The History of the Chinese Economy - Essay Example

The world has change a lot during the past couple of decades and in the midst of this change a large nation that used to be an insignificant player in world affairs became the strongest emerging economy in the world due to major policy changes and vision of prosperity; this nation is the People’s Republic of China. This country represents the large source of human capital in the world with a population of 1.3 billion inhabitants (Country Insight, 2008). This essay discusses the contemporary changes in the internal and external policies that turn this nation around and the prospects of continued economic growth for China in the future. In 1979 China began a transformational process that initiated by a new social policy to control the out of control population growth which was eating up the resources of this poor nation. The government implanted a child control regulation that limited child birth to one child per matrimony. The social policy was followed throughout the 1980’s by a series of economic policy changes and reforms that ignited a chain reaction that led to an economic growth behavior best described by an organic business growth model. China for two consecutive decades achieved a yearly economic growth of approximate 10% per year (Srinivasan). China’s route towards success followed an awkward path considering the country is a communist regime. Under this type of government the action of the rulers are associated with conservatism and non aggressive market in a closed economy. Throughout most of the early part of the 20th century China international allies were other socialist country such as Cuba and the Former Soviet Union, trading activity with the rest of the democratic world was limited. China started to open up its market transforming its economy from a closed to a semi-open economy. China’s current open economy of the 21st century is heavily influenced by the government, but the current system is the closest the country has ever been to assimilating capitalistic styles of completely open markets which are self regulated. The policy changes that enable China to become a world force include many changes that are associated with democratic nations. For example one of the most critical policy changes was allowing foreign firms to invest money in China and open up manufacturing operations. The initial business structure that permitted firms such as Coca-Cola, Ford and Motorola access to Chinese soil was joint ventures agreements of foreign companies with state-owned firms (CountryWatch, 2008). The social, political and economic changes were progressive and as time passed the Chinese government became more liberal. The country implanted policy changes such as creating manufacturing hub zones with special incentives, tax reductions, major investment in infrastructure, and establishment internal relation with nation from the Western hemisphere (CountryGrams, 2008). The internet along with the internationalization of China had major social implication for the population of China. The people of China which were isolated from the rest of the world began to realize the realm of opportunity worldwide and different ways of thinking that help instill creativity in Chinese workers and desire for improved human rights and liberties which people from democratic nations such as the United States take for granted. One of the biggest policy change and most significant event in the modern history of China occurred at the turn of the century. In 2001 after years of negotiation China finally gained acceptance into the World Trade Organization (Wto, 2008). The World Trade Organization is one of the most powerful global organizations worldwide composed of 151 nations including the entire membership of G8 among other developed and developing nations globally. The importance of becoming a member of the WTO was that prior to being accepted the negotiating power and its acceptability in other markets around the globe was limited due to its exclusion to the organization. The WTO provides lots of protection to foreign investors since it regulates areas such as trade and imposition of tariffs. The global political achievement came at a cost for the internal politics of China. In order to be accepted the country had sign a deal with the WTO stipulated changes that were mandatory including the elimination of obligating foreign investors to form joint alliances with Chinese corporation, now wholly owned subsidiaries were permitted. (Wiseman). The state owned industries no longer had the competitive advantage of having a foreign partner which to rely on to gain access to additional resources and to administer their operations. The changes in China occurred due to a combination of multidisciplinary changes in variety of sectors. The president of China, Hu Jintau, is a visionary that knew how to differentiate between its philosophical socialist roots and economic theories and concepts used in democratic nations. A full integration into the world economy and the ability to negotiate deals on even terms with the rest of the world after 2001 obviously was a positive and instrumental event. Improved human rights and working conditions helped the people out, but with progress and change some things due take a turn for the worse. The Chinese worker previously enjoyed tremendous fringe benefits such as housing, transportation to work, meals among other benefits that are atypical around the world. These types of benefits are fading away which is raising the cost of living of Chinese people. China economic strategy for the past 28 years followed a well planned long term plan to achieve economic sustainability. Some of the moves that China is making today that will ensure the long term success include heavy investment in energy and water projects to increase the manufacturing capacity of the nation. The country’s economy whose strength is based on its low cost manufacturing which enables massive exporting of goods has now expanded into new areas associated with the service and products of the knowledge economy of developed world. There is numerous research and development initiatives that are helping the economy expand into new territories. The nation is also making smart investments in locations to improve relations and obtain a competitive advantage over other countries in negotiations. For example China has a huge interest in Venezuela due to their large petroleum reserves. Future energy consumption in China are a critical success factor for this country since the overall energy usage of the country as a whole has been rising at a very rapid pace. It is imperative for China to find alternative renewable energy sources in order to reduce its petroleum necessity. The problem just mention is a worldwide dilemma, but in China the problem is much worst because of the amount of people residing in the area. As the income per capita of the average Chinese person increases the household consumption will go up significantly implying that a shortage of energy to supply to the people is a high possibility (Varian, 2003). Another critical success factor that must be covered in the future policy of the government is how to contain a new generation of Chinese minds that do not truly understand the traditional roots whose minds have been exposed to new ideas and thirst for liberty that their predecessors did not have. A civil war in the search for democracy in the near future in China is a high possibility that could bring instability, destruction and the loss of human life. This scenario can be prevented if the government itself starts the process of transforming China from a communist regime into a democratic nation. The United States has been pushing for this political change for decades and is willing to help China in every way they can if the government of China commits towards making this radical political change. The prospects for the economy of China are very good in the future and its is projected that the country will achieve a yearly economic growth of 9% per year until 2030 (Economic Intelligence Unit, 2008). This implies that the purchasing power of the Chinese people with increase in the decades implying that consumerism among the population will proliferate. The world implication of this future economic reality China potentially becoming in one of the largest importers of goods and services worldwide. China is currently the top exporter of light manufacturing products in the world and a combination of high importing along with high exports is a sweet reality which China should continue to strive for. There is no way to predict the future of any nation in this world, but leadership and guidance in combination with openness to new things and proven policies that have worked in different locations can lead to a wonderful future. In China the age leadership of Hu Jintau has allowed this nation to eliminate the extreme poverty that existed among the population. The economic policies that were implemented in a socialist regime were peculiar since its roots include capitalistic economic concepts. As the implementations of these effective economic policies created an manufacturing exporting machine of massive proportions. The long term prospects for China are bright and the challenges that are always in the road will not stop the best economic success story in our modern history. References CultureGrams (2008). China. Available from [22 March 2008]. Country Insight (2008).China. Available from [23 March 2008]. CountryWatch (2008). China. Available from < CountryWatch database > [25 March 2008]. Economist Intelligence Unit (2006). China– Country Report. Available from [March 13, 2008]. Srinivasan, T.N. (2006). China, India and the World Economy. Stanford University. 2. Available from < http://scid.stanford.edu/pdf/SCID286.pdf > [ 24 March 2008] Varian, H. (2003). Intermediate Microeconomics (6th). London: W.W. Norton & Company. Wiseman, P. (2006). U.S. Companies Profits Take Off in China. USA Today. Available from [25 March 2008]. Wto.org (2008). Available from [25 March 2008]. Read More