Chinese Economic Revolution - Research Paper Example

The Chinese economic revolution: What is it? What caused it? What to expect? The modern world has become familiar with the phrase ‘Made in China’. Chinese goods and services are being sold all over the world. There is clearly a shift in economic power from the developed West to China and India. Both the countries possess the brainpower, population and the dynamics to transform the global economy in the twenty-first century. If things continue as they are, China will overtake US as the world’s largest economy by mid-century (Daft 2009). Although this is Daft’s prediction, the current rate at which the Chinese economy is expanding, some economic analysts believe that China might accomplish this task by the year 2020. The remarkable growth of China can be credited greatly to the Chinese Economic Revolution that occurred in the late 1970’s. In 1978 Deng Xiaoping introduced economic reforms in China. There were two phases to the reforms. In the first phases focus was on the countryside. A ‘Household Responsibility System’ was introduced which made peasants, working on farms, owners of those lands. The second phase of these reforms focused on industrialization and worker welfare as well as on enterprises. One of the key changes as a result of these reforms was that control was shifted from state-owned to private enterprise. These reforms were against the communist philosophy as they supported a free-market system. These reforms helped arouse a sleeping economic giant from its slumber and take the world’s economic stage by storm. The reforms encouraged private entrepreneurship, foreign investment and foreign trade, reduced government control with focus on free-market and education of the labor force among others. Although the reforms introduced a free-market system, the aim was not to give-up on the communist ideology. Rather, the idea was to increase the role played by market forces in the economy and to decrease, but not completely eliminate, the role of government planning (Zhang 2011). The reforms were first adopted in a few selected localities and if they were found to be successful only then were they implemented on a larger scale. A major part of these reforms was to allow foreign investors to invest in the country as the country opened up to foreign trade. As a result there was a wide variety of goods and services to choose from. Chinese producers were also able to export their goods and expand their businesses overseas. By the late 1980’s these reforms had accomplished extraordinary results: incomes increased, more consumer products, food and housing was made available and the country experienced high growth rates. The economic reforms were Chinese government’s way to emphasize an increase production, consumption and people’s income as well as advancement in technology without it having an adverse impact on budget deficits, inflation and unemployment. The first of these economic reforms were introduced in the agricultural sector. Under the agricultural reforms, agricultural land was divided among farmers who became owners of the lands they worked on. The farmers were allowed to keep the agricultural output if they agreed to give a small share of it to the government. This was a popular move among the farmers who found a way to increase their incomes. The result of these reforms was a dramatic increase in production of agricultural goods and this move stimulated the growth in the agricultural industry. Farmers were also able improve their standard of living as the reforms allowed them to increase their income by producing more goods (Myers 1991). Foreign trade played a significant role to boost China’s economy once the new economic reforms were introduced. In the years preceding the economic revolution foreign trade rarely contributed more than 10% to China’s GDP as the country mostly relied on self-sufficiency. However after the reforms the contribution increased significantly and by 1986 foreign trade contributed to 36% of the country’s national income. Due to foreign trade foreign investment and modern technology poured into China. Joint ventures were common between foreign companies and Chinese companies. Domestic industry was also allowed to flourish by shifting control from government to market mechanisms that determined the allocation of resources (Martin 1993). Private entrepreneurship was also encouraged and together with foreign imports they provided the Chinese citizens a diverse range of products to choose from. Up to this day the Chinese economy continues to reap the benefits of the economic reforms in 1978. It is the fastest growing economy in the world and has averaged a growth rate between 8 to 10 percent since 1979. China overtook the US and became the leading exporter in 2010. Since the introduction of the economic reforms and restructuring of the Chinese economy the country’s GDP has increased by more than ten times since 1978. In 2010, China was the second biggest economy in the world behind US. Its GDP was measured to be a staggering 9.85 trillion US Dollars in 2010. Its imports amounted to 1.3 trillion US Dollars while exports totaled 1.5 trillion US Dollars in 2010 (China Economy 2011). China is the perfect example of those rare countries that were successful in the transition from a planned economy to an economy determined by market forces. People are so used to the growing Chinese economy that it is difficult to remember as to why the revolution began in the first place. Before the implementation of the economic reforms in 1978, China was economically far behind the developed West and its Asian counterparts such as Taiwan, Japan, Singapore, Hong Kong and South Korea; all of them were industrially and technologically far superior to China and rivaled the West. Meanwhile China was still reeling from the repercussions of the famines that killed approximately 40 million people and the Cultural Revolution, Mao’s philosophy to strengthen his authority over China. The point is that while the rest of the world was experiencing growth, China was engaged in its own internal problems that hindered its economic growth. Hence the reason for China falling behind in the modern world can be partly attributed to China and partly to the West. Industrial Revolution was transforming the global economy. Countries of the West and later some Asian countries such as Japan and Hong Kong embraced the Industrial Revolution and reaped the benefits of the industrial and technological advancements that came as a result of the Industrial Revolution. However China was very late in accepting modernization. It was in 1978, after Mao’s death and the coming to power of the pragmatic leader Deng Xiaoping that things started to change. Deng introduced his economic reforms that drew inspiration from the capitalist system, which stimulated the Chinese Economic Revolution and the country began to pursue modernization as its national goal (Fairbank & Goldman 2006). Clearly the economic revolution that started in 1978 has led to miraculous results for China till date. Although the US is still the leading economy of the world the economic scene is already changing. There is a shift of economic power from US to China and it will not be long before China overtakes US as the world’s leading economy. Today, with its 1.3 billion plus population, China has become the preferred choice of foreign investors as they look to tap into foreign markets. Even the US relies on Chinese imports and the domestic markets abroad are flooded with Chinese products. Due to the cheap availability of labor and the result of globalization, it has become easier to outsource jobs to China. The Chinese economy is expanding every day. More wealth is created however there is also an increase in the wealth inequality with the rich getting richer and the wealth inequality gap increasing. Hence, although the economy is strong and the overall effects on China look good but the poor are still worse off with little or no improvement in their living conditions. This can be a big problem for the country in the future as the wealth inequality gap becomes wider and more prominent. Credit must be given to China because it did some major restructuring of its economic policy. It changed from a completely government controlled economy to more of a mixed economy: combination of both central and market system. These reforms were introduced in nearly all the industries that included industrial, agricultural, banking and systems such as finance and labor. This restructuring could have backfired and that would have been catastrophic for the country that was already in stagnation at that time while the rest of the world was progressing. However, as a result of its bold steps China is now reaping the benefits of these economic reforms. In the future it is expected that due to the economic reforms in 1978, the Chinese economy will continue to grow and maintain its average growth rates of 10% per annum till 2020. It is also expected that China will overtake US as the world’s largest economy in terms of PPP by 2020 (China's Economic Development from 1860 to the Present: The Roles of Sovereignty and the Global Economy). Just like in India, where there is severe income disparity with the rich being very rich and the poor being very poor, China will continue to experience the same wealth inequality. As the economy grows, more and more investors will be investing in the Chinese economy as compared to the rest of the world. China will dictate the world economy in the future. The common phrase nowadays ‘As USA sneezes the rest of the world catches a cold’ will be replaced by the phrase ‘As China sneezes the rest of the world catches a cold’. In short China will take the place of US in the global economy. In the future China will become the economic hub of the world. This much is certain because of the current growth of the country, the huge labor force at its disposal and its important position in foreign trade especially its exports all over the world. However what remains to be seen is that for how long will China be able to sustain its current growth rate and will its economy weaken just like the US economy did overtime. Many of such questions will be answered in the near future however if China has to sustain its growth rate then it will have to separate politics from its economy otherwise it will suffer the same fate as the US as its economy suffered because of some political decisions taken by the US government. Whatever the future has in store for the Chinese economy, the Chinese Economic Revolution completely transformed the Chinese economy and propelled the country among the leading global economies of the world in less than a half a century. References: “China Economy 2011”. 2011. http://www.theodora.com/wfbcurrent/china/china_economy.html Daft, Richard. L. Management. The Dryden Press, 2009. 9th edition. Fairbank, John. King., and Goldman, Merle. China: A New History. Harvard University Press 2006. 2nd edition. Martin, Will. “Modeling the post-reform Chinese economy.” Journal of Policy Modeling 15.5-6 (1993). 545-579 Myers, Ramon. H. “Review: How Did the Modern Chinese Economy Develop?--A Review Article.” Journal of Asian Studies 50.3 (1991). 604-628. Zhang, Wei. Economic Reforms in Modern China. Routledge, 2011. Read More