In the past thirty years the Chinese economy has exhibited phenomenal growth, especially when compared to what the country had seen for the century before that. China has become a model of economic efficiency and stability. They have used different models to attain this through a graduated system that has been marveled at by the rest of the world. With a mix of free markets and governmental control, China has been able to achieve something few thought possible.
However, quick rising bubbles often collapse. Just like a souffle, China's economy could be in for a fall with the slightest, unconscious bump.
People have been analyzing this growth for the past three decades, and there are many theories regarding the sustainability of the model with which China has, so far, been successful. This research paper is designed to examine where china has come from, how they produced the growth initially, how they have sustained that growth, and if what they have achieved is a continuing possibility.
China began the reform in 1978, and they have seen remarkable growth since then (Brammal, 2000,4). This was in great contrast to the economic forecast in 1949 when Chairman Mao "declared that the Chinese people had 'stood up'" (Zhang, 2004). At that time the GDP per capita in China was $18 as compared to the United States which was at $500 and Britain at $464 (Zhang, 2004). Due in large part to the leadership of Deng Zhaoping, the Chinese economy has grown from a weak GDP of $150 billion in 1978, to a GDP of $2.2 trillion in 2005 (Jefferson, Hu & Su, 2006). That made China, at the time, the fourth largest economy in the world behind the U.S., Japan and Germany (Jefferson, Hu, & Su, 2006).
There were many reasons for the growth of the Chinese economy, but the greatest of these was the "open door policy" implemented by Deng Xiaoping (Nolan & Furneg, 2003, 218). These researchers go on to say that "Before economic reforms, the apparent lack of modern capitalism under Mao's leadership, particularly during the Cultural Revolution, was a main constraint on economic performance" (218). Many thought the reforms of Xiaoping were slow and deliberate and that they would never work. The Chinese "sequenced reform by sectors -- agriculture, industry, international, labor, and capital" (Kohli, Moon & Sorensen, 2003, 160).
One of the main reasons that this worked is that China began opening markets slowly, and then the government worked with the private sector to realize growth (Ahrens & Mengerinhaus, 2006). The government had State Owned Enterprises (SOE's) that needed to be transformed. "The rapid development of private enterprise in China over the past two decades has resulted from a gradual and cumulative reform process featuring the spontaneous development of private enterprises and the top-down transformation of the SOEs" (Garnaut & Song, 2004, 45). After this transformation was begun, the cities In China started looking for cues among the international cities that had a successful growth pattern (Kong, 2009).
After the transformation of the SOE's and private industry within the cities, the government was ready to work with small businesses that were primarily in the country (Alon, 2003, 78). These business were mom and pop manufacturing shops that made everything from crafts to machined parts. The growth of the small industries has thrived and spread across the landscape of China from the coast into the inland cities.
Several significant changes have occurred in both the large cities and the outlying areas recently that have helped China to sustain the growth that they have built.
"Inland provinces and regions possess the advantages of inexpensive labor, low factor costs, and unrealized potential for market expansion. Fostering conditions and creating a climate more conducive for inducing foreign investments inland could stimulate another round of sustainable and sustained economic growth, actualizing extensive growth potential hitherto untapped. For augmenting the basis for sustainable growth, increased foreign capital injection into noncoastal regions is both expeditious and realizable (Shen, 2000, 215).
This research concludes that China has started to use the resources it has within its massive population. By utilizing all of the people that it has at its disposal, China does two things. First they are able to produce more than almost any country in the world cheaper. Second, by providing the jobs to their people, they increase their internal economic growth. This is wise when it comes to the countryside, but what has China been doing in the big cities?
Beijing is the capital of china and they have just been showcased for the world. In 2008, people were able to see a city that has retooled itself into one of the major industrial centers in the world. Beijing has done this by using a three factor approach (Yusuf & Nabeshima, 2006, 58). The city has long had a government sector that promotes business opportunity. Then they developed a thriving private sector which has pushed the city even farther forward. The final piece of the puzzle is that "being the capitol has given Beijing prominence in the Chinese economy and has attracted foreign banks" (Yusuf & Nabeshima, 2006, 58). Beijing has realized tremendous growth that has been sustained due to this three-pronged approach.
China has also been developing a merchant class that is helping the economy, and leaders have begun to see the poor of the nation as a growth industry also. With "a growing middle-income class, universal education and greater awareness of alternative political cultures and system in an equally globalized political and economic context, the ground is changing everywhere in Asia politically" (Menkoff & Gerke, 2002, 46). China has seen the growth in this class of people because of the growth of the small business sector, but they have also begun to educate their children at home so that this class can be sustained. As previously mentioned, China has also started to realize that" the poor can benefit from the expanded global opportunities presented by global integration, provided that institutional constraints are addressed" (Krumm & Kharas, 2004, 167).
But now that China has shown that they can build an economy and sustain it in the short-term, they have to address issues that are plaguing many of the world's other large economies. McMahon (2007) mentioned all of the issues China must address when he said that China must begin "Developing and implementing ecological, social, and financial strategies, improving the health and welfare of the Chinese people, and collaborating with fair socialist markets will serve as a world model." The people are the primary concern that needs to be addressed. China has gotten better, but they still have some of the poorest people in the world. With a comprehensive program aimed at addressing the treatment of all people, China will be more accepted by the global community.
Another hot button topic that has plagued the U.S. For many years is the equitable use of natural resources. A group of researchers found that "When applied to China for 1987-2003, the empirical evidence suggests that the size of the Chinese economy surpassed the scale of the carrying capacity of the ecosystems after 1992" (Zhao, Hong & Zhang, 2008). This relates directly to the sustainability of the economy. China, like the U.S. has become one of the largest producers of greenhouse gases in the world (Soubbotina, 2004, 117). They have shown reluctance to reduce their use and without a sound program, they could reach a point where they are having to spend large amounts of capital on cleanup. Also, the fines levied by international organizations can be stiff.
Another issue that has nothing to do with the people or the environment is their actual growth model. Auty (2001, 271) mentioned that "The policy of subsidizing industry may sustain output over the short- and medium-term, but the staple trap model shows that it has two adverse consequences for long-term economic growth." This can be seen in the financial collapse of the Japanese economy. The government was artificially propping up large businesses, and this proved to be unsustainable in the long-term.
It stands to reason that China will have to face some of the problems that large economies tend to generate. China is facing the challenges of both ecological degradation and increasing socio-economic inequality at the run of the new century (Wu, 2003, 164). Whether they are able to use existing technologies to make needed changes (Ekins, 2000, 323) is yet to be seen.
China needs to be innovative to realize continued growth (Wu, 2004, 32). They have been so far, but can it continue?
Ahrens, J., & Mengerinhaus, P., 2006. Institutional change and economic transition: Market-enhancing governance, Chinese-style. The European Journal of Comparative Economics, 3(1). pp. 75-88.
Alon, I., 2003. Chinese economic transition and international marketing strategy. Westport, CT: Praeger.
Auty, R.M., 2001. Resource abundance and economic development. Oxford: Oxford University Press.
Bramall, C., 2000. Sources of Chinese economic growth, 1978-1996. Oxford: Oxford University…