Comparative Economic Systems: China - Case Study Example

Comparative Economic Systems: China Introduction The death of Mao Zedong, the father of China’s Cultural Revolution, one way served as a blessing for the Chinese people. The death of Mao gave way for Deng who revolutionised the economic growth in China. Lieberthal (2003) has mentioned that the political considerations in Beijing dictated the pace and thrust of the reform process throughout the 1980’s. Moreover, Deng pushed China more towards openness, greater political stability and economic progress (Lieberthal, p.123-134). The Deng administration followed shifted their attention from the ideological warfare and class struggles to the economical development. Deng never gave more emphasize to the communist theories and principles. He has realized that for China like a heavily populated country, instead of principles on paper, practical actions were required. Deng has realized that the economic reforms would be ineffective unless the party could also be reformed and started his reformation process in China by restructuring not only the economic system, but the political spectrum as well (Gittings p.173). Deng has given the communist principles more liberal look and a human face. Deng separated the president ship and the party leadership. He has realised that if both the posts were assumed by a single power, dictatorship might happen in China just like the Mao era. This paper briefly analyses the economic progress in China, focussing more on the Deng era and the post Deng era. Economic reformation undertaken by Deng in China China was hesitant in opening their economies to the westerners till the Deng era. They concentrated heavily on the trade activities with Soviet Union and other socialist countries before Deng assumed power. Deng has realised the importance of western market in China’s economic progress and made every effort to please improve China’s toes with the westerners. At present America and many European countries are biggest trade partners of China. Deng has started his economic reforms in China concentrating mainly on the agricultural and industrial sectors. Gao (2005) has mentioned that Deng has transformed the agriculture sector from collectivization to a system of household responsibility. Moreover, the industry sector relieved from the complete dominance of the government and lot of small scale industries under private ownership has been developed as part of the reformation process (Gao). The concept of collective agriculture methods was given way for individual agriculture method which created more interest among farmers as they also started to get the benefit of their hard work in the land. Deng has realized that the Chinese market was not sufficient enough for selling their products and the western markets are essential for selling their products. Pexin (2003) mentioned that China opened the economy more cautiously and adopted a self conscious approach (Peixin). Chinese economy is currently more transparent than the Japanese economy. At the same time China never opened their critical sectors for the private participation even though they encouraged privatization in most of the non-critical industrial sector. Investment climate in China was not so good before the Deng era because of the tight rules and regulations. Deng liberalized most of the tight rules to attract FDI. Initially China watched the concept of globalization with suspected eyes. They thought globalization was the brain child of capitalist countries to loot the resources of other countries. So they kept a distance form the globalization concept initially. But when they realized the advantages of it, they immediately accepted the policies of globalization with both hands and many people at present believe China as the number one exploiter of globalization. The most vital policy which helped China to China started the reform process at the most appropriate time. Thus the creators of globalization has suffered a lot in shaping it into the current form whereas China escaped from such initial onslaughts and they were able to reap the benefits from the beginning of reforms itself. China realized that their market was not sufficient enough for selling their products and the America like consumer market should be accessible for them to boost the export sector. Chinese daily, Xinhua recently quoted the opinion of the World Bank chief economist, Deepak Bhattasalithe recently. In Deepak’s views, not only the Chinese Governments effective policies on taxation, but its long-term investment in infrastructure construction also contributed to a more pleasant investment climate (Xinhua). Poor countries are still struggling to exploit globalization because of lack of infrastructure developments. China on the other hand realized the importance of infrastructure development in exploiting the possibilities of globalization and spent billions of dollars in developing infrastructure to attract FDI. The much needed single window clearances for legal formalities, land availability, transportation facilities, power availability, and water availability etc were offered to the foreign companies willing to invest in China as part of their efforts to attract FDI. Current state of Chinese economy AARON BACK,(2010) written in his article China Adjusts Policy but Avoids Rate Increase to Cool Prices published in The Wall Street Journal, mentioned that in any other major economy where growth had accelerated as quickly as Chinas, higher interest rates would seem inevitable. But in China, authorities have been reluctant to raise rates, which economists worry is putting them behind the curve in tackling risks of inflation and possible asset bubbles (Back). In other words, many economists believe that the Chinese economy is currently overheated because of over economic exercises and a cooling is essential for Chinese economy in order to escape from overheat related problems. Raising the interest rate is one way to cool down the overheated economy. Raising of interest rates will slow down the economic activities especially in the real estate or housing sector and the financial sector and the Chinese economy will get the much needed cooling effect for the future leap to progress. China’s rapid GDP growth is illustrated in the figure given below. It is evident from the figure that even though the GDP growth slowed down a bit in 2009 because of global recession, it again picked up during the latter half of the 2009 onwards. Currently the Chinese GDP growth approached the all time high 12% (Back) Even though Chinese government has taken some measures for cooling down the economy, they are hesitant in going for a complete cool down because such a measure may drastically affect the foreign capital inflows. Even then, China has already reduced the lending by government controlled banks (Back). “Still, the government isnt dramatically cutting state-supplied credit. This years loan target, although down considerably from last year, is still more than 50% higher than that of 2008” (Roberts). Andrew Batson (2010) has warned China of a possible overheating and inflation risks his article China’s GDP Shows Signs of Overheating published in The Wall Street Journal dated 15 April 2010. He has mentioned that with 11.9% year-on-year GDP growth surpassing potential growth, overheated demand not only exhausts spare resources but also overstretches the supply capacity of raw materials, energy and infrastructure, leading to rapid upward pressure on prices (Batson). According to JPMorgan Chases chief China economist, Chinese economy may grow to 7.8% this year, compared with his previous forecast of 7.2% a few months ago (Balfour). If China grows in this pace, in near future itself it may touch the double digit mark probably within 2 years. China has recently announced a huge economic stimulus package worth around $586 billion in order to save Chinese economy from a possible destruction from the current global recession. In fact China is one of the rarest countries in the world which escaped from the injuries of recession. The Economist (2010) reported that as per the statistics available, 85% of Chinese say that they are satisfied with their lives. Moreover, large majorities of people in China say their country’s current economic situation is good, expect conditions to improve further and think their children will be better off than they are (The Economist). The following chart will give us some idea about the people’s opinion about the economic growth of some of the renowned countries in the world. (The Economist) Conclusions Even though China is the number one country in the world as far as population is concerned, they are one among the top five countries in the world which are economically developing rapidly. Deng can be considered as the architect of modern China because of the political and economic reformation implemented in China by him. Mao was more adamant on the theoretical aspects of communism whereas Deng was more focused on the practical aspects of communism. Many people believe that China may become another superpower in the world in near future itself because of the huge economic growth. Works Cited 1. BACK, AARON. 2010. “China Adjusts Policy but Avoids Rate Increase to Cool Prices”. The Wall Street Journal. 17 April 2010. 2. Batson, Andrew. 2010. “China’s GDP Shows Signs of Overheating”. The Wall Street Journal. 17 April 2010. http://blogs.wsj.com/economics/2010/04/15/economists-react-chinas-gdp-shows-signs-of-overheating/?KEYWORDS=economy+of+China 3. Balfour Frederik. 2009. “Chinas Economy: Recovery Gains Momentum”. BusinessWeek. 17 April 2010. http://www.businessweek.com/globalbiz/content/jul2009/gb20090710_898172.htm 4. Gao,Tao "Globalization and China: Impacts on the Economy and Peoples Quality of Life" Hofstra Universty. 17 April 2010. 5. Gittings, John. 2005. “The Changing Face of China: From Mao to Market”. Publisher: Oxford University Press, USA; illustrated edition (September 23, 2005) 6. Lieberthal, Kenneth. 2003. “Governing China: From Revolution to Reform”. Publisher: W. W. Norton & Company; Second Edition (December 15, 2003) 7. Peixin, Zha. 2003. “China and Globalization”. 17 April 2010. 8. Roberts, Dexter. 2010. “Can China Cool Its Economy?”. BusinessWeek 17 April 2010. 9. The Economist. 2010. “The World Turned Upside Down”. 17 April 2010. 10. Xinhua.2004. “Globalization Boosts Chinas Economic Growth”. 17 April 2010. Read More