China's Economic Development - Literature review Example

Name Lecturer Task Date China and India have gained prominence for their immense and sustainable economic development since 1980's. The average gross domestic product of China for example has always been above ten percent for the last two decades. China and India are the only two countries in the world which have had sustainable economic development for more than two decades (Siraj, 2011: 62). The two countries owe their success to integration into global economy (Siraj, 2011: 60). Despite being perfect epitomes of unprecedented growth in the last few decades, China and India have had the downside of widening gap between the rich and poor. According to Wu (1997), a new group of very rich individuals is on the rise and they are widely referred to as 'China's new rich'. They comprise of farmers, business persons, industrial capitalists who partner with foreign investors and other rich individuals (Wu, 1997: 1010). World Bank estimated the gap between the rich and poor and according to them, the possessions of the rich are worth 359 times that of the poor (Hsiao, Lin & Lin, 2008: 123). The same is happening in India where the gap between rich and poor continue to widen. In fact for these two nations, the trend is quite alarming and it is greater than it was before (Chee & West, 2007: 16). China for example has the richest category of population comprising of only ten percent currently own more than forty percent of the country’s assets. A pack of experts have warned on the impacts of this and they have repeatedly warned of tremendous social unrest if no action is taken. According to Wu (1997) disparities in wealth distribution will have social, economic and political effects on a country. There are a number of factors that have been presented by many scholars as the main causes of this disparity. This essay will discuss these causes in depth. Arguments presented will be supported by different scholarly works. China's economic development can be traced back to late 1980's during the period of market reforms i.e. the 'open-door market policy' and death of Mao Zedong. Mao Zedong was a visionary leader who instituted reforms for the future success of China. After his death, Deng Xiapong took over the throne and followed the footsteps of his predecessor. Currently, China owes its success to these individuals. China’s economic development has remained outstanding for the last two decades mainly because of two reasons. One of the reasons is the robust shift in its economy especially for a country with a fifth of world’s population. Secondly is its consecutive success which began way back in 1978 and it has never dropped since then. A number of problems have ensued from this rapid economic development. They include disparities between wealthy and poor regions, and incomes of the rich and poor (Zheng, 2011: 293). These two major disparities have brought subsequent disparities in other major areas such as education, health service access, environmental degradation and protection, sanitation and access to clean and safe water. Generally, reforms were costly to some extent to China. Common social problems in China today include income distribution, income security and access to social services such as health care and education (Lindbeck, 2006: 4). Income inequality is a common phenomenon in the current Chinese society. Research studies have shown that there is a direct correlation between economic growth and income inequality. Risso & Carrera (2010) highlight the fact that during pre-reform period, the average economic growth rate was 2.33% which corresponded with low income inequality level of 0.27 Gini coefficients. Since the reform period in 1978, the country has experienced an increased annual economic growth of above 7.07%. In the same way, the average Gini coefficient which is a measure of inequality rose to about 0.33 (Risso & Carrera, 2010: 11). In fact according to the research study done by Risso & Carrera indicated that this level of inequality has been maintained since the reform period of 1978 and 1979. Needles to say, this level of inequality did not only stagnated in 1978 and 1979, but it also extended to subsequent years. Studies done by World Bank indicated that the Gini Coefficient increased from 0.28 in 1981 to 0.32 in 1990 (Lindbeck, 2006: 40). The positive correlation between economic development and income inequality depicts the downside of reform period basically because it was the point of origin. Regional inequality is also a common phenomenon in China today. Regional inequality can be traced back to reform era. During the pre-reform period, central government controlled all sectors of economy. The government ensured equity in all sectors of development including the provision of social services. Reform period saw the removal of commune system which was replaced by household responsibility system (Risso & Carrera, 2010: 4). Peasants were given more power to decide on their agricultural activities. Since this country depended solely on agriculture during that period, many people who were largely peasants saw their incomes rise. As a consequence, agriculturally productive areas saw an immense economic growth compared to other regions. OECD (2005) underscores the idea of in spite of the fact that poverty reduced to a great extent during reform era, the income difference based on regions had widened. This has been due to the fact that there were differences in labor productivity with rural areas relying heavily on agriculture while urban regions relied on industries. In fact, the per capita income in urban regions was 1.85 times that in rural areas in the mid 1980’s (OECD, 2005). The income disparity based on regions measured in terms of Gini coefficient depicts a subsequent increase. According to Zheng (2011) the Gini Coefficient has increased from 0.288 to 0.458 between 1981 and 2005 (P. 293). This is far much above the global accepted standard for the gap between the rich and poor which ranges from 0.3 to 0.4 (Hsiao, Lin & Lin, 2008). Scholars have argued that the increased income differences across provinces and also between urban and rural regions have had their contribution to the overall development during that period. Inequality effects progressed to the later periods. By 2003-2004, it had risen to 3.2. There are many factors deemed to have contributed to this income gaps increment. One of the major factors is the issue of policies introduced during the reform period. As earlier stated, the major characteristic of reform period is policy reform. A number of policies were enacted during this period. A good example is the open-door market policy which was introduced in the 1980's and it led to acceleration of economic development in the coastal region provinces (Lindbeck, 2006: 41). This policy provided a good ground for some provinces especially those near the coast region through the huge inflows of foreign direct investment to develop economically (Cordrington, 2005: 135). These regions were favored in terms of infrastructure and development and they became hubs for foreign direct investment. Inland provinces were disadvantaged to a large extent and they have remained at the lower level in terms of economic development. Importantly, during the reform period corruption was a common thing. Perhaps, it can be argued that corruption may have had some detrimental effects on economic growth during the reform period but it is also true that it may not have brought any serious effects on economic development during this period. However, it contributed major social problems. Zhang (2006) mentions the fact that transactions in some cases took place at the expense of minority groups of citizens. A good example of corruption in high place during that period is when local administrators and politicians deliberated contracts on land-lease to private developers for housing and industry (Lindbeck, 2006: 22). This resulted to a large gap between wealthy and other citizens. Notably, legal institutions had not developed so much during this period. This problem is still evident in China up to date where there is a large gap between the rich and average citizens. In spite of the stern measures taken by the China government to eradicate, corruption continue to pose a major concern. Similarly, most of the policies have been maintained since the reform era. New policies have not been drafted to curb the widening gap. Perhaps, new policies could be drafted to enable the rich contribute in reducing the gap. In a similar manner, there is need to draft better laws to curb corruption. Biased policies in urban areas are also to blame for the rising rural-urban inequality. Urban reforms were initiated in China in 1985 (Zhang & Zou, 2012: 125). These policies favored development of urban regions. A good example is the fiscal policy which subsidized state owned enterprises which were experiencing losses. Urban areas benefited from this policy so much. As a result, rural regions lagged behind while the urban regions continue to progress economically. These policies are still in use up to date in the modern China. They have resulted so much to regional inequality. Inequality has also been accelerated by rural to urban migration. Many rural to urban migrants live below the poverty line and this is the main reason why China is facing an increasing unemployment. Inequality in urban areas is quite alarming and it is mainly due to a comparatively slower growth in income of the poor compared to the rich (Li & Piachaud, 2004: 27). Few of the poor migrants cope up with moving outside the poverty line while many of them find it hard to move out this poverty line. Rural inhabitants engage in farming which is a more risky economic activity. On many occasions, farming is affected by catastrophes which impoverish them (Li & Piachaud, 2004: 27). In addition to this, rural areas do lack good infrastructure and they have always lacked behind in terms of economic development. This explains the disparities between the rural areas and urban areas. Migration from inland regions to coastal regions which are economically productive has also led to brain drain. Many of those who migrate from inland regions to coastal regions are youthful, educated and competent (Zhang & Zou, 2012: 133). Such individuals are not restricted to migrate unlike the old. As a result, the inland regions are depleted of physical capital. The capital to labor ration remains constant in coastal regions while it reduces in the inland regions. Consequentially, the gap between the coastal regions and inland regions widens. In the same way, inequality between the residents also widens in the same dimension. The higher income level of the urban coastal residents compared to that of inland residents brings about this great disparity (Zhu, Luo & Zhang, 2007: 16). Education is a key factor in improving the standards of living of people. It is also a key to economic development. Inequality in education access has also led to the overall inequality. Education liberates people from poverty and increase in human capital leads to increase in remuneration. In China, the rich have better access to education than the poor. As a result, the remuneration of rich widens due to endowment in human capital. They have better chances of improving their remuneration compared to the poor counterparts. Zhu et al. (2007) highlights the fact that inequality in opportunity leads to inequality in outcome (p. 16). As a consequence, the gap between the rich and poor continue to widen. C In conclusion, despite the outstanding performance in economic development, China as a nation still has a long way to go in resolving the inequality between different groups of people. Much needs to be done in resolving the issue of gap which proves to be a ticking time bomb. Perhaps, the best way to curb this problem is through policy reforms. New policies need to be drafted to allow poorly developed regions to increase the rate of their economic development. Regional development leads to a corresponding development of the residents. Failure to resolve this inequality will result to detrimental social issues. References Chee, H. & West, C. (2007). Myths about Doing Business in China. Basingstoke: Palgrave Macmillan. Cordrington, S. (2005). Planet Geography. Stevensville: Solid Star Press. Hsiao, H. M., Lin, C. & Lin, C. (2008). Rise of China: Beijing's Strategies and Implications for the Asia-Pacific. New York: Routledge. Li, B. & Piachaud, D. (2004). Poverty and Inequality and Social Policy in China, Case paper 87. London: Centre for Analysis of Social Exclusion. Lindbeck, A. (2006). An Essay on economic Reforms and Social Change in China. IFN Working Paper No. 681. Stockholm: Research Institute of Industrial Economics. Organization for Economic Co-operation and Development (OECD). (2005). Agricultural Policy Reform in China: Policy Brief. OECD. Risso, W. A. & Carrera, E. S. J. (2010). Inequality and Economic Growth in China: Pre and Post-Reform Periods. Siena: University of Siena. Siraj, M. (2011). China and India: A Comparative Analysis of their Integration into the Global Economy. Real-World Economics Review, 57: 60-70. Wong, G. K. & Yu, L. (2002). Income and Social Inequality in China: Impact on Consumption and Shopping Patterns. International Journal of Social Economics, 29(5): 370-384. Wu, Y. (1997). Wealth and Spending Patterns in China: Empirical Evidence from Household Surveys. International Journal of Social Economics, 24(7/8/9): 1007-10022. Zhang, Q. & Zou, H. (2012). Regional Inequality in Contemporary China. Annals of Economics and Finance, 13(1): 113-137. Zhang, X. (2006). Asymmetric Property Rights in China’s Economic Growth, Discussion Paper No. 28. Washington, DC: International Food Policy Research Institute. Zheng, Y. (2011). Poverty Reduction and Sustainable Development in Rural China, Vol 5. Boston: BRILL. Zhu, N., Luo, X. & Zhang, C. (2007). Growth, Inequality and Poverty Reduction: A Case Study of Eight Provinces in China, 6th International Conference on the Chinese Economy. Is China's Development Sustainable? Clermont-Ferrand: University of Auvergne. Read More