China's Economic Reforms Since 1980: GDP Growth and Guangdong

Introduction

As the 21st century unfolds, China has emerged as a potential political and economic juggernaut that appears to be finding its stride in the international community and marketplace. As the second-largest economy in the world after the United States, the Chinese people have clearly embraced international commerce in a major way. To date, while there have been a number of political and economic studies conducted at the national level on China, specific regional studies are less common; however, the 1989 analysis of Guangzhou by Ezra F. Vogel helps to place this enormous region into perspective. This paper provides an overview of the economic reforms taken by the Chinese leadership in general since 1980, and those in Guangzhou in particular, to identify the impact of these reforms on the country's social and economic progress. An analysis of the implications of China's accession to the World Trade Organization will be followed by a summary of the research in the conclusion.

Background and Overview of China's Economic Reforms

By any measure, China has assumed a major leadership position in the world in terms of its political and economic might today; however, the road to this position was rockier than expected, and it took longer than most observers imagined. Nevertheless, measured on a purchasing power parity basis, China boasts the second-largest economy in the world after the United States (China Economy 2). China also has more Internet users than any other country (except the U.S.), and many coastal regions near Hong Kong, opposite Taiwan, and in Shanghai have enjoyed particularly strong growth in recent years. There remain some fundamental problems, though, with an antiquated political framework that is attempting to accommodate new market and social reforms while attempting to maintain control over a people who are increasingly enjoying the fruits of free enterprise. How long this unwieldy political arrangement can endure is anyone's guess, but all signs point to an erosion of the former totalitarian policies that constrained economic and social freedoms in the past (China Economy 3).

The political and social conditions in modern China are the direct result of the reforms initiated by Deng Xiaoping, who drastically altered the course of contemporary China's economic development. According to Shen (2000), "Deng engineered the thawing of a rigidly structured system frozen in time via effective reform measures. . . . Deng preserved the Party's authority, exercising ultimate power, yet initially permitting and later actively promoting the actualization of entrepreneurial potential through decentralization" (14). Deng's 1978 "Four-Modernization" program refers to his call for adjustment, restructuring, consolidation, and improvement in the structure, functioning, and performance of China's economy. This initiative provided a "coverall" directive that attempted to achieve structural and functional corrections in the economy, solidifying current and future successes and attaining new heights for future growth (Shen 15). Other impressive reforms during the late 1980s and throughout the 1990s related to improvements in the country's supply chain management techniques, attracting increasing foreign direct investment, and developing strategic partnerships and joint ventures with major international players (Ho 86).

The impact of these reforms has been impressive: the country's GDP quadrupled since 1978 as a result. The nation's GDP estimates are provided in the table below (China Economy, 2005).

Table 1. China GDP (2004 Estimate)

Impact of Reforms on Guangdong Province

GDP (Purchasing power parity): $7.262 trillion (2004 est.)
GDP — real growth rate: 9.1% (official data) (2004 est.)
GDP per capita (PPP): $5,600 (2004 est.)
GDP composition by sector: Agriculture: 13.8%; Industry and construction: 52.9%; Services: 33.3% (2004 est.)
Investment (gross fixed): 46% of GDP (2004 est.)
Source: World Factbook, China Economy 5.

According to Kwok (2001), "Since the start of the Economic Reform in 1978, the market economy and administrative decentralization have expanded, leading to greater regional differences and diversity. Localities have emerged as the locations of, and competitors for, growth" (353). During the last half of the 1990s, a few comparative regional studies emerged as an important field for investigating China, such as Ezra F. Vogel's One Step Ahead in China: Guangdong under Reform (1989). In this work, the author points out that the mutual dependence of localities and enterprises in China has a significant institutional basis that has served to shape the current framework of foreign investment and enterprise choices.

According to Hao (1994), local governments throughout China have both administrative and economic functions; at the same time, Chinese companies are also production units as well as administrative entities characterized by a sense of community. "This feature makes it very difficult for firms to be independent of local government," Hao reports, "since the latter not only controls their economic affairs, but also their political and social affairs" (171). In the allocation of foreign exchange, localities rely heavily on the foreign exchange earnings of enterprises, and therefore also have a powerful motivation to ensure that their enterprises are included in the distribution of resources. Clearly, the more foreign exchange that is earned, the more advantageous it will be for the companies and regions involved. It was this mutual interest that encouraged both sides to reinforce their strategic partnership in the Guangdong region (Hao 171).

For example, Vogel (1989) notes that Guangdong province's joint industrial-commercial foreign trade enterprises were able to take advantage of a special arrangement in which 20% of the firm's foreign exchange earnings were sent to Beijing and 30% to the provincial or metropolitan level; this arrangement meant that 50% of these earnings were returned to the company as its entitlement. In the case of Guangdong, the larger the basic amount of foreign exchange earned, the more both local governments and companies received (Vogel 390). In addition, the special relationship between Guangdong and Hong Kong remains a very favorable asset for the province; Hong Kong investors have transformed the province, particularly the Pearl River Delta, in large part as a result of their role in its infrastructural development, export processing, real estate, services, and other sectors (Hao 231).

The future nature of relations between the central Chinese government and the political and business leadership in Guangdong will depend on the interplay of domestic and external forces that are still emerging; however, there are a number of factors that are highly favorable to Guangdong and will continue to influence how this relationship unfolds. For example, Guangdong is expected to remain a major player in Chinese politics because of its economic status. Because it was able to maintain a leading role in past reform efforts and the opening of markets to Chinese companies, Guangdong has been transformed from a relatively backward area into a leader in the Chinese economy. According to Hao, "The province's GDP, national income, total retail sales, and exports all ranked number one in the nation in 1991; in fact, Guangdong's per capita GDP and national income ranked it fifth in the entire nation." Furthermore, Guangdong established itself early on as a powerhouse of external economic activities by acquiring 50% of China's foreign direct investment and accounting for more than 33% of the nation's total exports (Liu 29). Today, the province enjoys even stronger bargaining power with the Chinese central leadership and can be reasonably expected to oppose any policies that would have adverse effects on its local economy (Hao 237).

Another factor that has played out in favor of regional development in Guangdong has been the concentration of reformist leadership there, which has strengthened the province's assertiveness in pursuing its unique interests. Consequently, the majority of leading provincial positions are filled by individuals who are either Guangdong natives or veterans who built their careers there (Hao 237). In the closing years of the 20th century, Hao reports that while almost half of the Party Secretaries and Governors in China were natives of the provinces where they worked — and 73% spent their entire career in the same province — in Guangdong, the Party Secretary, all three Deputy Secretaries, the Governor, and one-third of the Vice Governors were natives, a situation that has not changed significantly since 1988 (Hao 237). Finally, there remains solid support for continuing reforms in this region, and the implementation of special policies since 1978 has further motivated provincial officials to become increasingly vocal in defending the province's vested interests (Hao 238).

Conclusion

China's accession to the World Trade Organization better positioned the country to take advantage of its existing competitive strengths, but some observers caution that this initiative will add further fuel to the social tensions already burning throughout the country (China Economy 5). In fact, Li (2003) suggests that the long-term costs of delaying badly needed constitutional reforms may ultimately outweigh the short-term gains in the country's economic performance.

The research shows that China in general, and regions such as Guangdong in particular, have reaped the benefits of the modest reforms made over the past 25 years. These reforms have resulted in impressive gains in terms of political, social, and economic freedoms, but the end of the road to reform is not yet in sight and much remains to be done in terms of establishing a more egalitarian society that avoids the marginalization of tens of millions of its citizens. The die has been cast, however, and there is no turning back for the Chinese people as they move toward an unprecedented position of dominance in world trade in the not-too-distant future.

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