The Economic Transformation of China

The following sections are included:

• About the Author
• Acknowledgments
• Contents

The following sections are included:

• The Historical Foundation
• Central Planning and Collective Agriculture 1955–1978
• China's Economic Reforms, 1978–2013
• The Future

To an outside observer unfamiliar with China's history since the country came in regular contact with the West or with its history since 1949, the accelerated growth and rapid structural transformation of the Chinese economy since 1978 came as a complete surprise and has widely been seen as a “miracle.” A miracle implies that there is no real explanation for the acceleration in growth, the modernization of the economy and the urbanization of society. But China was not the first economy to enjoy such an abrupt change in economic performance. Growth in Japan, Republic of Korea, Taiwan Province, Hong Kong and Singapore all enjoyed two to three decades of near double digit growth that some considered a miracle but most analysts now describe as the product of various reforms in policy unleashing a pent up potential for growth. Because these economies were catching up with the high income countries of Europe and North America, their growth was particularly rapid until they began to catch up. What was different about China was that the number of people involved in this acceleration was far larger than anything that had occurred previously in history and, to date at least, accelerated growth appears to be going on longer than in the other economies that experienced accelerated growth and structural transformation…

Few generalizations find wider acceptance among specialists on China than that which holds that the Chinese Imperial Government was hostile to commerce and industry and that this hostility was a major element in the country's failure to achieve modern economic growth. There is, of course, an important element of truth in this generalization, but analysis of the issues involved has generally suffered from a failure to make clear just what it was that the Chinese government in the 19th century should have done to promote development…

From the beginning of Communist control over the Mainland of China, the major objectives of Chinese farm policy have been to raise agricultural output and the marketed portion of that output together with the maintenance of political security and control. The regime has attempted to accomplish these aims with minimal state investment in the rural sector. The importance of obtaining a substantial and increasing marketed surplus derived first of all from the fact that agricultural and processed agricultural products have made up approximately three-quarters of all Chinese exports. Second, although the rural–urban shift in population has been small in percentage terms, the absolute number of city dwellers increased between early 1950 and the end of 1956 by over 30 million people or 55%, all of whom had to be fed…

The Chinese Communists consistently stress the importance of planning to China's economic growth. In one sense or another, of course, nearly every nation plans its economy. But for China and other economies that to some degree follow the Soviet model, “planning,” particularly in the industrial sphere, takes on the more specific meaning of control exercised through centrally determined output targets. This chapter will investigate exactly how Peking plans in the industrial sector, why changes in planning techniques have been made over time, and how suitable the alternative methods are for China…

The following sections are included:

• Introduction
• Disruption in the Economy, 1966–1969
• Industrial Development Strategy, 1966–1976
• Changing Industrial Strategies, 1977–1980
• Accelerating Industrial Growth, 1982–1987
• Rural Development Strategy
• Rural Policy Changes After 1979
• Conclusions

The following sections are included:

• Introduction
• Economic System Reform
• Measuring Economic Performance
• Structural Change
• Income Distribution and Welfare
• Health and Population
• Conclusion
• Acknowledgement
• References

China's market-oriented economic reform efforts began earlier than in most other former Soviet-type economies except Hungary, have progressed further, and have been carried out despite the absence of radical political reform. Furthermore, by any reasonable yardstick, China's economic reforms have been a success. There ought to be, therefore, lessons for others that can be learned from China's experience — unless, of course, the underdeveloped nature of China's economy, its location in East Asia, and other special characteristics make the Chinese experience unique…

For the past 27 years China, according to official estimates, has enjoyed an average gross domestic product (GDP) growth rate of 9.4% per year. GDP per capita in 2005 was eight times what it was in 1978. Some analysts argue that these official growth rates may overstate China's true rate of development, but there is also evidence that in some sectors, they understate the true rate. No serious analyst, however, doubts that the pace of economic change has been rapid and that China has gone from being a very poor and economically weak nation in the 1970s to a still relatively low per capita income economy, but one that is now an aggregate economic force to be reckoned with on the world stage in 2006. If growth rates of this magnitude continue for another two decades to 2025, China will reach the level of per capita income of a South Korea today, but the overall size of the economy will be 25 times that of South Korea today and roughly equivalent to, or slightly larger than, the size of the US economy in 2005. Abject poverty, using either the standard of $1 per day or $2 per day, will have been eliminated from this 20% of the world's population — a population that is twice the size of Europe and North America combined. Rising incomes have made China a major market for exporters of both natural resource products and high technology manufactures. For exporters of labor-intensive and some higher-end manufactures, however, China has become a formidable competitor. On the negative side, another economy the size of that of the United States' that, like the United States uses energy wastefully, will put a large strain on the world's environment. At the moment, China, in terms of energy use per unit of GDP, is even more wasteful than the United States. But China also is making vigorous efforts at present to raise the efficiency of its energy use. Where China will be in this regard two decades from now remains to be seen, but there is little doubt that China will be a major emitter of greenhouse gases and other pollutants by that time. China is also rapidly building up its military capacity, and that buildup is likely to continue as long as the economy keeps growing rapidly. But will this high growth rate of GDP continue and for how long…

Why attempt to forecast China's economic growth? Most importantly, the impact of China on the rest of the world and on the standard of living of its own people depends mainly on whether the nation continues to double the size of its gross domestic product (GDP) every 7 to 10 years or whether that growth slows markedly or even halts. China already influences the world economy through its booming exports, its demand for natural resources, its influence on global warming, and much else. A GDP four times the current level will multiply China's worldwide impact…

The following sections are included:

• China's Investment and GDP Growth Boom: When and How Will It End?
• GDP Growth Rates and Per Capita Income
• Supply-Side Challenges
• Demand-Side Challenges
• Summing Up: When Will Growth Slow?

The following section is included:

• Index