How China's Economy Has Transformed Over The Years (Essay Sample)

China’s Economy in the Last 30 Years
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Introduction
The economic rise of China in the past three decades has been a subject of great interest not only among economists and investors, but also in the national politics of other countries as China’s economic might has a direct impact on international trade relations. Most notable is the ripple effects that the Chinese economic juggernaut has had in the U.S., to the point of being a political issue in the just concluded US presidential elections. Donald Trump’s campaign-period promise to renegotiate the U.S.’s bilateral and multilateral trade agreements with China as well as with its North Atlantic Free Trade Agreement partners, Canada and Mexico, suggests the impact that China’s economic growth has had on the U.S. economy. Before China’s rise, the US had no problem with NAFTA because the world market share was enough for everyone. China’s rise, it appears, has negatively affected the US economy not only by eating into its domestic market, but also presenting strong competition in the global arena due to the low prices of Chinese products. Domestically, the U.S. economy has suffered from the influx of cheap Chinese electronics and furniture, the latter leading to the collapse of the U.S furniture industry. Yet, China’s rise to its current level of economic domination is not entirely a surprise given that for years, economic observers had christened China a sleeping lion. The big question is, when did the sleeping lion wake up, and who or what woke it up? When did China’s economy take a turn in a direction that will make it a global titan in the 21st century? This essay analyzes the economic rise of China by tracing its economic performance in the last 30 years and the factors that played to its advantage in its emergence as a real threat to the U.S.’s global economic dominance.
Background Information
For many years, China lagged behind its Asian counterparts in terms of economic development, largely due to its communist policies. Under Mao Zedong, the economy stagnated as the Communist regime strived to establish a classless society. State control of the economy not only limited productivity, but also killed the spirit of entrepreneurship, as individuals were not allowed to profit from surplus production. As the Chinese rural population survived on subsistence farming, the country’s exports dwindled to the bare minimum, thereby reducing its foreign exchange earning capacity. At the same time, the government’s control over the agricultural sector limited individual earnings, which had a negative impact on the general economy. The consequences of this situation included limited purchasing powers, low rates of domestic investment, and low living standards. As retired Chinese CNN correspondent Flora Cruz observes, the four top luxury items in China during the Mao years were a bicycle, a wrist watch, a portable radio, and clothes (Cruz, 2008). This description captures the picture of poverty that characterized the Chinese population. Three decades following the ascendance to power by Deng Xiaoping in 1978 and the implementation of economic reforms, the top luxury expenditures of Chinese consumers include high-end cars and vacations abroad. The significant transformation of the Chinese economy is a subject of interest because it provides useful lessons for other countries to learn from. While each country’s economy is unique in terms of resource endowment, human capital characteristics and political/economic philosophy, there are common aspects that influence economic growth, such as utilization of technology and human resources. The Chinese experience in which a country transforms its economy for the better by transitioning from a low-income to middle and upper income economy provides a useful blueprint worth studying and borrowing from for countries that are currently in the same level of economic growth as China was in 1978. This research paper examines the growth trajectory of China’s economy in the last 30 years and how this growth pattern and attendant factors impact international trade and the trade/economic policies of rival economies like the U.S.
Research Methodology
This research paper is based on a review of existing literature on China’s economic growth rates and growth patterns since 1978, and the factors that contributed to the country’s unprecedented growth rate. The research compares and analyses financial and other relevant statistical data such as Gross Domestic Product (GDP) rates, unemployment and inflation levels. These items are relevant indicators of the country’s financial performance at a macroeconomic level.
Literature Review
China’s economic rise began in 1978 following the death of Mao Zedong, and the end to his Cultural Revolution regime, which for many years had choked entrepreneurship and private ownership of property, hindering economic growth (Cruz, 2008). Deng Xiaoping, Mao’s successor, steered the country away from Mao’s legacy of communal farming and tight state control of the economy and participation in every sector. In a Communist Party meeting in December 1978, the new leadership adopted a pragmatic approach to resuscitating the ailing Chinese economy by launching business-friendly and progressive economic reforms. This included opening up the Chinese market to attract direct foreign investment and supporting a free market economy to encourage entrepreneurship.
Since 1978, China’s economy has been growing at an average of 9.8 percent annually, making it the fourth largest economy in the world by 2010 (Wearden, 2010). Before the introduction of reforms in 1979, China’s average GDP growth rate from 1960 to 1978 was 5.3% (IMF, 2012). In the last five years, however, the growth rate has declined as the country readjusts to the effects of the global economic meltdown. Regardless, its growth rate is among the highest in the world. A decline was posted in 2010 when the growth rate dropped to 10% in 2010, down from 14% in 2009 as the economy reacted to the 2008 meltdown. This milestone reform achievement for China is equivalent to the renaissance and industrial revolution. Since the initiation of the market reforms more than three decades ago, China has shifted its economic approach from a centrally planned to a free market economy, and from agriculture-based to technology-based, which has contributed to the country’s rapid social and economic growth. The constant annual GDP rates of nearly 10 percent has helped to lift more than 800 million people from poverty and power China’s march towards the achievement of all the Millennium Development Goals by the year 2015, as well as helping third world countries to achieve these goals (World Bank, 2016). The 9 percent GDP growth rate is nearly two times China’s 1978 rates, illustrating the great impact that adopting a free market economy has had on the country’s economic rise. In dollar terms, the country’s gross domestic product has increased from 147 billion in 1978 to over 4 trillion in 2009 (World Bank, 2016). Since 2010, China has emerged as a leader in different economic sectors, notable in its fast recovery from the 2007 economic meltdown compared to other world major economics. Indeed, this might be one of the factors why in the last five years, China’s economic rise has become a major concern in the U.S.A not only because it (China) came out better off than the USA from the economic meltdown, but also because it seemed to benefit from the situation by taking advantage of its cheap labor to flood the US market with low-price products.
China’s rapid growth rate has also benefited from investment in research and development, which accelerated its technological revolution. In the last twenty years, China has nearly tripled the percentage of GDP devoted to research and development (Purdy, 2013).
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While the total share of GDP devoted to research and development is still below US rates, it reflects the country’s aggressive approach in transforming its economy from agriculture based to technology based.
A comparison between China and other major economies indicate that it is only second to the U.S., which has far more resources and has benefited from capitalism much longer than China.
GDP, current prices (billion USD)
201420152016 HYPERLINK "https://knoema.com/tbocwag?subject=Gross%20domestic%20product%2C%20current%20prices%20%28U.S.%20dollars%29&country=United%20States" \t "_blank" United States17,393.118,036.718,561.9 HYPERLINK "https://knoema.com/tbocwag?subject=Gross%20domestic%20product%2C%20current%20prices%20%28U.S.%20dollars%29&country=China" \t "_blank" China10,557.611,181.611,391.6 HYPERLINK "https://knoema.com/tbocwag?subject=Gross%20domestic%20product%2C%20current%20prices%20%28U.S.%20dollars%29&country=Japan" \t "_blank" Japan4,595.54,124.24,730.3 HYPERLINK "https://knoema.com/tbocwag?subject=Gross%20domestic%20product%2C%20current%20prices%20%28U.S.%20dollars%29&country=Germany" \t "_blank" Germany3,885.43,365.33,494.9 HYPERLINK "https://knoema.com/tbocwag?subject=Gross%20domestic%20product%2C%20current%20prices%20%28U.S.%20dollars%29&country=United%20Kingdom" \t "_blank" United Kingdom3,002.42,858.52,649.9 HYPERLINK "https://knoema.com/tbocwag?subject=Gross%20domestic%20product%2C%20current%20prices%20%28U.S.%20dollars%29&country=France" \t "_blank" France2,843.72,420.22,488.3 HYPERLINK "https://knoema.com/tbocwag?subject=Gross%20domestic%20product%2C%20current%20prices%20%28U.S.%20dollars%29&country=India" \t "_blank" India...