Has the Quality of Life in China Improved since 1992 - Essay Example

China’ Economic Reforms Introduction China economy is one of the greatest success stories of the modern times. Ranked second globally in terms of gross domestic product after the USA, china has seen changes in the last few decades that have seen massive increases in almost every economic performance indicator (Chuang and Thomas 3). This includes growths in areas of productivity, exports, output, employment opportunities, incomes, infrastructure, as well as life expectancy. This spurring growth of the economy has resulted in a cum-effect of improvement of the general quality of life of the population of the country. Nevertheless, the success of China took the world by storm as it was completely unexpected (Chow 128). The reform measures that many saw as hesitant and partial conformed views that the direction of growth of the economy was not likely to change in the near future. As a result the reforms of the economy of China are an important economics study scenario due to the contrast between results and expectations. The china success story is not, however, blemish free as there are failures that have acted as important lessons for the designing of economic development and transition models. Reasons for the reform The Chinese economy has developed in different stages since the establishment of the People’s Republic of China sixty five years ago. China introduced an economic planning model in the early fifties that resembled that of the Soviet Union’s. This plan was implemented over the next several years until in 1978 when the authorities decided to gradually abandon the system with an aim of moving towards a market-oriented economy (Chow 129). The first reason for the abandoning of the initial development plan was the cultural revolution of that took place between 1966 and 1976. The largest population was against the revolution that had been engineered by Mao Zedong, the party chairman who died in 1976 (The Economist). As such, the new leader of the republic needed to change the policies of the government to gain favour of the population. Previous experiences on the results of a planned economy also influenced the decision to adopt new policies (Zhang, Fan and Haan 2). Although there was variation in the understanding of the weaknesses associated with a planning system, previous years showed the system to be economically inefficient and a management nightmare. At the time the neighbouring economies of Hong Kong, Singapore, South Korea and Taiwan, all of which applied a capitalist approach to the economies showed better performances. The contrasts between these nations and others with different market strategies as emulated in Eastern Europe and the nations of Western Europe showed and reinforced the thinking that a market economy performs better. At the time the Chinese population also seemed to desire reforms on a market oriented basis. This was due to the negative consequences that were a direct effect of a central planning system. These range from limited variety and shortage of consumer goods to the minimal improvement in their quality (Chow 130). This meant they had to use underhand methods in order to get consumer goods that many would consider essential. As such, the authorities saw the need for the change in the policies as inevitable. Components of China’s economic reforms Agriculture In 1978, the government of the People’s Republic of China undertook several institutional reforms (Chow 129). The previous administration had introduced a commune system of farming where the practice was done collectively. This meant the sharing of the output equally among all members of a team even if some put in extra effort in an attempt to better their results. Soon the farmers realised that if they practised farming separately the output would be more and they would still deliver on the output requirement for the government’s system of agricultural product distribution around the economy (Zhang, Fan and Haan 18). This created a national policy called household responsibility system after Deng recognized and adopted the beneficial aspects of individual farming. The system involved the division and distribution of land to different households that practised farming separately. This meant that after the delivery of a fixed of their produce to the necessary government agencies, the farmers would reap additional profits for any additional input into the practice. The success of this reform was evidenced by the rapid increase in the agricultural output in China. As a result the farmers’ incomes increased and they became richer. The increased agricultural production also meant that the country had an increase in its general food production levels and had more food security (Zhang, Fan and Haan 25). The produce from the farms also had an increase in quality as a result of the reform of the agricultural sector. The improvement of these factors of the economy is visible indicators that the reforms initiated in China in the agricultural sector, served to improve the quality of life in the nation. State owned organisations The government of China adopted experimentation policies in its state owned enterprises as an attempt to gradually reform the economy (The Economist). The experiment involved allowing some state organisations to stray from the central planning system and be allowed to make autonomous decisions involving factors of investment, production, and marketing. As part of the experiment the enterprises were made independent financially with the system of the government owning all revenue being abolished as they were allowed to keep profits after taxes (Fernández). The experiment also included a responsibility system similar to the one in household responsibility, with the organisation being allowed to keep the profits after submission of a fixed value of profit to the controlling enterprise. The government also introduced more reforms in the form of a system of contract responsibility (Chai and Roy 89). This system dictated that after the government run enterprises paid a fixed tax, the remaining profit could be distributed to the staff and put in use for capital investment. Although the idea of such a system was appealing to economists, the results of the incentive proved to be short of the expectations. This was mainly because the supposed fixed tax, was not really fixed as it was subject to change depending on the profits realised by each organisation. This meant that if an enterprise yielded increased profits, it would have to pay a higher tax. This distorted the idea that increased input would greatly benefit the enterprise in terms of marginal costs. The increased revenue was also not incorporated into good use. The ideologies of the society did not allow for a high salary therefore the managers did not qualify for sufficient compensation. Since the money wage, followed a nationally fixed scale, the employees had to receive compensation as durable goods. Any risk taking undertaken lacked sufficient compensation, meaning that there was minimal optimism in the investment policy (Chai and Roy 105). The policy of a fixed levy was also fuelled by the fact that the managers at the state run enterprises at the time were not of quality (Leng 76). This was due to the fact that they were trained on an enterprise system that lacked freedom at the time. Even if quality managers with proper qualifications and proper training were available, the selection process at the time did not favour their selection for the positions. This is because the selection process was greatly influenced by politics and personal connections considerably (Chai and Roy 3). As such these reforms in the area of state enterprises were viewed as a failure as they did not extensively alter the organisational framework and functioning of these organisations. Nevertheless, the government made significant reforms to the enterprises in the late 1990’s. These reforms involve the relinquishing of control of state enterprises that were among small to medium sized by giving up their ownership (Chai and Roy 108). This involved the offering of their shares to the public which would act to provide capital incentives to the enterprises. The larger enterprises underwent transformations that depended on their situations. However, most of them became shareholder companies where the state had the larger controlling stake. The downside of these reforms is that they cannot improve the efficiency of the organisations on their own (Leng 85). The reforms did not specify a change in management. The quality of employees occupying managerial positions in the corporations did not change. The selection process was also subject to connections with the Chinese bureaucrats. The same applied for the positions of board membership. The management chains as a result did not significantly change. In some cases there was willingness to relinquish the ownership of a whole organisation to an investor from another country especially if they had Chinese origins. In the end there were successful transitions of some large enterprises of the state, but only as a small fraction of the whole. The financial sector The People’s Bank used to be a mono-bank in the pre-economic reform era that accepted deposits through its branches. The mono-bank also acted as the issuer of state currency as well, offering loan services to state enterprises, according to the specifications given by the authorities in charge of planning. The criteria on profit making at the time made commercial banks, non-existent in the sense of offering credit facilities to enterprises. However, the mono-bank that was the People’s Bank was changed into the central bank allowing for the start up of specialized banks in order to transform the financial sector into a modern system of banking (Fernández). This allowed the new banks to have autonomy in the offering of credit facilities. As such the supply of currency in the economy increased rapidly. In November of 1993, Communist Party’s 14th Central committee Third Plenum agreed to accelerate financial sector reforms by allowing the central bank to be more independent and allowing the transformation of specialized banks into commercial banks. This was through the passing of The People’s Bank and Commercial Bank Laws. The laws acted as banking system blueprints. These reforms served to bring credit facilities closer to the institutions. The autonomy allowed the banks to make informed choices about lending services which availed necessary capital to the enterprises. As such these reforms were successful in transforming the banking system into a modern one that helped the economy in the development in a market oriented one. All these changes improved outputs of production, which improve profits and create employment opportunities (Dollar 3). Therefore, there was an improved quality of life as a result. Open door policy Before the economic reforms, China was mainly a closed economy with the total value of its imports and exports constituting only 7% of the national earning. Deng Xiaoping’s administration revised the nation’s policies to allow an open-door policy which encouraged trade and investment with and from foreign parties (Chai and Roy 111). The policy allowed provinces autonomy in promoting exports. Institutional reforms allowed control of exports and imports in order to maintain a balance of trade. The reforms also allowed the creation of trading companies that would be in cooperation with industrial entities to help in exporting of products and facilitate decentralization (Dollar 3). The end result is the increase in the percentage foreign trade volumes to 37% of the nation’s GDP by 1998. In the policy, exporting entities enjoyed special treatment where they retained part of the foreign exchange earned to use in obtaining loans in the RMD. Materials imported for the purpose of processing into exports were exempted from import levy (Chai and Roy 115). This encouraged the establishment of Export-Processing Zones by investors with an aim of utilising the available Chinese labour at the same time as foreign capital and knowledge of technology. These policies increased levels of trade with foreign parties as well as the presence of foreign investment in China (Chuang and Thomas 55). The success of these reforms is evidenced by the Shenzhen economic zone. Here foreign investors established industries, taking advantage of the readily available skilled labour force with wages determined by the market. This combined with the government offered tax breaks, meant that the investment in the area was an inexpensive venture. As a result the region attracted a lot of investors wanting to take advantage of the favourable conditions who developed the previous farm like area that was Shenzhen into a modern city in a span of one decade. The story was replicated in other regions where new economic zones came into being (Dollar 6). This means that the government reform of promoting foreign trade and investment resulted in the improvement of the quality of life of the Chinese people as it helped improve infrastructure in the areas of the economic zones as well as offering employment opportunities. The development of areas into modern cities availed social amenities like healthcare and education facilities that are indicators of improved life quality. Reforms in social and economic infrastructure This refers particularly legal institutions and educational systems. In the earlier decades the government brought all schools in the republic, including private institutions, under its control. The education system was changed to model the soviet system, with universities being converted into technical training institutions (Guthrie 71). The Cultural Revolution interrupted this education system with many institutions closing down as enrolment reduced greatly. To the start of the economic reform, China’s education system went back to the normal system. This was mainly due to the collapse of the central planning system of governance, where every ministry administered its own technical school which served as the training facilities for employees. The universities were allowed to invite scholars from foreign countries to give lectures. The frowning upon intellects was also stopped. This allowed students to learn and improve their knowledge on foreign languages (Guthire 74). This helped the interactions with foreigners and adoption of foreign texts into the education system. As such the reforms in the education sector improved the quality of education in China and therefore the quality of life in the Country. Part of the reforms included in the economic reform plan, was the goal of having a modern legal system in China. This was necessitated by the need to have deals and cooperation agreements with the larger international business fraternity (Guthrie 75). The reforms involved the setting up of legal education programs. The government also drafted and made into law several bills that helped in the processes of business activities. These and other regular laws transformed China’s legal system into one that functions properly with the citizens enjoying more privileges. This has meant that there is a less infringement of the rights of citizens, which is an indication of improvement on the quality of life. Conclusion The economic reforms of China, although downplayed by many economists in the beginning, have seen the growth and development of the country’s economy rapidly. In the last two decades, the nation has developed into one of the economic powers of the world where it plays an important role in determining the direction of the economic status of the world (Guthrie 110). The growth of the economy has seen its share of ups and downs with some reforms resulting in absolute failure. However, most of the reforms such as those on the financial sector, foreign policy, and agriculture have gone a long way in positively impacting the economy of the country. The reforms have been associated with increased earnings for the population and increased job opportunities, which have helped in the country’s poverty index. The reforms are also the reason behind the development of cities and towns with improved infrastructure and social amenities as rural areas are opened up. Therefore, it is proper to conclude that the quality of life has steadily increased since the early 1990’s when the economic reforms of the administration were strongly implemented. Works cited C. Chow, Gregory C. Chow. Economic Reform And Growth In China. 1st ed. Princeton: N. p., 2004. Web. 5 May. 2014. Chai, C. H, and K. C Roy. Economic Reform In China And India. 1st ed. Cheltenham, UK: Edward Elgar Pub., 2006. Print. Chuang, Yih-chyi, and Simona Thomas. China And The World Economy. 1st ed. Berlin: Lit, 2010. Print. Dollar, David. Poverty, Inequality And Social Disparities During Chinas Economic Reform. 1st ed. [Washington, D.C.]: World Bank, Beijing (China/Mongolia) Office, 2007. Print. Fernández, Juan Antonio. The Chinese Economic Reform. Ceibs.edu. N. p., 2014. Web. 5 May. 2014. Guthrie, Doug. China And Globalization. 1st ed. New York: Routledge, 2009. Print. Leng, Jing. Corporate Governance And Financial Reform In Chinas Transition Economy. 1st ed. Hong Kong: Hong Kong University Press, 2009. Print. The Economist,. The Second Long March. N. p., 2008. Web. 5 May. 2014. Zhang, Xibao, Shenggen Fan, and Arjan de Haan. Narratives Of Chinese Economic Reforms. 1st ed. Singapore: World Scientific, 2010. Print. Read More