How China runs the world economy

HOW CHINA RUNS THE WORLD ECONOMY

Global wages, profits, prices and interest rates are increasingly being influenced by events in China

"IF YOU want one year of prosperity, grow grain. If you want ten years of prosperity, grow trees. If you want 100 years of prosperity, grow people." This old Chinese proverb crudely sums up how the entry of China's massive labour force into the global economy may prove to be the most profound change for 50, and perhaps even for 100, years.

China, along with the other emerging giants, India, Brazil and the former Soviet Union, has effectively doubled the global labour force, hugely boosting the world's potential output and hence its future prosperity. China's growth rate is not exceptional compared with previous or current emerging economies in Asia, but China is having a more dramatic effect on the world economy because of two factors: not only does it have a huge, cheap workforce, but its economy is also unusually open to trade. As a result, China's development is not just a powerful driver of global growth; its impact on other economies is also far more pervasive.

Beijing's new influence was clear from the Shockwaves in global currency, bond and commodity markets after it announced in July 2005 that the yuan will no longer be pegged to the dollar. Until a couple of years ago nobody cared much that the Chinese yuan was pegged to the dollar. Recently, though, this link has become one of the hottest issues in international politics, widely blamed in America for its huge trade deficit.

Last week's 2.1 % revaluation of the yuan is trivial and unlikely to dent America's trade deficit. More important is the breaking of the yuan's formal link to the dollar and the shift to a so-called "managed float" against a basket of currencies. In theory, this allows considerable scope for a further rise in the yuan against the dollar, though it is unclear by how much the Chinese authorities will allow the yuan to climb.

Even if last week's adjustment was timid, it could mark an important turning point. It is certainly a step in the right direction for China itself, as greater currency flexibility will give it more room to use monetary policy to steer the economy. More interesting are the implications for the world economy. This might be the beginning of the end of what has been dubbed a revived Bretton Woods system of fixed exchange rates between China (and other Asian economies) and America.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

-profound change;

- giants;

- boost the world’s potential output;

- cheap workforce;

- commodity markets;

- revaluation of the yuan;

- America’s trade deficit;

- considerable scope for a further rise;

- a basket of currencies;

- currency flexibility;

- give more room to something;

- fixed exchange rates.

IDENTIFYING PRODUCTS

Developing a product's features is only part of a marketer's job. Marketers must also identify products so that consumers recognize them. Three important tools for this task are branding, packaging and labeling.

Branding Products

Coca-Cola is the best-known brand in the world. Indeed, some Coke executives claim that if all the company's other assets were obliterated, they could go to the bank and borrow $100 billion on the strength of the brand name alone. Brand names such as Coca-Cola and emblems such as the McDonald's golden arches are symbols that characterize products and distinguish them from one another. Branding is a process of using symbols to communicate the qualities of a particular product made by a particular producer. Brands are designed to signal uniform quality: Customers who try and like a product can return to it by remembering its name.

Adding Value through Brand Equity

Many companies that once measured assets in terms of cash, buildings, equipment, and inventories now realize that a strong brand is an equally important asset. Widely known and admired brands are valuable because of their power to attract customers. Those with higher brand equity have greater brand awareness and loyalty on the part of consumers and larger market shares than competing brands (and are perceived to have greater quality). Because a brand adds value to a product, marketers manage brands to increase that value. In other words, they build equity in a brand by maintaining or improving brand awareness—the brand name that first comes to mind when you consider a particular product category—and perceived quality in much the same manner that you build up ownership equity in your house by maintaining or improving its condition and features. What company, for example, comes to mind when you need to ship a document a long way on short notice. For many people FedEx has the necessary brand awareness and, accordingly, high brand equity.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- develop a product’s features;

- labeling;

- brand names;

- distinguish from one another;

- attract customers;

- loyalty on the part of consumers;

- in other words;

- brand awareness;

- ownership equity.

Planned economies

Planned economies are sometimes called "command economies" because the state commands the use of resources (such as labour and factories) that are used to produce goods and services as it owns factories, land and natural resources. Planned economies are economies with a large amount of central planning and direction, when the government takes all the decisions, the government decides production and consumption. Planning of this kind is obviously very difficult, very complicated to do, and the result is that there is no society, which is completely a command economy. The actual system employed varies from state to state, but command or planned economies have a number of common features.

Firstly, the state decides precisely what the nation is to produce. It usually plans five years ahead. It is the intention of the planners that there should be enough goods and services for all.

Secondly, industries are asked to comply with these plans and each industry and factory is set a production target to meet. If each factory and farm meets its target, then the state will meet its targets as set out in the five-year plans. You could think of the factory and farm targets to be objectives which, if met, allow the nation's overall aim to be reached.

A planned economy is simple to understand but not simple to operate. It does, however, have a number of advantages:

- Everyone in society receives enough goods and services to enjoy a basic standard of living.

- Nations do not waste resources duplicating production.

- The state can use its control of the economy to divert resources to wherever it wants. As a result, it can ensure that everyone receives a good education, proper health care or that transport is available.

Several disadvantages also exist. It is these disadvantages that have led to many nations abandoning planned economies over recent years:

- There is no incentive for individuals to work hard in planned economies.

- Any profits that are made are paid to the government.

- Citizens cannot start their own businesses and so new ideas rarely come forward.

- As a result, industries in planned economies can be very inefficient.

A major problem faced by command or planned economies is that of deciding what to produce. Command economies tend to be slow when responding to changes in people's tastes and fashions. Planners are likely to underproduce some items as they cannot predict changes in demand. Equally, some products, which consumers regard as obsolete and unattractive, may be overproduced. Planners are afraid to produce goods and services unless they are sure substantial amounts will be purchased. This leads to delays and queues for some products.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- produce goods and services;

- a large amount of central planning;

- have a number of common features;

- meet one’s target;

- not simple to operate;

- enjoy a basic standard of living;

- divert resources;

- be very inefficient;

- underproduce some items;

- predict changes in demand;

- be overproduced.

Market economies

The best examples of this type of economy are to be found in small South-East Asian states like Hong Kong and Singapore, though even they are not pure examples of market economies. Even they contain some businesses owned and run by the state.

In a true market economy the government plays no role in the management of the economy, the government does not intervene in it. The system is based on private enterprise with private ownership of the means of production and private supplies of capital, which can be defined as surplus income available for investment in new business activities. Workers are paid wages by employers according to how skilled they are and how, many firms wish to employ them. They spend their wages on the products and services they need. Consumers are willing to spend more on products and services, which are favoured. Firms producing these goods will make more profits and this will persuade more firms to produce these particular goods rather than less favoured ones.

Thus, we can see that in a market economy it is consumers who decide what is to be produced. Consumers will be willing to pay high prices for products they particularly desire. Firms, which are privately owned, see the opportunity of increased profits and produce the new fashionable and favoured products.

Such a system is, at first view, very attractive. The economy adjusts automatically to meet changing demands. No planners have to be employed, which allows more resources to be available for production. Firms tend to be highly competitive in such an environment. New advanced products and low prices are good ways to increase sales and profits. Since all firms are privately owned they try to make the largest profits possible. In a free market individual people are free to pursue their own interests. They can become millionaires, for example. Suppose you invent a new kind of car. You want to make money out of it in your own interests. But when you have that car produced, you are in fact moving the production possibility frontier outwards. You actually make the society better-off by creating new jobs and opportunities, even though you become a millionaire in the process, and you do it without any government help or intervention.

Not surprisingly there are also problems. Some goods would be underpurchased if the government did not provide free or subsidized supplies. Examples of this type of good and service are health and education. There are other goods and services, such as defence and policing, that are impossible to supply individually in response to consumer spending. Once defence or a police force is supplied to a country then everyone in this country benefits.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- private ownership of the means of production;

- private supplies of the capital;

- surplus income;

- meet changing demands;

- be highly competitive;

- make the largest profits possible;

- pursue one’s own interests;

- in a free market;

- make the society better-off;

- provide free or subsidized supplies.

MODERN BANKING

The goldsmith bankers were an early example of a financialintermediary.

A financial intermediaryis an institution that specializes in bringinglenders and borrowers together.

A commercial bankborrows money from the public, crediting them with a deposit. The deposit is a liability of the bank. It is money owed to depositors. In turn the bank lends money to firms, households or governments wishing to borrow.

Banks are not the only financial intermediaries. Insurance companies, pension funds, and building societies also take in money in order to relend it. The crucial feature of banks is that some of their liabilities are used as a means of payment, and are therefore part of the money stock.

Commercial banks are financial intermediaries with a government licence to make loans and issue deposits, including deposits against which cheques can be written.

Let's start by looking at the present-day UK banking system. Although the details vary from country to country, the general principle is much the same everywhere.

In the UK, the commercial banking system comprises about 600 registered banks, the National Girobankoperating through post offices, and a dozen trustee savings banks. Much the most important single group is theLondon clearing banks.The clearing banks are so named because they have a central clearing house for handling payments by cheque.

A clearing systemis a set of arrangements in which debts between banks are settled by adding up all the transactions in a given period and paying only the net amounts needed to balance inter-bank accounts.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- a financial intermediary;

- bring lenders and borrowers together;

- as a means of payment;

- part of the money stock;

- financial intermediary with a government licence;

- vary from country to country;

- be much the same everywhere;

-operate through post-offices;

- handle payments;

- inter-bank accounts.

Auditing

The profession of the auditor is considered to be one of the most prestigious and well – paid ones. Auditors are accountants who analyze financial statements of the company and their responsibility is to express an opinion as to whether the accuracy of the company’s financial reporting meets the requirements imposed by the government. In general, auditors deal more with operating efficiency and managerial effectiveness than with the accuracy of the accounting data.

Internal auditors are known to be hired by the company in order to help to identify accounting weakness and correct them before significant errors occur. They are often analytically minded people who make flowcharts of accounting systems and evaluate these flowcharts to suggest improvements in division of labour, paper flow, cash control, or other accounting responsibilities.

Independent auditors are employed by a company’s board of directors to supply the stockholders with the results of checking the financial statements, in order to prove that annual reports are fair representations of the financial position of the company. Performing his work the auditor should follow several principles and assumptions: the company’s accounts must represent a true financial position; generally accepted accounting principles have been used at all accounting steps and accounts can be compared with those of similar companies; the proper amount of information is disclosed in the financial statements. As a result, the auditor’s opinion should be based only on facts and it must be objective. Auditors are expected to maintain a relationship of strict independence and professionalism with the companies for whom they work so they mustn’t hold shares in these companies. On the one hand, the auditor should respect the client’s confidence, so having access to some private information, the auditor must not spread it outside. On the other hand, he should think of public interests, that is why he must publish his opinion in a standard form and the information is to be clear to the stockholders. But he must always carry out his duties under the law and inform authorities about fraud.

Practice 2. Give the Russian equivalents to the word-combinations from the text:

- the most prestigious;

- analyze financial statements;

- managerial effectiveness;

- the accuracy of the accounting data;

- accounting responsibilities;

- to prove that annual reports;

- a true financial position;

- to maintain a relationship;

- independent auditor.

Теxt 1

Practice 1. Choose the key sentence in each paragraph.

Practice 2. Re-read the text to find out the author’s main idea:

1. Businesses with lower cost are usually more efficient.

2. Agricultural marketing in western countries provides big support to farmers.

3. Agricultural marketing implies various activities connected both with farmers and buyers.

4. Agricultural marketing should provide farmers with profit.

Practice 3. Make a review of the text.

 

Agricultural marketing covers the services involved in moving an agricultural product from the farm to the consumer. Numerous interconnected activities are involved in doing this, such as planning production, growing and harvesting, grading, packing, transport, storage, agro- and food processing, distribution, advertising and sale. Some definitions would even include “the acts of buying supplies, renting equipment, (and) paying labor", arguing that marketing is everything a business does. Such activities cannot take place without the exchange of information and are often heavily dependent on the availability of suitable finance.

Marketing systems are dynamic; they are competitive and involve continuous change and improvement. Businesses that have lower costs, are more efficient, and can deliver quality products, are those that prosper. Those that have high costs, fail to adapt to changes in market demand and provide poorer quality are often forced out of business. Marketing has to be customer-oriented and has to provide the farmer, transporter, trader, processor, etc. with a profit. This requires those involved in marketing chains to understand buyer requirements, both in terms of product and business conditions.

In Western countries considerable agricultural marketing support to farmers is often provided. In the USA, for example, the USDA operates the Agricultural Marketing Service. Support to developing countries with agricultural marketing development is carried out by various donor organizations and there is a trend for countries to develop their own Agricultural Marketing or Agribusiness units, often attached to ministries of agriculture. Activities include market information development, marketing extension, training in marketing and infrastructure development. Since the 1990s trends have seen the growing importance of supermarkets and a growing interest in contract farming, both of which impact significantly on the way in which marketing takes place.

Text 2

Practice 1. Choose the key sentence in each paragraph.

Practice 2. Read the text to find out the author’s main idea:

1. Contract farming offers many benefits to agricultural producers.

2. Buyers usually purchase products at a pre-determined price.

3. Buyers also give support to agricultural production.

4. Farmers provide established quantities of a specific agricultural product.

Practice 3. Make a review of the text.

Contract farming is agricultural production carried out according to an agreement between a buyer and farmers, which establishes conditions for the production and marketing of a farm product or products. Typically, the farmer agrees to provide established quantities of a specific agricultural product, meeting the quality standards and delivery schedule set by the purchaser. In turn, the buyer commits to purchase the product, often at a pre-determined price. In some cases the buyer also commits to support production through, for example, supplying farm inputs, land preparation, providing technical advice and arranging transport of produce to the buyer’s premises. Another term often used to refer to contract farming operations is ‘out-grower schemes”, whereby farmers are linked with a large farm or processing plant which supports production planning, input supply, extension advice and transport. Contract farming is used for a wide variety of agricultural products.

Contract farming is one of the different governance mechanisms for transactions in agrifood chains. The use of contracts (either formal or informal) has become attractive to many agricultural producers worldwide because of benefits such as the assured market and access to support services. It is also a system of interest to buyers who are looking for assured supplies of produce for sale or for processing. Processors are among the most important users of contracts, as they wish to assure full utilization of their plant processing capacity. A key feature of contract farming is that it facilitates backward and forward market linkages that are the cornerstone of market-led, commercial agriculture. Well-managed contract farming is considered as an effective approach to help solve many of the market linkage and access problems for small farmers.

Text 3.

Practice 1. Choose the key sentence in each paragraph.

Practice 2. Read the text to find out the author’s main idea:

1. Contract farming is becoming more popular in the whole world nowadays.

2. In case of contract farming buyers get more advantages than farmers.

3. Buying firms are more powerful than farmers.

4. Farmers can take big risks within contract farming.

Practice 3. Make a review of the text.

 

Text 4

Practice 1. Choose the key sentence in each paragraph.

Practice 2. Read the text to find out the author’s main idea:

1. Investments in developed countries caused “non-traditional exports” of food from developing countries.

2. Latin America was the main focus of developed countries investments.

3. Market saturation in developed world caused the appearance of oligarchy there.

4. Asia is the main aim of developed countries investments.

Practice 3. Make a review of the text

 

Text 5

Practice 1. Choose the key sentence in each paragraph

Practice 2. Read the text to find out the author’s main idea:

1. Developing countries became major suppliers of meat, fruit and vegetables to developed countries.

2. There is the shift to a high animal protein diet in the developed world.

3. The Brazilian firm JBS is the world’s largest firm in the red meat sector.

4. Foreign investments caused the explosion of shrimp-based chains in developed countries.

Practice 3. Make a review of the text

 

Agrifood Economy

As mentioned earlier, two broad tendencies transformed North/South relations since the 1970s. In addition to being a source for traditional tropical exports, developing countries became increasingly important in the supply of the components of what has been called the “nutritional transition”—the shift to a high animal protein diet (including seafoods) and the increasing consumption of fresh fruit and vegetables. This has provided opportunities for the expansion of domestic food companies in a few countries. Brazil and Argentina, together with Thailand, became major suppliers of animal feed and meat. Particularly in the white meats sector (poultry and pigs), this gave rise to domestic agribusiness firms—Sadia and Perdigão in Brazil, and the Charoen Pokphand Group in Thailand. More recently, there has been a similar surge of domestic firms in the red meat sector, with the Brazilian firm JBS/Friboi becoming the world’s largest firm in that sector. The Charoen Pokphand Group similarly embarked on regional foreign direct investment.

Foreign investment and increasing coordination have also transformed developing countries into major suppliers of seafoods, with a key driver being the explosion of shrimp-based restaurant chains in developed countries. This has involved new transnationals, such as the animal (and fish) feed company Nutreco, the entry into this sector of leading firms from the agricultural inputs and genetics sectors, such as Monsanto, and the emergence of domestic players.

Fresh fruit and vegetables have been piloted mainly by firms for which this previously unorganized market segment has become a key to establishing consumer loyalty. Early forays into the domestic markets of developing countries often had the character of enclave-type activities, with few or no linkages to their economies. Alternatively, they were aimed at a specific niche. Now, under the aegis of retail, the transnational objective has become corporate takeover of the domestic food systems of developing countries as a whole. In addition, this penetration now includes the large developing countries, often with strong states, with already consolidated agrifood companies, and with very distinct traditions and food habits. It also occurs in a context in which developing countries have become competitive suppliers in a number of markets, providing opportunities for the transformation of their leading domestic players into global actors.

Text 6

Prctice 1. Choose the key sentence in each paragraph.

Practice 2. Re-read the text to find out the author’s main idea:

1.The retail sectors of Europe and the United States make up a substantial proportion of trade.

2.The role of multinationals increased in all phases of agrifood systems.

3.Large-scale retailers control traditional export.

4.Higher levels of concentration involve duopolies and even smaller market segments.

Practice 3. Make a review of the text.

Text 7

Practice 1. Choose the key sentence in each paragraph

Practice 2. Read the text to find out the author’s main idea:

1. More shoppers to buy themselves gifts at Christmas or to reward themselves for working hard during the year

2. Retailers, marketers target self-gifters with luxury items.

3. Some people are more "indulgent" self-gifters while others are more "impulsive".

4. People aged over 45 were much less self-rewarding, with only one in 10 buying themselves a gift.

Practice 3. Make a review of the text.

 

Text 8

Practice 1. Choose the key sentence in each paragraph

Practice 2. Read the text to find out the author’s main idea:

1. As the gold price increases, demand for gold and other precious metals has continued to grow.

2. Gold should find support as it tends to benefit from a weak US dollar.

3. It is predicted to increase demand for gold further next year.

4. Demand for exposure to fixed income assets has been a key theme for the last year.

Practice 3. Make a review of the text.

 

HOW CHINA RUNS THE WORLD ECONOMY

Global wages, profits, prices and interest rates are increasingly being influenced by events in China

"IF YOU want one year of prosperity, grow grain. If you want ten years of prosperity, grow trees. If you want 100 years of prosperity, grow people." This old Chinese proverb crudely sums up how the entry of China's massive labour force into the global economy may prove to be the most profound change for 50, and perhaps even for 100, years.

China, along with the other emerging giants, India, Brazil and the former Soviet Union, has effectively doubled the global labour force, hugely boosting the world's potential output and hence its future prosperity. China's growth rate is not exceptional compared with previous or current emerging economies in Asia, but China is having a more dramatic effect on the world economy because of two factors: not only does it have a huge, cheap workforce, but its economy is also unusually open to trade. As a result, China's development is not just a powerful driver of global growth; its impact on other economies is also far more pervasive.

Beijing's new influence was clear from the Shockwaves in global currency, bond and commodity markets after it announced in July 2005 that the yuan will no longer be pegged to the dollar. Until a couple of years ago nobody cared much that the Chinese yuan was pegged to the dollar. Recently, though, this link has become one of the hottest issues in international politics, widely blamed in America for its huge trade deficit.

Last week's 2.1 % revaluation of the yuan is trivial and unlikely to dent America's trade deficit. More important is the breaking of the yuan's formal link to the dollar and the shift to a so-called "managed float" against a basket of currencies. In theory, this allows considerable scope for a further rise in the yuan against the dollar, though it is unclear by how much the Chinese authorities will allow the yuan to climb.

Even if last week's adjustment was timid, it could mark an important turning point. It is certainly a step in the right direction for China itself, as greater currency flexibility will give it more room to use monetary policy to steer the economy. More interesting are the implications for the world economy. This might be the beginning of the end of what has been dubbed a revived Bretton Woods system of fixed exchange rates between China (and other Asian economies) and America.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

-profound change;

- giants;

- boost the world’s potential output;

- cheap workforce;

- commodity markets;

- revaluation of the yuan;

- America’s trade deficit;

- considerable scope for a further rise;

- a basket of currencies;

- currency flexibility;

- give more room to something;

- fixed exchange rates.

IDENTIFYING PRODUCTS

Developing a product's features is only part of a marketer's job. Marketers must also identify products so that consumers recognize them. Three important tools for this task are branding, packaging and labeling.

Branding Products

Coca-Cola is the best-known brand in the world. Indeed, some Coke executives claim that if all the company's other assets were obliterated, they could go to the bank and borrow $100 billion on the strength of the brand name alone. Brand names such as Coca-Cola and emblems such as the McDonald's golden arches are symbols that characterize products and distinguish them from one another. Branding is a process of using symbols to communicate the qualities of a particular product made by a particular producer. Brands are designed to signal uniform quality: Customers who try and like a product can return to it by remembering its name.

Adding Value through Brand Equity

Many companies that once measured assets in terms of cash, buildings, equipment, and inventories now realize that a strong brand is an equally important asset. Widely known and admired brands are valuable because of their power to attract customers. Those with higher brand equity have greater brand awareness and loyalty on the part of consumers and larger market shares than competing brands (and are perceived to have greater quality). Because a brand adds value to a product, marketers manage brands to increase that value. In other words, they build equity in a brand by maintaining or improving brand awareness—the brand name that first comes to mind when you consider a particular product category—and perceived quality in much the same manner that you build up ownership equity in your house by maintaining or improving its condition and features. What company, for example, comes to mind when you need to ship a document a long way on short notice. For many people FedEx has the necessary brand awareness and, accordingly, high brand equity.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- develop a product’s features;

- labeling;

- brand names;

- distinguish from one another;

- attract customers;

- loyalty on the part of consumers;

- in other words;

- brand awareness;

- ownership equity.