutch companies (for example Philips)?’

China grew so quick in such a short time because of their advantage, the wages are very low

and the taxes are way lower than the European and American wages. While the products are

getting better quality, most of the costumer chose for Chinese product instead of our own

products because of the low costs. Of course, every consumer chose for the products which

are cheaper but also have better quality. With this advantage for the companies they rule the

secondary sectors in the economy.

This didn’t influence European companies a lot, so also not the Netherlands companies.

Instead of American companies, a lot of companies went bankrupt. We don’t notice the

influence because we dominate the tertiary sectors, but if Chinese, new, well-educated,

generation starts dominating the tertiary sector we will lose this ‘economic war’ because the

Chinese work for lower wages than our workers.

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What are the consequences of the recent

growth of China’s economy for the Dutch

economy and Dutch businesses?

As mentioned in the previous pages are China’s economy not only responsible for

consequences for the Chinese population but also for the rest of the world. Our country may

be little but we are very important for the international trade. In comparison to other countries

has the Netherlands a very high import- and export quote. We will remark it if anything

changes in the international economy in both direct and indirect ways. So it is obvious that the

Netherlands will also experience the consequences of the growing economy of China.

With this sub question we want to find out what these consequences are and what this does

with our businesses, especially for Philips.

Trade

The trade between China and the Netherlands is in the past years increased a lot. In 2006 rose

the export from China to the Netherlands from €20 to €30 billion. The total trade volume

between the countries was more than €52 billion. This make that the Netherlands is

European’s number two for China with mutual import and export. Only one third of the

imported products from China are for our own market. Most of the products are again

exported but then to other countries in Europe.

The Dutch Centrum of Trade promotions had made agreements with Chinese companies to

develop an information point for Dutch entrepreneurs who want to do business with China.

This Dutch Imports Expo & Trade Center has to enlarge the opportunity the entrepreneurs and

investors the opportunity to succeed.

Low-wage country

Almost on every product you see a little sticker or an emblem with ‘Made in China’ on it.

This is because China is one of the low-wage countries. This means that the production of

products can be done a lot cheaper than in West-European and American countries. That is

because the wage costs are lower than in the Western society. So it is much cheaper for a

company to do their production in one of the low-wage countries.

There is enough knowledge in China but still the wages are very low. Because the knowledge

is there, there are mainly electronic products made in China. Those products are made and the

people are paid very little so the costs stay low.

Companies can lower the price for us and we can

buy luxury products. We can buy relatively cheap

computers, plasma screens and mobile phones.

More people can afford these things this way than

that is would be produced in Europe for example.

If the trade between our country and China keeps

growing it could be possible to both specialize in

a way. Like China specializes in electronics and

the Netherlands in financial services and

logistics. This will reduce the costs for both

countries and that only gives advantages. This

makes the standard of living and the welfare rise.

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Unemployment

On the other hand, there are also companies in the Netherlands that make factory products. If

many companies move their factories to China there arises a problem because the Dutch

factories can’t compete with the low prices from China. The factories will get bankrupt. These

companies often have a few hundred people who are employed there. They will all get fired.

The unemployment numbers will raise a lot relatively in the Netherlands and of course there

will be less produced. There will be negative effects on the economy because of this.

If you take a better look to this unemployment that will be caused you see that there will be no

net job loss. The people who are not working in a factory anymore will get a more specific job

or an office job. It will be very hard for the lower educated people to get a job in this sector.

Besides, the factories moving to China is not the only reason why there are less industrial jobs

in the Netherlands.

Increase in welfare

When products are made very cheap in China, those can maybe be progressed to a final

product in the Netherlands. Because the prices of the Dutch products became lower by the

Chinese import, it is possible to lower the price for the selling market. Products that are made

in the Netherlands with the help of the Chinese intermediate product have relatively low costs.

These Dutch companies that make these ‘final products’ will get a very strong competition

position and make the chance smaller to be placed to one of the low-wage countries like

China. This is also a good way of preventing the unemployment.

Throughout the economic growth, the welfare also rises in China. There is developing an

enormous sales market. The products that are more specialized are not made in the low-wage

countries because of the lack of knowledge. That level of knowledge is at many points lower

than in Europe or America. But these products are in increased numbers put on the markets.

These products are often sold in Europe and America and stored in the main port Rotterdam.

This will also make our economy grow because it gives a grow of the perception of the port of

Rotterdam

But there are more positive sides for the Netherlands. The Chinese market needs a lot of

capital and financial services from foreign countries because they can’t afford to pay their

own growth. The Netherlands is a country with lots of capital what could be invested abroad.

In China is it possible to get a lot of yield of an investment so we could take advantage of this.

Because of our expanded financial sector, this could work well in the future in China.

The ICBC (industrial & commercial bank of china) thinks we have a relatively healthy

financial system. This is mainly because of the

supervision on banks. This supervision is strict but they

think that is a good thing. This bank almost works 40

years with the Netherlands. Besides export invest Chinese businesses more and more

in the Netherlands, mainly by opening an office or

establishment.

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When you look at the statistics that the NFIA (Netherlands Foreign Investment Agency)

gives, you see that there are about 300 Chinese businesses have some establishments in the

Netherlands. In many cases is it a trade office, where only a few people work. More Chinese

companies will go to Europe and more Dutch companies will export to China or invest there.

Many Chinese companies that go ‘global’ are seeing the Netherlands as a gateway to Europe.

Some examples: To help their investments in China, KLM and Akzo Nobel, have concluded

agreements with Chinese banks. KPN tries to modernize the telecom networks by order of for

example the Chinese company Huawei. Another example of a Dutch and Chinese company

working together is the ING. It has concluded a deal with a Chinese financial institution to

help them with introducing new solvency requirements that recently are agreed on in the

financial world.

Trade and doing business with China

In the previous pages is described what influences the Chinese economy has on our little

country. But is it for the Dutch companies that easy to do business with China?

For us it is very easy to do business within Europe. The cultural differences are not very big

and the languages are not a problem at all. But this is very different with China. They have a

total different language, the culture is very different and there is lack of fully developed laws.

Trade disputes can differ from difference in interpretation of contacts and meetings, to

liability for not meeting the local rules and requirements.

Trade disputes are not the only problem. Imagine, you invented a product and you are willing

to conquer the market with this product. But then, your staff starts its own business in the

building next to you and tries to conquer the market with your invention!

Copyright violations occur often in China. Since 1979 the intellectual property rights (IPR)

are licensed and protected. But the violation of these rights is one of the problems that foreign

manufactures have to deal with. The violation is part of the daily life in China as a producer.

It can occur at any moment in the production and in every way. Basically, there are good

regulations in China but the problem is the maintenance and the preparedness of the

maintenance.

In every case, you should not even think about protection by the law because this is useless. It

takes too much time in China to obtain a patent for your invention or design. It almost takes 2

years to obtain this and after that time your invention will be old-fashioned.

This problem is so widely spread and the country is so big that lots of things have to be done

to make the foreign investors satisfied. There already have been several striking trials about

copyright violations. The government is really busy with improving the maintenance of the

regulations in terms of copyright. This is because the government has to stick to the

agreements that were made when China joined the World Trade Organization.

The situation will improve when China for example more opens up to the worldwide market.

16

Four Dutch companies have concluded to an agreement with Chinese companies and financial

institutions. This agreement provided €200 million euro’s to the Dutch companies.

According to minister Verhagen offers the growing economy of China lots of chances for the

Dutch entrepreneurs. ‘The Chinese are very interested in the knowledge and science of Dutch

entrepreneurs. We are an attractive country to do business with. The trade with China

provides the Netherlands jobs and income.’

With this said it is clear that the attendance of China certainly gives the Dutch companies

chances. If we anticipate well on the changes it could be possible that the Netherlands get

back the thriving economy.

By answering the sub question we can make a hypothesis about the main question.

Based on this sub question we think that the quick growth was caused by several reasons.

When the Chinese economy started growing more and more governments started to adapt to

this. There came more opportunities for entrepreneurs and investors to start trading with

China and to make this a success. A good example of this is the Dutch Imports Expo & Trade

Centre which helped people in the Netherlands with getting into contact or even negotiates

with China. The low-wages in China play also a big role in this growth. Lots of companies

thought this made their costs lower than producing in their own country or in neighbor

countries. So a lot of labor and production was transferred to China or other low-wage

countries. More Chinese people got jobs in these factories. The only problem with this is that

they do not have good living standards living in these factories. The wages are not the only

thing that is low in China. The import prices are very low too. Companies can easy import

things from China to their own country and finish the product there for example. This reduces

the prices too and makes it more attractive for the consumers to buy. But it also comes from

their side. When they notice that a country for example has healthy banks like the Netherlands

27th of October 2011 - Minister Verhagen of economic

Affairs, Agriculture and Innovation and Jia Qinglin, the

chairman of the political conference of the Chinese people

signing an agreement.

17

they are willing to negotiate with us too. So they also invest in other countries.

There are pretty much advantages to China this makes it an attractive country to trade with

them or invest in this country. This makes the economy grow. Also the chance of getting

work increased this makes the unemployment numbers drop. China is also willing to invest in

other countries so there is a good balance of import and export. This balance is important for a

healthy economy.

18

Philips What was described in the previous pages was about the Dutch economy in general. We also

want to focus on Dutch businesses. What the effect of China has on those companies.

Therefore we choose Philips. It is a big Dutch company and we are sure they trade with

China. It would be a good example.

Royal Philips Electronics N.V. is a Dutch electronics company. The headquarters is in

Amsterdam but the origins of the company are situated in Eindhoven. Philips aims at

improving the quality of life by temporary innovations. The company

has a diverse offer in healthcare and welfare. It is also the founder and

most important sponsor of the soccer club PSV.

Since 1950 the company is divided in different sections: Philips

Lighting, Consumer Electronics, Domestic Appliances and Personal

Care (DAP), Philips Medical Systems and Corporate Technologies.

Early 2008 there was made a change in the sections. The section

Domestic Appliances and Personal Care and Consumer Electronics

where put together and that section is called Consumer Lifestyle nowadays. This section is

responsible for half of the revenue. The remaining sections are responsible for probably a

quarter of it.

Philips Lighting:

Philips is already lots of years responsible for one of the biggest light bulb-factories in the

world. Besides bulbs there are also other things produces like fluorescents, energy saving

bulbs and LED lighting. This section has almost 38.000 people working in the factories and in

offices. These factories are situated all over the world. From Belgium to South-Korea.

Consumer Lifestyle:

Philips is Europe’s biggest producer of consumer electronics and also belongs to one of the

three biggest in the world, after Panasonic and Sony. This section also produces products for

personal hygiene and domestic appliances. This section has sold and service organizations in

over 50 countries and there are around 18.000 people employed.

Philips Medical Systems:

This section is very active in the world of diagnostic devices. Philips is very important in this

market together with Siemens and General Electric. About 27.000 people are working in the

factories in the Netherlands, Germany, Finland, Israel and the United States.

19

Corporate Technologies:

This small section is the source of the

technologic innovation of Philips. Also

included in this section is Philips Research.

There are not working a lot of people for

this section, only about 2.800.

The interview

After we choose Philips to do our research

on, we were looking for someone to interview. This was not easy but eventually we could

arrange someone to do an interview on the phone. This was a bit weird but otherwise we had

to travail to a city in the west and this would be expensive for us. This was a good alternative

to take the interview. The person on the phone was Nanda Huizing. She is Head of

Communication and representative of general business.

First she had to prepare the interview because she had to get all the date together about China.

This took a while but it was worth it. We could aks everything we liked and she gaves us the

answers. Afterwards we only had to work it out.

The interview and the interview with answers are in the back of the project at the attachment.

Why an interview?

The idea behind the project is that it does not only consist of theory. We also had to include a

kind of research but what kind a research? It did not take much time to answer this question.

We first thought about what we wanted to do research about and we came to the solution that

we wanted to know more about a company that was trading and in contact with China. So the

only option we had was to do an interview. A survey would be not possible at all because I

don’t know anybody who knows much about our subject.

We choose the company Philips to do research about. We wanted to get to know more about

the company Philips and their view on China’s big economic growth. So that is why we

arranged an interview with an employee of Philips.

This was not easy because not everybody there knows much about China but eventually we

found someone who could tell us a lot.

The interview was a half-standardized interview because we already made the question like in

a survey but we had the chance and took the chance of question on.

The aim of this interview was to get knowledge about our subject by the experiences of an

employee. It is reliable because someone tells about their experiences but when we for

example interviewed someone else we got other answers. This is a risk we wanted to take

because we were very curious about their findings with China.

How does this interview reflect our sub questions?

Per question will be explained why it reflects a sub question or even more than one sub

question.

1 Do you notice a lot of the economic growth of China? If so, in what way? And is this

positive or negative?

This question reflects our whole project. We want to do research about the economic

20

growth and the consequences. So we also want to know how they deal with this and if

they even notice. It is also important to know if they notice, if it is positive or

negative.

2 Do you have offices of Philips established in China too? Why?

This question reflects sub question 3 because it is about the relation between China

and the Netherlands. Philips is a Dutch company so we are curious if this company is

so much integrated that they have offices in China. We also wanted to know what the

advantages are of having offices in China.

3 How did the trade-relationship between Philips and China arise?

This question reflects sub question 1 because this sub question is about the history. We

wanted to know how this trade bond got together and this is a time ago so that is why

it reflects on that question.

4 Because China is a low-wage country, this question arises: Do you make use of this

cheap labor and production in China?

This reflects on sub question 3. By answering this question there arose a part about

low-wage countries. We wanted to know if they had to deal with this too.

5 Is there a big loss of jobs because of the replacement of labor to China of one of the

other low-wage countries?

Read above, is the same. You read a lot about job losses because factories are

transferred to countries in Asia.

6 Is there a big difference in handling business between China and other countries like

European countries? For example because of differences in culture. And if so, in what

way?

This is a general question. This is just because we were curious about the differences

in handling business with countries. If it would differ much between Europe and

China. It reflects a bit on sub question 2 because this is about Europe en China. But

also a bit on sub question 3 because that one is about the Netherlands and China.

21

Conclusion: How and why did the Chinese economic

grow so quick recently, and how does this economic

growth influence the companies of Europe, the United

Sates and the Dutch companies (for example Philips)?

Since the cultural and economic revolution China started to grow to be one of the biggest

economy of the world or even the biggest economy.

How did China do this? We worked 200 years to get the economy we have now, working

together with the European Union for free trade, but still in just 30 years China reached our

level of economy. Why did Chinese economy grow so fast? For us it seems impossible to

reach this economy level in such a short time, why didn’t China used this economic ideology

100 years ago then they would be dominating all sectors by now.

China is growing a lot, so to keep the economy balanced, some economies will be weakened.

Does this influence the companies of the European Union, the United States and our own

companies in the Netherlands, like Philips?

All those question will be answered in the conclusion.

The planned-economy

The Chinese economy started to grow when they moved away from their planned economy,

the planned economy is an economic ideology in which the government controls all trading.

The companies in a planned economy aren´t able to produce without the permission of the

government. The government decides how much is allowed to be sold and produced. The

government also controls the height of the prices, so during a planned economy there is no

competition between companies. This is why almost the whole population have the same

living standards and uses the same brands. This planned economy was a communistic idea,

introduced by Mao Zedong with use of Josef Stalin. With the planned economy Mao started

with ´the great leap forwards´ a five year plan to grow the economy. Unfortunately, the idea

was a total failure and lots of Chinese citizen died of hunger.

When Mao died, a new leader was in charge: Deng Xiaoping. He immediately changed the

economic ideology into a free market economy. The main goal of Deng Xiaoping was that the

government would concentrate on trade with foreign countries. China made an own free

economic ideology, a combination between the free market economy and a planned economy.

The secondary goals were:

- Increase productivity

- Increase living conditions

- Increase technological quality

- Growing the economy without inflation

22

The Free Market economy

The revolutionized idea came to power in the agricultural, industrial , fiscal, financial,

banking, price setting and labour systems of China.

The free market economy is an economy in which the prices of goods and services aren’t

controlled. So a free price system, this is in contrast with the planned economy. A lot of

companies have been privatised, this means that they aren’t controlled by the government

anymore. Deng Xiaoping also reopened the stock exchange in Shanghai, the biggest

difference between a planned economy and a free market economy is the influence of the

government. The free market economy is a capitalized economy.

China’s economy grew because of their revolution in the economy, from the planned

economy to a free market economy, but still this took such a long time.

China had over 2000 years Confucianism as their main culture, Confucianism is the ideology

to respect everyone who stands higher on the social ladder then you. So you respect your

parents, grandparents etc. and the emperor is the highest status you could be. This culture

caused that there was a stop for the trade between foreign countries, so the economy of China

stayed low. In 1911 the last emperor was in charge and China changed into a republic, this

republic didn’t work out. China separated into different areas making trading impossible. In

1931 communism took place, using Josef Stalin’s ideas. Communism stands for that everyone

is equal, also the companies. They produce the same amount of products and sell it for the

same price. Mao, the new leader, combined all the farmers. The economy was planned, the

prices and production were controlled by the government. The prices stayed very high, so

foreign countries weren’t interested to trade with China.

When Josef Stalin and Mao died, the communism in China was disappeared. In a few days the

economy went through a revolution. The free market economy, for the first time in 2000 years

companies had competition with the lowest price as the winner.

The Chinese government didn’t have Collective bargaining so this caused for:

- Very low wages for workers

- Companies didn’t know (or didn’t want to know) of the Universal Declaration of

Human Rights, so the circumstances were very bad.

- Very low production costs.

The quality of the products wasn’t very good but it were cheap products, this was interesting

for the foreign countries who wanted to trade with China because all they wanted were cheap

products. The western companies noticed the low wages of Chinese citizen, so a lot of them

moved from their own country to China to produce cheaper and earn more profit. Lots of

people lost their jobs because their companies moved away.

The lack of understanding of the Human rights caused for very low prices of manufacturing

products.

23

Influences on the international trade

The United Stated noticed the first influence of China’s economic growth, people lost their

jobs because in China the producing was cheaper, companies went bankrupt because the

product were cheaper. For example General Motors because of a overcapacity they went

bankrupt, if there wasn’t any import of eastern cars then GM

would still be alive today. The competition with China is unfair,

their companies don’t have safety measurements and a minimum wage.

China uses more tactics to keep their products costs low.

China’s newest tactic is to keep the Yuan low, artificial low.

When a European consumer buys something from China,

the company is paid in Euros. Those euros are exchanged

for Yuan in the international stock exchange, so the import and

export of China keeps stabile and so there won’t come an inflation.

This resulting in a negative import/export balance for America

and Europe there is more import then export.

The lower the currency of the national money the lower

the production costs are.

An economic war for the lowest currency.

China changed their economics from primary sectors to the secondary

sectors and started with manufacturing clothes and electronic products.

America had a lot of manufacturing factories, so thousands of companies went bankrupt and

millions lost their jobs.

In Europe we didn’t notice the influence of the Chinese growth yet, because most of our

economy lays within the tertiary sector. What if China’s new generation starts to invest in the

tertiary sector we would lose our jobs, they work for lower wages and they have way better

grades then our newest generation. In Europe a six is enough, that’s a sufficient. While in

China they want to achieve the highest marks they can get.

If this new generation are going to dominate the tertiary sector and are going to spread around

the world to work, there is a chance that we have to change our sectors in the economy. There

will be too much doctors, lawyers, dentist etc. of course the employer chooses for the best

educated person which will be a Chinese man or woman because they graduate with higher

grades.

So now we won’t notice the influence of China yet, because we are a tertiary economy.

Instead of America who had a lot of manufacturing companies, so a secondary economy. Now

China dominates this secondary sector.

24

China’s influence on Dutch companies

Philips has most of the companies in China this is because the production costs are cheaper

there then in our western countries. From the interview: ‘We really do notice the economic

growth and we take advantage of the situation as much as possible’. Philips have now 27

offices in China, because of their moving to China people who worked in a factory of Philips

has lost their job. From the interview: ‘Sometimes it is hard for Philips to produce in Europe

because the consumers enforce the lowest prices and in the Netherlands are the wages higher

than in Asia so sometimes we have to transfer the production from Europe to Asia.’

Luckily, there didn’t work a lot of people in the manufacturing factories of Philips so not a lot

of people lost their jobs. This is in contrast with America where almost every company went

to China and lots of people lost their jobs. The influences for Philips are only positive, they

are one of the best electronic producer nowadays. If Chinese investors are going to start a

company with the same products, Philips will get competition of those companies and

probably lose this competition due to the better qualified products of the new company.

To conclude:

Due to the revolution in the economy of China, from a planned economy to a free market

economy, they started to grow very quick. The costs of the production are a lot lower than in

our western countries because of the low wages and the low taxes. The government of China

also keeps their currency artificial low so there won’t be an inflation and the production costs

stay low.

This is an unfair competition against America and the European Union. Especially America

notice the negative influences of the economic growth. A lot of manufacturing companies

moved from America to China, causing a lot of unemployment in America. Europe and the

Netherlands doesn’t notice a lot from this economic growth, mainly because our economic

sector is tertiary and China didn’t invest yet in the tertiary sector.

The answer of: What influences has China on European and Dutch companies can’t yet be

answered. If we uses America as an example, we know China also will start investing in the

tertiary sectors, when there new, better educated generation comes up. Maybe then we also

will lose our companies and our tertiary sector.

25

Sources:

Sites used:

http://www.eastasiaforum.org/2010/02/23/the-scale-of-chinas-economic-impact/

http://www.starmass.com/china_review/global_economy/impact_on_global_economy.htm

http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/publication?p_product_cod

e=KS-SF-10-048

www.fas.org/sgp/crs/row/RL33604.pdf

http://blogs.wsj.com/marketbeat/2010/06/21/how-china-manages-its-currency-an-explanation-

for-humans/

http://financieel.infonu.nl/diversen/17034-china-toekomstige-economische-grootmacht.html

http://www.kennislink.nl/publicaties/wie-of-wat-groeit-er-in-china

http://www.higherlevel.nl//extra/columns/view/246

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

http://en.wikipedia.org/wiki/Market_economy

http://en.wikipedia.org/wiki/Planned_economy

http://en.wikipedia.org/wiki/Shanghai_Stock_Exchange

Literature list:

- The Chinese economy: transitions and growth by Barry Naughton, 2007

- Chinese Economy by Katja Assenmacher, 2011

- China's economy: rural reform and agricultural development by Zhenglai Deng, 2009

- An Introduction to the Chinese Economy: The Driving Forces Behind Modern Day China by

Rongxing Guo, 2011

- China's economic growth: a miracle with Chinese characteristics by Yanrui Wu, 2004

26

Attachments:

The interview We are Jim Wezendonk, Danny Breunissen and Ingeborg Houterman. We are in our

graduation year of HAVO. In this year we have to make a work piece and ours is about the

growing economy of China. But in specific about the effect of this growth on Europe and on

Dutch companies, like Philips. We are very curious about your experiences with China and

hope that you can answer our questions well.

- Do you notice a lot of the economic growth of China? If so, in what way? And is this

positive or negative?

- Do you have offices of Philips in established in China too? Why?

- How did the trade-relationship between Philips and China arise?

- Because China is a low-wage country, this question arises: Do you make use of this

cheap labor and production in China?

- Is there a big loss of jobs because of the replacement of labor to China of one of the

other low-wage countries?

- Is there a big difference in handling business between China and other countries like

European countries? For example because of differences in culture. And if so, in what

way?

27

The interview with answers of an employee of Philips

We are Jim Wezendonk, Danny Breunissen and Ingeborg Houterman. We are in our

graduation year of HAVO. In this year we have to make a work piece and ours is about the

growing economy of China. But in specific about the effect of this growth on Europe and on

Dutch companies, like Philips. We are very curious about your experiences with China and

hope that you can answer our questions well.

- Do you notice a lot of the economic growth of China? If so, in what way? And is this

positive or negative?

China is the fastest growing economic power in the world. The country is entering into

a new stage with this economy increasingly integrated with the global economy. This

provides huge opportunities to multinational companies that have been investing. We

are one of these companies. Philips believes that its long-term success worldwide

should largely depend on China’s growth and Philips success in China. We really do

notice the economic growth and we take advantage of the situation as much as

possible. Since 2003 Philips began to profit. During this time, the Chinese market

played an important role for Philips and our business in China maintained a good

profit record. China is a one of Philips most important markets.

We are confident about our business in China and the future of China’s development.

- Do you have offices of Philips in established in China too? Why?

Of course we have offices in China. The first joint venture in China, Philips Co. Ltd.,

was established in 1985 in Beijing. In four years already 4 new joint ventures

established. In the years to come, more and more JVs and WOFEs opened their doors.

Nowadays there are more than 27 offices covering most provinces, with hundreds of

service specialists.

It is important to open many offices because Philips’ objective is to become the

leading company in Health and Well-being in China. We also want to increase

investments and grow sales in Emerging Markets of which China is the largest. So we

have to make sure the people there know us. That is also why we open much Lighting

stores of our brand. To also become known by the consumers.

- How did the trade-relationship between Philips and China arise?

This is a bit hard to say because I do not know this exactly. But there is already a trade

relation between China en Europe for 90 years. That makes Philips presence in China

already for a very long time. The first products entered China around the 1920’s.

Philips Healthcare products were used in the Forbidden City in the Qing dynasty. The

Philips Lighting products also entered around this time. Other electronic devices were

somewhat later. The oldest Philips radio is found in Summer Palace in Lhasa. This

was in the 1940’s.

28

- Because China is a low-wage country, this question arises: Do you make use of this

cheap labour and production in China?

We try to produce as much as possible by ourselves so in neighbour countries in

Europe. We have for example some factories in the Netherlands, Austria, France,

Poland, Hungary and Germany. But this production is sometimes not the cheapest way

of producing. That is why Philips also has factories in Asia.

In China we have about 12 factories and a workforce of over 10.000 employees. In

these factories 20 percent is made of our total global production. The products that are

made here are destined for both the global market and the Chinese market: the balance

60 percent for export, 40 percent for domestic market.

These factories are on our own supervision. This means that there are for example

higher environment standards and working requirements. These requirements are very

important to us as a company and consumers also think this is very important.

Sometimes it is hard for Philips to produce in Europe because the consumers enforce

the lowest prices and in the Netherlands are the wages higher than in Asia so

sometimes we have to transfer the production from Europe to Asia.

- Is there a big loss of jobs because of the replacement of labour to China of one of the

other low-wage countries?

As I already told, sometimes we have to transfer the labour to cheaper places. This

could mean that we start a new factory for example in China but it is also possible that

we transfer the labour to Eastern Europe. These are the cheaper places to produce our

products. We also try to keep the factories in Western Europe but this is not always

possible. Because of the transfer it is obvious that some people have to get fired

because it is not possible for them to go to Asia. For us it is also hard to find another

job for them because of the crisis nowadays. Philips also has to save money and

unfortunately the results of this is that more and more people lose their jobs.

- Is there a big difference in handling business between China and other countries like

European countries? For example because of differences in culture. And if so, in what

way?

As a businessman you are going to negotiate in foreign countries. When you are going

to Belgium you will already notice, imagine how it must be in China.

China is a difficult country to negotiate with. The Chinese cultural morals differ a lot

from ours and as a multinational company it is important that Philips bears something

in mind and to deepen into this Chinese culture. That is why we have businesspeople

working at Philips in China or in the Netherlands who know a lot about this country.

Not only about the country itself but also the habits and traditions. The history still

plays a big role in the daily life in China so it is very important that you know

something about this before going there.

Employee’s working at Philips has learned the etiquette of China, dealing with

presents how to behave at a dinner and karaoke. These things are very important to the

Chinese.