Issues Behind China's Economic Growth Essay

Length: 4 pages Sources: 4 Subject: Economics Type: Essay Paper: #70450161 Related Topics: Shane, Population Growth, China, Goldman Sachs
Excerpt from Essay :

China as a Developing Country

China's Economic Growth

China as a developing country

The world economy has grown to be very competitive of late; there have emerged new economic trends, new economic alliances as well as new economic powers in the world over. Among the newly emerging economic powers is China which has been observed to be one of the fastest and stable rising economies in the world that no other economies can ignore them. The big question is how the Chinese have been able to set this trend and how they are maintaining it throughout.

Before 1978, China had been experiencing an annual growth of 6% annually; at times it had severe setbacks in the economy and this was due to the control that the government had on almost all assets of China and the significant infrastructure and means of production and trade. However, this came to change in 1978 when the government of China came up with a mega economic reform agenda. This was in the form of encouraging the rural enterprises and the liberalization of foreign trade, private business was encouraged, state invested in industrial production, the state eased the price control system and invested much in the education of its workforce (Zuliu Hu & Mohsin S. Khan, 1997).

Immediately after the introduction of the economic stimulation program through the economic liberalization, China experienced a 9% economic growth with lesser strenuous time as before and recording way up to 13% in some good years. The per capita income of China has since quadrupled over the past 15 years and is predicted to hit a higher scale than that of the U.S.A. In the next 20 years if there are no major interruptions in the economic progression. By 2008 the Per Capita national income of China stood at a high of $1,740 as confirmed by Embassy of the Peoples Republic of China in the United States (2008) up from $350 in 1990. It was during the same time that the GDP was estimated to be $7.8 trillion hence being ranked the second -- largest economy in the world on the basis of purchasing power parity (PPP) (World Factbook, 2011). By the year 2005 the GNP of China stood at $1,529 billion and Goldman Sachs, a research firm, estimated that in 2050 the economy can hit a possible $44,453 billion (Economy Watch, 2011)

Reasons for the growth

There are various reasons as to why the economy of China has managed to have such a massive growth within a very short-term, with figures doubling and tripling over a short period of time. There is an intricate relationship between the various factors that account for the growth of China and they have to be viewed as part of the whole and not in isolation.

One of the major determinants of the growth was the end of the commune system under Mao. The idea of concentrating on the rural farming and giving the state any excess product was brought to an end hence the excess production could enable the rural Chinese the chance and incentive to start businesses. This sparked off a race towards forming small nonagricultural businesses and more efficient use of labor and saw the export levels of China rise from 5.3% of the GDP in 1978 to a pleasant 20.2% this was reflective of 1,450% of the China's export trade (Sonia Wong, 1998). This was achieved due to the liberalization of trade, and the strengthening of the inter-bank foreign exchange market. In turn the increase in export levels encouraged more people to move into higher-value-added manufacturing hence the shift in economy from basic production to the processing of the raw material which are more suited for export (Christopher E. Hearne, 2009).

The other factor was the granting of greater autonomy to the private enterprise ownership. With the relaxation of the rules, people became freer to set up their mega businesses, sell more of the products to a market that presented more competitive prices, control the quality of the manpower they employed, retain the reasonable portions of the income to expand the firms further and future investing. The private ownership gave rise to more job creation, boosted foreign trade, expanded consumer goods production, higher tax collection and insulated the state economy in general, indeed the privately owed enterprises outdid the State Owned Enterprises (SOEs) (Centennial Group Holdings, 2002). From 1978 there was a drop in the Gross Value of Industrial Output (GVIO) from 77.6% to 18.05%...


This meant that more money was getting into China and more interaction with the external and international currencies hence giving the Chinese currency more worth internationally.

With the liberalization of the economy under Deng Xiaoping, there was a larger interest and investments channeled to China by foreign investors. Currently there is a total increase in the foreign investment by 15% in April 2011 (Bloomberg Bissweek, 2011). This consequently meant that there was an increase in the eagerly needed infrastructure in form of trade centers and the factories, further providing employment to the then highly unemployed Chinese population (Satya J. Gabriel, 1998).

The opening of doors for the foreign investments also meant that there was infiltration and efficient transfer of technology and export of goods from China. The opening of the foreign markets fueled the productivity in China domestic industries so as to keep in pace with the market demand.

One other factor that propelled the economy of China to great heights was the liberalization of the prices. China has granted a considerable extent of autonomy to the producers of the agricultural and consumer goods than the other sectors whose pricing has still remained under control. The reason for the price control over the other facets of economy is the inflations that have hit the country in several occasions.

It is also worth noting that while the capital accumulation in China is of paramount significance in the economic growth, such as factories, machinery for manufacturing and the communication assets, the increased productivity was the driving force for the economic boom. The increased productivity was helped by the hitherto motioned investment in the training and professionalization of the Chinese workforce. This followed the high investment in education that as well propelled China to a 94% literacy level in 2009 where children of 15 years and above can read and write (The World Bank, 2011). This is a significant facet in development since it introduces new knowledge and technology in the population and opens their minds to possibility of implementation of the knowledge for the improvement of the economy.

China also enjoys vast natural endowments like the cultivatable land in thousands of hectares, the offshore gas, the manganese deposits, coal deposits, pig iron extracts, nonferrous metals and crude oil as noted in by Chinability (2011).

The continued growth of China will keep being evident in the rate of population employment rate that is and will continue to be evident. Indeed, the MDG1 of China is the creation of jobs without necessarily jeopardizing the economy. The UN is working hand in hand with China to ensure that there are sufficient jobs without compromising the economic growth of the country, this they call 'jobful growth' (United Nations in China, 2010).

Advantages of the economic growth

There are several benefits that the Chinese growth in economy has brought to the people of China themselves and even the surrounding population and the world at large.

There has been increase in the living standards comparatively from the time before 1978 to the present situation. This has seen the people living on a dollar a day down to 22% as compared to 34% that was the case in the late 1980s and early 1990s. The increase in living standards has seen the rise in health care services, better schooling that is technologically oriented and eradication of corruption as part of the value of the Chinese people at all stages of education.

Rising in employment has been the other plus that came with the economic growth in China. This saw many more people migrate from the rural areas and depending on the subsistence faming to the industrialized centers to do more technology oriented jobs than before. This was an essential direction in the Chinese economy since they depended on the industries and technology to stabilize the manufacturing process of the raw material extracted from China and has helped hold down the unemployment rates to as low as 4.3% in 2009 (World Factbook, 2011).

The economic growth has also seen the growth in capital investments as there is a higher rate of locals and foreigners getting into China to construct industries, assembly points and other physical infrastructure for economic investment. The increase in the private investments has hence propelled the government to…

Sources Used in Documents:


Aimin Chen, (2004). Assessing China's economic performance since 1978: Material attainments and beyond. The Journal of Socio-Economics 34. Retrieved May, 30 2011 from

Bloomberg Bissweek, (2011). Foreign Investment in China Climbs 15% on Consumer Demand.

Retrieved May, 30 2011 from

Centennial Group Holdings, (2002). The Development of Private Enterprise

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