Economy of china is one of the largest economies in the world after the United States of America. Over the years it has been regarded as the fastest growing economy in the world registering the highest number of exports and imports. This has been attributed to high population that the economy has to support. As a result, the economy has improved which has been reflected in terms of the infrastructure development as seen in certain sections of the country which have been heavily industrialized. The current GDP growth rate is estimated to be at 7.4% while the rate of inflation is estimated at 5.4%. Chinese economic system up to the late 90's was faced with a situation where the state owned enterprises took control of certain industries and controlled the financial system. In the early 70's the economic growth was low compared to the western economies therefore most of the industries used low level technologies and the level of technological advancement did not pick up to the level of advancements in the western countries.
The change has been gradual over the years and obsolete technology continued to be used for as long as they were offering services. Most of the Chinese designs or innovations and adoption of new technologies were behind the designs of their western counterparts that depicted a slow growth and development for a long time. The administration of the Chinese cities was decentralized, a fact that denied the economy an opportunity to expand and devolve power. It was the work of the central administration to monitor and control the flow of goods and services to all the regions and this in turn hindered the free flow of these commodities between the regions.
Chinese government's lack of proper planning to develop the country and have in place a system to tap the economic potential of every region slowed the economy for a long period of time. It was however not too static despite the absence of proper transport and communication infrastructure to link and support the population and promote economic development. Politics also played a key role in the economy as the economic policies have been shaped and designed by politics. Better goals were designed and projected to improve the living standards of the population, to fully industrialize china, spread the wealth and narrow the gap between the rich and the poor and to transform it to a modern, powerful and a socialist nation. The policies which were well laid were constantly altered by the politicians denying the citizens the opportunities to advance and better their lives.
The transformation was realized in 1978 when china realized an economic reform shunning the old style of governance to adapt to the new economic policies to champion the country to the new heights to match their western counterparts. They realized that the centrally planned economy had failed to have in place the economic advancements, if anything; it had slowed the economy making china to lag behind in all aspects. The whole idea was not to oust the government from controlling the economic policies but to give it a new dimension where things were done differently to increase efficiency in delivery of services. The newly adopted policies were implemented in certain areas first and upon approval, they were further disseminated and replicated in other areas if they proved successful. Due to these changes, the economy that was burdened with less supplies and low economic growth coupled with slower economic activities gained some momentum and the results were positive in terms of increase in the supplies and other consumables giving the economy a positive indicator for growth. The economy became vibrant as the new measures took effect offering people the opportunity and an enabling environment to engage in some form of economic activities. On a different angle, the results were received differently as they triggered tensions in the political wings in determining the economic future and direction of the program by the politicians (Anmin Chen, 2009).
Over the recent past, the main focus has been to shift the economy from the centrally planned economies to market economies. The Chinese reform took place in a gradual manner that enabled those in power to cling to their influential and political positions and take advantage of the new corrupt ways in form of taxes and licenses. These individuals grabbed the state resources through dubious means, they had stake in these new businesses and invested in these new businesses making sure that the policies and the reforms did not affect the markets to their advantage. The state on the other hand did not initiate openness in competition and had an upper hand in terms of resources and transport system among other vital resources which were not accessible to the Chinese village enterprises. Transformation into the mixed economies has initiated a lot of economic growth as it has led to the openness of the borders encouraging trade with other nations. China has kept an open border where nearly all those who are willing to engage China in trade are not subjected to many barriers as those importing to china do not require import licenses. It has gained mileage and has become the world third largest trading nation. Opening up of the borders has encouraged the western nations and other investors who have been attracted by the removal of many taxes. The inventors also have been attracted by the affordability of labour which is in abundant making it cheaper to produce from china and become competitive in the global markets. As a country that relies heavily on trade, it has taken advantage of this opportunity in which the economy has achieved a great degree of development improving the lives of many individuals giving hope to the ever rising population as more opportunities are created.
Transition to the market economies has also improved the infrastructure and improved on the road network for a faster movement of goods. Communication has improved enormously which has exposed the underdeveloped regions to the rest of the world thereby opening those areas for economic activities and expanding development and investments and at the same time aiding in spreading wealth (Russell Huebsch, 2007).
State owned enterprises (SOEs) have taken the bigger part of the economy and are considered the largest compared to the non-state owned enterprises. In terms of their size, they comprise 5% of the total enterprises in China. The level of profitability between the SOEs and non-state owned ones varies, for some individuals, non-state owned enterprises are more efficient and profitable while in real sense, the state owned ones have more advantage as most policies favor them hence the high level of profitability. The SOEs enjoy monopoly over the others and enjoy the availability of resources taking advantage of all their sizes, networks and strategic positioning to outdo the non-SOEs. A more elaborate analysis would be achieved by paying attention to specific industries but the general trend and the outcome is constant with little or no deviations from different sectors of the economy (Gao Xu, 2010)
SOEs therefore have a negative effect on China's private industrial Enterprise in many ways. The government has a direct influence in the microeconomic activities by approving investment projects, acquiring administrative licensing for market access and controlling prices whereby the SOEs are favored in matters of market accessibility and pricing. In a monopolistic economy, free market conditions do not prevail, the prices do not reflect the true demand and supply. The government dictates the prices which favor the state owned enterprises and hinder the development of the private industrial enterprises. The policies in place do not encourage the development of the private industrial enterprises. There are bureaucracies involved in the acquisition of the licenses which has led to corruption "guanxi" by the officials. The existence of corruption has continued to suppress the development of private enterprises hence the fare share of the market has been taken by the state owned enterprises. The government officials have showed less effort in reviving private industrial enterprises while it is their duty of to ensure that the industrial growth is fair and uniform in all regions to equally develop the entire nation. When the state has an interest in entirely all the sectors of the economy and has put unfair competitive or restrictive measures measure in place, Foreign Direct Investment (FDI) is significantly reduced. It is however through FDI's that technological innovation is transferred and knowledge impacted on the citizens through the foreign investors.
There is knowledge transfer and capital flow which therefore increases the level of innovation. When there are too much SOEs in china, less chance is left for knowledge spillovers from the non-SOEs which could have positively impacted the economic activities as knowledge could be easily shared giving rise to a high level of innovation and quality products being produced for both local consumption and beyond. This had led to a negative the perception about the Chinese products and the majority of the population have to import goods from other…