This paper surveys China's remarkable economic trajectory from historical dominance through decline and resurgence. It traces the reforms initiated by Deng Xiaoping in 1978 that transformed China from a centrally planned, trade-restricted economy into a dynamic market-oriented powerhouse. The paper examines China's integration into the global economy, including its WTO membership record, currency valuation controversies, intellectual property rights enforcement failures, and the environmental costs of rapid industrialization. Drawing on economic data, trade reports, and policy analysis, it concludes that while China's reform agenda has been broadly successful, significant challenges remain in currency policy, trade liberalization, and environmental sustainability.
Throughout much of history, China has been a major economic force. The country has been the world's largest economy for 18 of the past 20 centuries (Patten, 2005). Until the 15th century, China had the highest income per capita and was the world's technological leader. Up until 1820, China was responsible for 33% of the world's gross domestic product (GDP). However, things took a dramatic downturn between that time and the early twentieth century, when China accounted for only 9% of the world's GDP (Gupta, 2008).
According to Gupta (2008), the reason for the decline in economic dominance was China's missing out on the industrial revolution that made Europe and America prosperous. During this time, China's rulers imposed international trading restrictions and tightened their controls on new technologies. Today, however, China has regained its footing by changing its approach. Since 1978, when Deng Xiaoping, China's de facto leader, implemented economic reform, its GDP has grown by an average of 9.5% a year — three times the rate in the United States and faster than in any other economy in the world (The real great leap forward, 2004).
The goal of Chinese economic reform was to help finance the modernization of the mainland Chinese economy. Previous efforts — such as the socialist command economy supported by Communist Party of China conservatives and the Maoist attempt at a Great Leap Forward from socialism to communism in China's agriculture — had failed (Economic reform in the People's Republic of China).
Reform during the last quarter century transformed China's economy from a centrally planned system that was largely closed to international trade into a more market-oriented economy with a rapidly growing private sector (China, The World Factbook). "Reforms started in the late 1970s with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment" (China, The World Factbook). In 2005, China sold minority shares in four of its largest state banks to foreign investors and made refinements in foreign exchange and banking markets. China is currently increasing its focus on narrowing the gap between rich and poor (Economic reform in the People's Republic of China).
Economic reform has been a huge success (China, The World Factbook). It has contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis, China in 2007 stood as the second-largest economy in the world after the United States, although in per capita terms the country is still lower middle-income and substantial underemployment and unemployment persist in rural areas. The country enjoyed a positive current account balance of $363.3 billion in 2007, with exports of $1.221 trillion and imports of $917.4 billion. Still, the country is confronted with a number of new challenges.
Now that China's economy is more open than it used to be, it is more exposed to the economic conditions of other countries than it has been in the past (Balfour, 2008). Back in 2001, exports accounted for just 8.4% of China's GDP; by 2008 that figure had soared to around 40%. The European Union is China's biggest export market at 20%, just ahead of the United States at 19%, while Japan and the rest of Asia together account for 25%.
"Mixed WTO compliance record and persistent trade barriers"
"Yuan undervaluation debate and piracy enforcement failures"
"Pollution, erosion, and resource depletion from rapid growth"
China's reform efforts since the late 1970s have been a tremendous success. The country is clearly moving in the right direction, but has more work to do in meeting its WTO commitments to fully liberalize trading rights. Appropriate currency valuation, as well as curbing the environmental and resource costs of economic development, are also challenges China must address. However, there is reason for optimism that China will resolve these issues. China's ongoing success will compel the country to make the additional changes that its world trading partners are demanding and that environmental limitations dictate.
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