The Slowdown of Economic Development in China - Essay Example

China for the past decade has seen a specular rise in economic growth. But it has faced many crises like democratic economic bubbles, astronomical debt, and overspending. It is a classic case of history repeating itself. What rises comes down and eventually levels out as the countries progress from crafts, agriculture to manufacturing and finally to service and knowledge economy. As a result, the countryside empties out and it no longer serves as the source of cheap labor. With a rise in fixed investment, the marginal return decline and thus each unit of capital generates less output than the previous ones.

This is known as the law of diminishing marginal returns. During the Cultural Revolution in China, the growth dived down from as high as of 19% to below zero. Recent Chinese history reflects the role of the exogenous shocks which is far worse as compared to those of cyclical downturn. Such domestic turmoil is a severe attack on growth. Due to the Cultural Revolution, the growth declined by eight, followed by seven percentage points. The same case happened during the Tiananmen Square massacre, where the growth dropped to 2.

5 percent for two consecutive years (Joffe 1). The two revolutions is a fitting example that the more the state tries to grip, the more vulnerable the economy is to political shocks. Hence the Chinese authorities look at every civic disturbance from the point of view of Tiananmen revolt. They fear that their days are numbered. They have seen that the communist party collapsed overnight in the same year which saw protest at Tiananmen Square. Today everyone may be mesmerized by the awesome growth of China.

But they cannot defy their verdict of economic history. No country has escaped from this history. The Western intellectuals have concluded that power may breed growth initially, but in the long run, it fails. The same thing is revealed by the affairs of the nation in the 20th century. A supreme leader of a nation may whip his people to bring about frenzied industrialization which would normally take decades for democracy to achieve. But it is short lived. Top-down economies may succeed at first but it eventually fails as seen in Soviet case.

Any Authoritarian government plants the seeds of their own demise. The system may move mountains through its use of power but eventually, the system is itself hardened like a mountain range becoming stony, immovable and impenetrable. The system tries to empower the vested interest so that they can get privileged access and then resists change since it will pose a mortal threat to their income and status. In such a society, the elites try to acquire as much riches a possible, more than what a free market would grant them.

The government favors the organized interest and industries which seek more power so that they can gain subsidies, monopolies, protection, and tax subsidies more than the competitive system would grant them. If a state instead of the market determines the economic outcomes then politics will beat profitability. Building permits, Licenses, anticompetitive regulations, import barriers go to those players which are favored by the state. Such a system is not easily repaired. This is what China is facing now.

Today China’s export sector contributes to its maximum earning. Once this ends, the countryside of China will not be able to feed the industrial machine with cheap labor.