UAE and Chinese Economies and Capitalism

Introduction

The economic development of any country depends on a number of interrelated components. Major among the issues are political and economic philosophies of a country. This report, therefore, compares and contrasts the UAE and the China economy, evaluating some of the key factors that determine the level and development of each.

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National approaches to capitalism in the UAE and China

Traditionally, China embraced and propagated communist political and economic ideologies. However, the post-Mao regimes have drastically revolutionized economic and political views leading to a great makeover in China’s economy. Additionally, widespread support for a capitalist market by Chinese citizens is apparent (Simmons 1). Therefore, China’s economy relatively relies on market forces.

It is essential to note that the transformation from communism to state-led capitalism has been characterized by phases. First, “social modernization” was embraced to get rid of the undesirable aspects of communism. Later, the post-1978 economic reforms moved China to a modified capitalistic economy. Currently, market forces determine virtually all aspects of China’s economy.

However, China’s economy is not fully liberalized since the government controls a somewhat extensive percentage. The state dominates major strategic sectors of China’s economy controlling the finance, energy, and transport sectors. On the other hand, profit-oriented private companies scramble for the manufacturing sector.

The state-led capitalism has enabled China to become the world’s fastest-growing economy with a potential of surpassing the United States as the largest economy globally. Analysts have resolved that liberal capitalism can be substituted by “authoritarian market managers in the future” (Bremmer 1).

The relative shift in economic and political philosophies has made China realize great economic growth. Thus, China has changed from an exporter of simple products to exporting complex goods. However, capitalism aspects are evident with a widening rich-poor gap (Simmons 1).

The UAE per capita income is among the highest in the world. Economic development is apparent with sophisticated infrastructure, health, and social security. However, there is a dire wealth inequality. More than 80% of the UAE’s wealth is controlled by 0.2 % of the local population. Billionaires, especially from the ruling family, own almost a quarter of the UAE wealth (Kapur 1).

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The UAE economy considerably depends on oil. However, as mentioned above, few billionaires from the ruling family control the oil trade. Consequently, state-managed capitalism is evident.

Although professional management practices are taken in managing economies, cronyism and bubbles characterize the Gulf model of modernizing and liberalizing the economy. Thus, professional managers cannot absolutely control the UAE economy leaving it to authoritarian capitalists.

The creation of commercial cities like Dubai by the ruling class has further facilitated state-controlled capitalism.

Indicators of Chinese economy

As mentioned earlier, China’s economy is among the strongest globally. High GDP and exporting statistics can attest to that. However, economists argue that GDP and other macroeconomic elements in isolation lack sufficiency in providing a comprehensive reality of ordinary people living conditions. Actually, proponents for comprehensive inclusion of all socio-economic elements in measuring the well-being of the people are precise in the case of China. In spite of the mega economic steps China has made in the last three decades, equal social development is far from being achieved.

First, the actual rate of unemployment is relatively high. For instance, hidden unemployment is evident. For instance, attendants in the service industry outnumber customers. Equally, the number of rural-urban migration in search of jobs among Chinese is rampant (HKCT Institute of Higher Education 1).

Second, the poverty level among Chinese is still high. Informal settlement and farmworkers’ tenement housing with deplorable conditions characterize the outskirts of major cities. Additionally, a considerable number of people live below the $ 70.17 annual income threshold. Arguably, the number of Chinese below the World Bank standard of $1.9 per day exceeds 200 million (HKCT Institute of Higher Education 1).

Third, the overall Chinese spending on the health sector is low relative to other huge economies. Thus, there is the unavailability of health facilities and other social amenities, especially in the rural areas (HKCT Institute of Higher Education 1).

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Fourth, regional development imbalance is evident in China. The Chinese government has apparently neglected some regions, especially the remote rural. Consequently, the rural regions lack basic infrastructure. Therefore, rural peasants are denied opportunities for self-development.

Societal indicators of UAE’s economy

The UAE economy is among the fastest-growing globally. It has a relatively high GDP and a somewhat sophisticated infrastructure. However, there are differences in social progress between expatriates and locals. Additionally, living conditions of the ruling family and the state-led capitalist beneficiaries differ from common Emiratis.

First, the level of education and proficiency skills of the majority of Emiratis are lower relative to expatriates. Thus, the employability of the locals is somewhat low. As a result, the level of unemployment is slightly high, which the government strives to address through Emiratization.

Second, the working terms and conditions for expatriates differ from the Emiratis. The expatriates in the UAE make a major contribution to the country’s labor. However, there have been reports of mistreatment of expatriates. For instance, visa discrimination and exorbitant recruitment fees have blocked many emigrants from getting jobs. Moreover, a majority of those who are employed live in deplorable conditions (Batty 1).

Socio-economic Issues

While the state-led capitalism of China has lifted millions out of poverty, there are critical underlying socio-economic issues. First, increasing violence protests are noted in China, including pro-democracy protests in Hong Kong. Besides, after the stock market troubles, more Hong Kong protesters have emerged to challenge China on its role of the disappearing Hong Kong billionaires.

China grapples with rampant corruption and increased wealth polarization. At the same time, there is increased consumption or consumerism by a few millionaires who have benefited from the state-led capitalism of China. These actions have led to growing resentment and anger among the masses.

The Chinese capitalism has increased inequalities. Only one percent owns about 40% of the total national wealth in China. As such, significant variations are noted among Chinese in rural areas, urban areas, hinterland, and coastal areas. In fact, the rural folks are generally poor amid the growing opulence (Hardy and Budd 1).

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It has been observed that some enterprising, rich Chinese have focused on making quick, effortless profits, but with devastating consequences. These include the collapse of a school in 2008, fake products, adulterated food, and the crash of high-speed train among others. These cost-cutting strategies, widespread corruption, and competition expose many Chinese to danger.

Few individuals who have benefited can now invest in the real estate industry consisting of lavish apartments, high-end hotels, and malls, a practice that is pushing the poor out of the housing market.

Assigns of economic weaknesses emerge and stock market performance slows down, China must now grapple increasing inflation, high costs of food, and worker repression, which lead to a polarized nation. The poor and students are no longer docile as the number of strikes continues to rise steadily. For instance, about 180,000 strikes, riots, and protests were noted in the year 2010 (Hardy and Budd 1). In fact, social unrest is now fueled by local Chinese workers seeking higher wages.

Politic al tensions have emerged in the ruling class. Opponents believe that political reforms, including human rights reforms, use of the Internet and freedom of expression and speech will help in addressing rampant unrest and address economic disparities.

A state-led capitalism, specifically China, is a source of instability because of numerous socio-economic issues. The Chinese government’s response has not been effective. Limited reforms, bribery, and oppression focusing on increased internal security to manage unrest are not sufficient.

The UAE is also running a small state-led capitalist economy. Relative to China, however, it has few socio-economic issues perhaps because of individual freedom and small population. Internal dissent is not a critical issue in the UAE among both Emiratis and foreigners. In fact, dissatisfaction with the government practices may not cause any serious socio-economic threats to the country.

Nevertheless, one must recognize that the UAE oil wealth is not evenly distributed (Rutledge 1). The ruling class controls most of the UAE’s wealth. At the same time, the state-led capitalism allows for little transparency in budgeting, and it is difficult to know the precise earnings from oil and gas.

The UAE generally has few natives. Consequently, it must depend on expatriates to drive national growth. However, many issues, including unfair treatment of expatriates, demands for higher wages, inflation and slow economic growth will continue to shape future socio-economic issues.

The UAE has limited water supply while its population is increasing steadily. These are emerging socio-economic issues in a small state-led capitalism. Perhaps the most vexing current issue is the falling oil prices and the growing threats from terrorist attacks. These challenges will create complex socio-economic challenges in the leading economy of the Gulf region.

Political Systems and Impacts on Economic Growth

China thrives on a single ruling party, the Chinese Communist Party (McLure 1). It is a purely authoritarian government. The Party has specifically focused on the creation of many distinct institutions to influence, control and manage both political and economic aspects of the country. Consequently, the Chinese political system has created a government that has massive control over resources and power that it can channel wherever it wants.

The UAE has a federation political structure responsible for the seven emirates. The Supreme Council of Ministers, the highest authority is responsible for creating federal laws and regulations. The Ministers elect the president of the UAE. The UAE uses a consensus of the rulers and the royal families to reach its most vital decisions. The cabinet is responsible for the daily affairs of the federation. The UAE president appoints the cabinet ministers and the federal judiciary members (Foley 1).

In both the UAE and China, the states are the main actors in economic affairs, and they exploit market opportunities for political gains, but China has taken the lead. During the global financial crisis, for instance, the Chinese government was able to direct its stimulus budget much faster than the US because it has wider control over financial institutions, infrastructures, and other companies. Thus, the government has the ultimate decision on where it invests the resources.

Globally, political systems, governments of state-led capitalism strive to ensure that their corporations compete in the global markets, but the state makes all critical corporate decisions. The UAE is relatively liberal. On the other hand, the Chinese government, just like Russia, has used the state-led capitalism to entrench one party, an authoritarian system that does not value human rights, personal environments, and environmental protection. The growth of China and the UAE can be seen in companies like Huawei and DP World respectively. These companies, for instance, have been used to foster authoritarian, more so in China.

The result is that the government faces a potential political risk because of cronyism, inequality and finally discontent (see the case of Egypt under Mubarak, growing protests in China and xenophobic attacks in South Africa among others). Further, the state-led capitalism of China, for instance, is not compatible with the requirements of the global trade and the requirements of the World Trade Organization that insists on fair trade practices through level competitive business ecosystems. However, China backs its national champions while block some foreign firms from the domestic market. State-owned firms normally miss business opportunities in the global markets because of governments’ concerns on national security and theft of technologies and trade secrets among others.

China’s stock market is currently dominated by state-owned firms – they account for about 80 percent of the country’s stock market value. Therefore, any political unrest, market bubbles or slow economic growths generally hurt the government.

While it is generally acknowledged that state-led capitalist economies performed relatively well during the last financial crisis, many experts have raised their concerns that such economies may not resist future crises. Many experts currently observe that the Chinese infrastructure boom and property spending will most likely lead to an economic bubble that could burst with devastating consequences (McLure 1).

When one entity, the state controls all the systems, including the central bank, the judiciary, major corporations, universities and other institutions of interests, the critical issues can be hidden for relatively long periods. However, this does not imply that such issues will never appear even in a rapidly growing China’s economy. In addition, the government may engage in economic manipulation to attain its political goals. They also influence the free flow of money, valuations, information, people, ideas and services.

Experts question the sustainability of state-led capitalism in the long run in a competitive global market (McLure 1).

The Relationship between Economic Growth and Personal Freedom

It is generally recognized that Chinese authoritarian capitalism has lifted more people out of poverty relative to liberal capitalism and democracy (McLure 1). Conversely, it is difficult to understand how an oil-producing country, the UAE operates due to a lack of clear data and a relatively small population. Nevertheless, the state-led economies of these countries are growing steadily.

There is no definite relation between personal freedom and economic growth. Most industrialized states noted in the last 50 years have achieved such success by focusing on economic growth instead of political and personal freedom (Greater Pacific Capital LLP 1). Countries such as Taiwan, Singapore, and South Korea were industrialized in the 1960s by utilizing savings and government resources to drive an export-supported model. However, not like China today, these economies emerged from more closed, socialist economies to more open, market-oriented economies. In the 1980s, the Tiger Cubs, including Indonesia, the Philippines, Malaysia, and Thailand copied this model and developed successful economies.

However, most of these economies later moved to more open, democratic systems. The transition occurred because these countries had already attained the maximum level for state-led economies. In addition, they had developed well-educated populations and wealthier majorities who demanded transparency and increased participation in the affairs of their countries (Greater Pacific Capital LLP 1). In fact, researchers have demonstrated that greater economic achievements have often taken place alongside increased levels of personal freedom and economic activities, which China is less concerned about today. A closer look at countries such as Chile, Taiwan, South Korea, and Singapore reveals that high-levels of political and personal freedom led to sustained economic growth.

China specifically is termed as ‘unfree’ because only a single party controls it economically and politically. Conversely, the UAE is more liberal and perhaps diversified as it tries to move away from oil-driven economy.

The UAE and China will have to promote personal freedom, favorable political and economic environments after the state-led capitalism has matured. Political reforms will go together with economic transition.

Conclusion

It is observed that the UAE and China have state-led capitalism in which the state is the major player in the economy and controls significant industries. While the UAE is more liberal, China has used its state-led capitalism to create more authoritarian systems that suppress citizens, abuse human rights, and curtail personal freedom.

A state-led capitalism has its weaknesses, including socio-economic challenges that require massive reforms as economies grow. Thus, the transition to more open, liberal economies is inevitable for China and the UAE.

Works Cited

Batty, David. Conditions for Abu Dhabi’s migrant workers ‘shame the west’. 2013. Web.

Bremmer, Ian. Are state-led economies better? 2012. Web.

Foley, Sean. “The UAE: Political Issues and Security Dilemmas.” Middle East Review of International Affairs 3.1. 1999. Web.

Greater Pacific Capital LLP. The Leader: China and the Freedom Advantage. 2012. Web.

Hardy, Jane and Adrian Budd. “China’s capitalism and the crisis.” International Socialism 133.2012. Web.

HKCT Institute of Higher Education. Social Development in China. 2014. Web.

Kapur, Vicky. Billionaires own quarter of UAE’s wealth. 2013. Web.

McLure, Jason. “State Capitalism: Can state-run economies sustain their success?” CQ Researcher 6.10. 2012. Web.

Rutledge, Emilie J. The UAE: key economic and socio-political challenges. 2012. Web.

Simmons, Katie. China’s government may be communist, but its people embrace capitalism.2014. Web.

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