Economy of Modern China
In 2016, China’s economy was ranked second largest in the world after that of the United States of America. The current status that the economy of China enjoys is a result of the adoption of the major shifts both by the government and the country at large. Moreover, according to Chow (2015), Chinese realignments in its economy have been based on the central perspectives of economic matters. There has been a shift from a time when economic matters were under the authority of the central government to the moment when the economy became market-based. As a result of this central shift, China has been experiencing continuous growth in its GDP for many years, even when other major economies have been struggling. According to the World Bank, Chinese economic reforms that started in 1978 empowered the country’s economy to achieve average growth of 10% in its GDP, thus becoming the highest-growing economy in the world’s history. As a result, China’s economy has now become a major player in the world economy and occupied a huge role in the accomplishment of the Millennium Development Goals (MDGs) (See World Bank website: http://www.worldbank.org/en/country/china/overview). However, based on the World Bank’s statistics from 2012, although the Chinese economy has been growing slowly, it has outdone the economies of the USA and Japan noticeably. Thus, since their introduction in 1978, the reforms transformed the Chinese economy into a global pacesetter and above all, helped it to continue flourishing in the world. The economic reforms championed by Deng Xiaoping and the Chinese Communist Party in 1978 changed the Chinese economy from government-owned to market-based and opened up it to the world, thus turning China from an underdeveloped communist Asian country into one of the best economies in the world.
The Principle Shifts in Chinese Economic Reforms
In 1978, Deng Xiaoping laid the foundations of the Chinese economic reform, the main objective of which was to ensure that the economy produced a large surplus. The intention of encouraging the surplus in production required obtaining additional finance to modernize the Chinese economy. Keith (2014) points out that one of the primary changes that were adopted in the economy of the county was the contract responsibility system in agriculture, where the farmers were given the authority to sell their products directly into the market. This change was aimed at encouraging the Chinese farmers to produce more. As a result of the major shift in agriculture, China increased production and by the 1980s, the country has already solved its problem of food shortage. Hence, a surplus in the field of agriculture was realized as intended. The decision to start with the reforms in agriculture was based on the fact that this sector formed the backbone of the economy.
Another primary shift that was enacted aimed at making it easier for people to be involved in the business world. The main intention was to eliminate the bureaucracy that has increased during the rule of former leaders in China. As pointed out by Yao (2015), this was a strategy that the Chinese government was using to manage the economy accompanied by acquiring ownership of all major companies. The intention aimed at increased production in the field of business, as it was in the case of agriculture. The main idea was that an increased economy would uplift the welfare of the entire Chinese population. These two major shifts set the precedent that has continued to characterize the Chinese economy, as more objectives are being accomplished. However, at the heart of all shifts in the Chinese economy leading to huge gains lies a huge role of the government. Thus, the Chinese authority has enacted strategies aimed at empowering the local business, while at the same time providing the right environment that has attracted an influx of foreign investors to the country.
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Government Actions in the Economy
The Open Door Policy
The adoption of this model was one of the actions taken by the government with the aim of modernizing the Chinese economy. Enacted in 1980, its primary form was a special economic zone that was used by the government as a testing ground to see the effectiveness of a flexible economy compared to the former one, which was centralized. As outlined by Wu and Wang (2015), the policy was introduced in the Southern city of Shenzhen, and in a few years, the policy managed to transform it from a solely fishing village into a region that was performing strongly in fishing and manufacturing. The government’s intention was to selectively and gradually open up regions and industries to the rest of the world. As a result of the open-door policy, 14 coastal cities were opened up, making trade with other countries possible.
However, the industrial and institutional opening up of China was a gradual phenomenon that was highly necessitated by the demands by the geographical opening. The gradualness of this opening was also slow as a result of the major shifts it demanded. Some of the shifts the government made to open up industries were decentralization, tax reforms, and the adoption of the foreign trading system. However, once integrated into the Chinese economy, industries in the country began to flourish due to increased demands from across the border such as the one with Russia. Wu and Wang (2015), argue that many economic experts name the open door policy as the mother of the Chinese economic turnaround. It is through this policy that China has been able to attract a large pool of foreign investment that made the economy grow year after year. This policy was further boosted by the 1992 reforms where an elaborate foreign exchange system was enacted to better China engaged in the world trade and was highly based on the banking sector where the intention was to transform the banking sector to reflect that of the USA.
Urban Economic Reform
In this economic reform, it was the intention of the government to ensure that the improvement of economic performances in the rural regions brought by agricultural reforms was also replicated in the urban areas. According to Yao (2015), this was an economic shift that major labeled over-ambitious since the Chinese government wanted a complete overhaul of its strategy to improve the economy from being specific to being coordinated where it was happening on many fronts. The key intention was to bring about the commercial aspect of the urban economy. This was to be based on enterprise systems, labor supply, and wages, and tax policies to name but a few. There was also a social aspect of the economic reform where the government brought about the rule of one child in urban areas. The key intention of this policy was to allow government to use fewer resources in social amenities and concentrate more on the economic front. Moreover, this was a policy aimed at ensuring that less space is used for subsistence use that was not bringing any economic advantage. The urban reform set the center stage for what formed the back bone of the new Chinese economy where urban centers were turned into production centers.
Prioritized Education Progress
Another point of action that the government enacted was in the education sector where Deng Xiaoping made it clear that the educated elite and the scientist had a major role to play in changing the economy of China and on a larger scale take up China in the international center stage. According to Yao (2015), to Deng Xiaoping, the only way the Chinese economy was to be changed and sustained was by ensuring that a high level of professionalism was where result mattered. To him, meeting this was only a possibility if the Chinese people accepted the huge role the education sector was to play in reforming their economy. He was more so keen to ensure that the country has more scientists as these were the experts the economy needed to boost its economy. His constant agitation ultimately led to the Chinese Communist Party adopting the ideology, and the educational expertise was integrated it the management of the Chinese economy in a meeting in 1978. Moreover, it was also agreed that more support regarding resources would be availed to support the scientific and education sector.
This action later became the backbone of the Chinese economy, attracting big technology companies such as Apple to the Chinese market. Due to the re-legalization of the usefulness of education and more so scientific expertise, major technology companies relocated their operations to China, where they can find both highly qualified personnel and a large percentage of cheap labor force. Moreover, the level of efficiency in the Chinese economy was boosted, as more innovation in the field of technology was attained. This is another trait of the Chinese economy that attracted a large pool of foreign investment, thus leading to its huge improvement both in scope and performance.
Happenings after Government Actions in the Economy
Advanced Technology in the Economy
Heavy investment in the education sector empowered the Chinese economy to attract huge foreign investment, bringing the best technology in the world to the country by attracting the best talents in the technology field. Wu and Wang (2015) argue that it was the main reason why many companies decided to move their production to China, which boosted the level of technology in the country. As a result, the level of modernization of the production process in China has been on a constant rise due to integration of a high-level technology since it has become a product of both government and foreign investment in the form of new firms.
Increased Foreign Investment
Another happening in the economy as a result of the economic shift that goes back to 1978 was a constant increment in the level of foreign investment. Keith (2014) points that with the opening up of the economy, by 1990, the GDP as a percentage of foreign income equaled 40%, demonstrating the huge and quick positive benefits of being involved in foreign trade. Moreover, China’s opening up to the world also increased opportunities and expanded the market for Chinese products. In return, the involvement of foreign countries in trade in the form of export has also brought a lot of foreign currency into the economy.
Large Pool of Highly Skilled Population
Another critical occurrence in the Chinese economy has been in the form of an increased number of skilled labor. The ideology of improvement of the education and scientific field as the gate to a better economy being taken accepted by the ruling party, more resources were availed, thus contributing to higher gains in the sector. As a result, according to Keith (2014), China now boasts of being one of the best scientific centers in the world and having a huge qualified workforce in the technology industry. This is the main reason China benefited most from the process of offshoring that was brought by globalization, as most of the companies were rushing to China due to cheap but skilled labor.
Improved Welfare for the Citizens
The welfare of the citizens is another factor that has been boosted considerably by the major shifts seen in the Chinese economy. This can be seen in the continued increment of per capital income in China. In 1978, the disposable income was 343.40 CNY compared to 33,616 CNY in 2016. Moreover, as noted by Pun (2016), in 2015, the income of an ordinary Chinese doubled compared to 2006. This is an indication of how the economic shifts that led to the flourishing of the economy also positively affected a common person. Moreover, Pun (2016) asserts that the level of inequality has also been on a decline, reducing from 0.487 in 2006 to 0.462 in 2015. This is a result of the population control policy that slowed down reproduction of the Chinese people and contributed to improved economic performance. Hence, it can be inferred from these primary shifts in people’s welfare that the improved economic performance from 1978 has also been replicated in people’s lives.
Analysis of the Results
The realignments established in the economy by the government have brought remarkable success to the country. This is because they have been able to help the Chinese economy to open up to foreign investment, which has been represented by a dramatic increase in both the GDP and per capital income over the years. The urban reform has seen China provide the best incentives such as subsidies on land leasing by the major companies, which attracted huge companies, which, in turn, employed a lot of natives. Similarly, according to Pun (2016), the agitation to fund the scientific and education sector from as early as the 1980s has led to the improvement of the sector, thus equipping the Chinese with the right skills to better exploit opportunities brought by the open door policy.
Additionally, the open door policy empowered the economy in a sustainable manner, as foreign investment has become available to the economy, thus cautioning it from internal shocks. Moreover, the policy has also expanded the production market for China, leading to more employment opportunities. However, these actions from the government have not been impeccable. For example, Chow (2015) noted that the urban economic reform that demanded families to have only one child has left many parents helpless, particularly in cases of death of the only child at an advanced age. As a result, many aged people were left without caregivers. However, this was not the only problem, as the government was forced to spend a lot on caring for these people. Besides, restriction of population growth resulted in suppression of the workforce. Moreover, the policy has contributed to disproportion in the sex ratio in the form of more males than females in China. These are but a few challenges brought by the policy that has forced the government to change the policy into the two-children policy.
Another challenge of the economic reforms, particularly the open door policy, is that it led to increased production activities in China that had no set regulations. As a result, the level of pollution has also been on a constant increase, thus turning China into one of the most dangerous countries to live due to air pollution. This has resulted in increased incidence of cardiovascular system diseases. Therefore, there has also been increased spending in the health care sector. However, in general, the government actions in terms of reforming the economy have been successful and have turned China into an economy powerhouse.
Investment in Infrastructure and Its Effects on the Economy
Infrastructure upgrade has also been an integral path followed by the government as a way of reforming the economy through attracting foreign investment. However, according to Chow (2015), the major investment in infrastructure was seen in 1998, when the government invested 100 billion yuan, which was followed by an equivalent investment in 1999. The main sectors of infrastructure prioritized by the government were the transport and energy sector, both of which were critical in luring investors but at the same time assisting in improving the local firms’ capacity. From the beginning of the 1990s to the early 2000s, this investment was accompanied by increased positive results in the Chinese economy due to the improved level of efficiency of Chinese companies.
However, currently, the experts hold a view that increased investment in the infrastructure has become a threat to Chinese economy growth. Their argument is that most of the money that has been directed to roads and railways are yielding fewer benefits than their costs. According to a study by the Sa’d Business School, the cost of many of industries appeared to be 30% higher than their estimated cost (See phys.org website: https://phys.org/news/2016-09-china-infrastructure-investments-threaten-economic.html). Moreover, the researchers found that China has been constructing many and low-quality infrastructures, which could lead to an ‘infrastructure-led national financial and economic crisis,’ whose outpour will also be felt at the global level. The recommendation is that China should concentrate on fewer but high-quality infrastructure investments, as this is the only way this investment will lead to a better economy performance.
It is obvious that economic reforms that started in 1978 laid a platform that turned China into a major economic player in the world. This was made possible by the influence of Deng Xiaoping, who acknowledged that in order to flourish, the Chinese economy needed to eliminate bureaucracy, open it up to foreign investment and above all, appreciate the role of education and science. With the Chinese Communist Party investing in Deng Xiaoping’s ideology, the Chinese economy was opened up to the rest of the world through the open door policy. This helped the economy attract heavy foreign investment, which was supported by a large pool of skilled labor and various incentives. As a result, because of the economic shifts, the Chinese people have also benefited in terms of an increased GDP and per capital income and the education sector.
However, some of the actions by the government have also brought challenges to China, one of them being the one-child policy that has led to a disproportional sex ratio and a high level of pollution, thus leading to increased social expenses. Another avenue that has seen huge reforms is the infrastructure sector to which huge sums of money were directed, the major investments being made in 1998 to 1999 and amounting to 100 billion yuan. This was followed by an increased economic performance that contributed to increased efficiency and foreign investments. However, experts argue that the continued investment in infrastructure is likely to lead to a financial crisis since most of it goes to low-quality infrastructures that do not yield enough benefit to cover their costs. However, despite these challenges, it is clear that the reforms that were started in 1978 formed a solid platform upon which the Chinese economy has continued to flourish.