Chinese Extraordinary Economic Rise - Article Example

Chinese Extraordinary Economic Rise Name: Course: Instructor: Institution: Date of Submission Chinese Extraordinary Economic Rise Introduction Chinese economy, which is socialist, has been the world’s second largest in terms of purchasing power and nominal GDP after that of the United States. Moreover, it is considered the world’s fastest growing amongst major economies of the world with the average growth rate of 10% for the past 30 years (Chow & Li, 2010). Nevertheless, the country has been the second largest importer and the largest exporter of commodities in the world. Importantly to say, the Chinese economy has been the fastest growing in consumer market globally (Chow & Li, 2010). According to analyses by various authors, the country has displayed extraordinary economic growth, achieving a significant position of being an economic force on the globe, for the last quarter of the century (Chow & Li, 2010). When Mao Zedong was dying, the economy was the tenth in the world, with its GDP being 6% of the US one at that period. The purpose of this paper therefore is to examine factors that have caused the country to achieve such extraordinary economic growth (Bosworth, 2004). The figure below shows China’s phenomenal growth from 1980 to 2008. Source: Zhihua (2011) Factors for the Chinese Extra-Ordinary Economic Growth Analysts have listed the Chinese nature of maintaining high rate of saving as one of the pivotal factors for its rapid growth. When economic reforms were introduced in 1979, domestic saving shot up to 32%. However, it is important to note that during this time, most of Chinese savings came from the country’s state owned enterprises and profits were used by governments to set up domestic investment programs. As the economy was decentralized, there was a substantial increase in household savings. These accounted for the greater percentage on the Chinese GDP as it constituted 49% of it in 2004, making it the highest saving rate in the world (Morrison, 2006). The next factor was the decentralization of the Chinese economy (Lin, Tao, & Liu, 2013). Before 1978, it is important to note that China had been recording loses in State owned enterprises due to embezzlement of funds and other forms of corruptions (Tovell, 2013). This resulted in production inefficiency that was in fact made severe when facing competition in the International markets. Nevertheless, the Chinese Agricultural sector had all firms being collectivized and owned by rural communes (Tovell, 2013). When reformists, such as Deng Xiaoping, took over power in 1978, economic reforms begun in earnest. The government hoped that the gradual reforms would put the country in a significant growth that would better the lives of all citizens. One of these reforms was allowing farmers to produce, keep and sell part of their harvest, especially in rural areas. This was specifically carried out by regional government that had been given some powers to ensure such reforms (Tovell, 2013). In this regard, local governments were allowed to take over the state owned enterprises and put them in their disposal. Moreover, the local states were also allowed to form links with foreign countries so that they can develop lucrative trade. As the local officials became autonomous, it was therefore important for them to maintain economic figures. Maximizing on international trade as the engine of their growth, the initially impoverished states could see themselves improving (Woo, 1999). The other factor for growth has been the government reform policy of establishing economic zones. According to analysts, the Special Economic Zones (SEZ) have been crucial in contributing to China’s economic success (Zhihua, 2011b). Together with numerous industrial clusters in the country, the zones have contributed very much in increasing the GDP, exports, employment and attracting foreign investors. They nevertheless become centers for new corporate management practices (Zhihua, 2011a). In 2007, the zones accounted for about half of all high-tech firms that were considered potential incubators for science and technology. They have been registering numerous inventions, which have become pivotal in increasing the competitiveness of the products produced from China (Zhihua, 2011b). According to analysts, the situation in the Special Economic zones, which drive the economy of the whole country can be summarized as gradual experimental approach, pragmatic facilitation by the government, broad institutional autonomy and preferential policies, private- public partnership, foreign direct investments and that from Chinese in Diaspora, clear objectives and vigorous benchmarking, competition and monitoring continuous learning and upgrading in technology, and social and business networking values (Zhihua, 2011a). The other factor that has been favoring the Chinese economic growth has been the large under-employed workforce (Lo, 2007) . This has been seen it accepting relatively low wages which have even attracted many foreign firms. Chinese employees are believed to be traditionally disciplined and quick at adapting to new systems of rules (Lo, 2007). Analysts note that the country has experienced a rapid expansion in its labor as from 1970s. It is also important to note that the country’s labour force accounted for about 26% of the world (Lo, 2007). According to the IMF’s consideration to weigh each country with its ratio of export-to-GDP, the effective labor in those countries that ranked highest went in the same direction with it. For the case of China, the expansion in GDP has been attributed to its expansion in effective labor force (Morrison, 2013). Analysts concur that the massive expansion in employment and increase in employee productivity have also been the impetus for the country’s economic growth. As the employment levels increased by 90%, the GDP of the country could be seen increasing by 11 times. Therefore, one can say that China’s economic growth was majorly labor intensive, which means that it depended on increasing the productivity of the current employees as it absorbs new entrants (Morrison, 2013). Coupled with this was the country’s investment in education, with a bias in Industrial and plant methods. According to analysts, training has resulted in superior skilled employment, which has been instrumental in producing goods that quenches both domestic and foreign demand. Taking in mind that the country is still being characterized as the low cost labor country, it has managed to reduce unemployment level, which has directly contributed to higher productivity. The training has resulted into highly produced outputs, which have laid an effective growth in China (Morrison, 2013). Most analysts concur that growth in exports have been instrumental for its growth (Bloomberg News, 2013). From the Chinese example, a developing country can expand its economic growth by expanding its human capital and goods (Bloomberg News, 2013). By this strategic measure, aimed at improving exports, a country will be able to increase its productivity as it seeks to improve its technological innovations (Bloomberg News, 2013). As its exports have been expanding, it has been asserting itself very well in International markets and eventually taking a very good share, which have spurred its greater economic growth (Bloomberg News, 2013). This year, China’s exports have shown signs of increasing which gives signs to the world’s second largest economy to continue growing (Morrison, 2006). The most crucial factor is the Chinese financial system (Elliott & Yan, 2013). The system as analysts note has been playing a very important role as far as the expansion of the country’s economy is concerned (Elliott & Yan, 2013). This has made it become the second largest in the world, with a potential to surpass the US economy. Most analysts have concurred that its financial system will continue to fuel its economy and make the country more developed. A financial system comprise of the role the government play in financial matters, importance of banks, financial intermediaries as regards stocks and bonds and the financial leveraging degree in the economy(Elliott & Yan, 2013) . The financial system in any country is supposed to optimize the allocation of scarce money and other resources to worthy projects so that to gain maximum returns from them. China’s financial system, from several decades, has managed to support the very rapid expanding economy and therefore earning itself as good performing (Elliott & Yan, 2013). It represents a real accomplishment of the system that has prevented any inhibitive events from hindering the economic growth. It has ensured that businesses get financial resources they need for investment in terms of firm’s self-fundraising, domestic bank loans, foreign investment and state budget allocations (Morrison, 2006). Conclusion From the discussion, the Chinese economic growth seems to emanate from broad domestic savings and demand, decentralization of Chinese economy, government’s reform policy to establish economic zones, large unemployed workforce, and growth in exports, growing foreign demand and the country's formidable financial system. Putting in mind that although China has majorly shifted its agricultural economy into industrial one, it remains largely agricultural. Having achieved its growth for a short period, it still has a bigger room for growth. This is likely to be so due to increasing domestic and foreign demands. References Bloomberg News. (2013).China's Export Growth Accelerates in Boost to Recovery. Money News. Retrieved 23 December 2013 from http://www.moneynews.com/Economy/China-export-growth-recovery/2013/09/08/id/524414 Bosworth, B. (2004). Valuing the Renminbi. Tokyo Club Research Meeting. Chow, C. & Li, K.(2010). China’s Economic Growth: 1950-2010.Economic Development and Cultural Change, 51(1), pp.247-256. Elliott, D.J.& Yan, K. (2013). The Chinese Financial System. Brooking: China Centre. Lin, J.Y., Tao, R. & Liu, M. (2013). Decentralization, Deregulation and Economic Transition in China Lo, D. (2007). What are the Macro Drivers of Growth, Employment and Income in the Chinese Economy- A Case Study in Policy Coherence and Sequencing. International Labour Organization. Morrison, W. (2013). China’s Economic Rise: History, Trends, Challenges, and Implications for the United States. Congressional Research Service. Morrison, W.M. (2006). China's Economic Conditions. Foreign Affairs, Defense, and Trade Division. Tovell, T. (2013).What Factors Have Been Responsible for China’s Rapid Economic Growth Over The Past Quarter of a Century?. Economics of Transition. Woo, T.W. (1999). The Real Reason for China's Growth. The China Journal, 41, pp. 115-137. . Zhihua, D. (2011a).China’s Special Economic Zones and Industrial Clusters: Success and Challenges. World Bank.http://blogs.worldbank.org/developmenttalk/china-s-special-economic-zones-and-industrial-clusters-success-and-challenges Zhihua,D.Z.(2011b).How Do Special Economic Zones and Industrial Clusters Drive China’s Rapid Development?. Policy Research Working Paper. World Bank. Read More