Introduction
Chinese economic reforms are plans that were introduced to bring changes in China’s republic in early 1978 by realists’ members of China’s Communist Party. The major aim of introducing these reforms was to enhance efficient funds to facilitate modern technology. The difficulty that was encountered during these reforms was to mobilize the farmers and employees to devote much of their time so as to produce excess commodities, and funds to maintain favorable balance of payment.
These reforms were implemented through various levels to help solve the problems that were emerging and the political wave that struck the government. This reform was triggered by communism set up as it was required; they introduced new strategies to avoid duplication of ideas that were already being used by other developing countries.
The initial reforms that started in the early 1978 were directed to external markets where China identified foreign markets to sell its products. Farmers were encouraged to sell their excess produce to these markets.
Then in the mid 90s the reforms focused on pricing system and privatization of public corporation with an aim of eliminating the state in matters relating to resource allocation (Wang 56). The reforms that were started in the early 2000 were mainly to eliminate those businesses that were not performing, and also to ensure resources were equally distributed in all sectors of the economy.
The strategies that it initially applied have really helped to boost the economy of China that (since then) has been tremendously growing. There are well established infrastructures that ease the movement of goods from production site to the market, for example the magnetic train in Shanghai that eases movement of people.
China normally tests its idea in its capacity and implement it before the public is informed and later becomes operational once found legible. Farmers were given incentives by giving them a priority of enjoying the excess fund from their farms. Later small businesses in villages were established then the state opened the door for foreign investors. This contributed to improvement of peoples’ welfare and living standards (Liou 78).
China’s next level of reforms focused on price improvement in the economy rather than being an economy driven by administration. The price reforms involved setting of price control policies using price-track system. Commodities were divided into two where some were set at market price and the other under state price. The prices set exempted the local traders from being exploited by business people who were offering poor prices.
The products which were set under the market price policies eventually increased up to the early 90s. After this period the banks were given the priority so as to avoid the issue of inflation. Regulations were put in place by the banks such as minimizing the issuing of loans. Banks offered loans to businesses in terms of their profit margin but not under political demand. Businesses that enjoyed relatively higher profit received larger amount of loans and the vice versa (Wei & Chao 98).
Before 1978, the state used to control all sectors of major production. It is after this period that the government of China decided to reform its economic set up. It started by encouraging the start up of small business enterprises in rural areas and also mobilizing people to venture in private businesses.
The major reason why the government of China decided to do this was to make the unutilized skills be fully exploited and identified. It also slackened its market, special training for employee was offered, and it abolished some regulations to allow free flow of products both internally and externally (Liou 34). This really helped Chinese economy to grow tremendously.
By the end of 1978, China recorded a 6 per cent economic growth. The growth domestic product (GDP) increased by 9 percent. The economic growth continued growing consecutively each year recording new percentage increments. The analysts predict that in the next 20 years China will record a larger growth compared to United States. For the last 30 years, the per capital income of China has really increased.
A group of researchers from IMF launched a survey to identify why Chinese economy is doing so well and identified the cause. They observed that the country’s capital asset growth rate increased production due to evolution of new industries (Wei & Chao).
Efficiency of factors of production such as labor has also helped its economy to grow enormously. Between1979 to 1994, the production increased by more than 42 per cent which was taken per national capital where in most countries it is the major source of growth. This was as a result of reforms launched in the early 1978.
Chinese economic strategies make even the economist studying its policies remain in darkness without getting solid answers. The government tendency of applying strict measures to control industries and centralized planning makes prices to be stable and misallocation of resources (Wang 102).
The style of Chinese national accounting policies is so different from those applied by other western countries, this make it difficult to compare Chinese economy with data collected from international market. Different analyst gathers differing figures of China’s economic growth.
Different economists have different ways of measuring and explaining the economic growth but the one applied most is called neoclassical approach. This approach outlines how the factors of production are combined to increase the level of output, which simplify evaluation and analyzing of collected data. This is the only approach that can be used in Chinese economy but it also holds some limitations because mostly it is used in the market economy (Liou 211).
The data researched by IMF was secondary data gathered from information released by government agencies and Chinese statistical Bureau.
Unfortunately this data used to measure its gross national product (GNP) was collected after 1978; Chinese used to measure its production using gross social output (GSO), this approach does not include all sectors of economy compared to GNP which include almost all. After all major changes in the national income statistics, which constitute taxes evaluation and adjustments, the data gathered after this can be used to measure China’s growth and the major contributing factors to this growth (Wang 22).
Most of research undertaken has revealed that capital investment play a major role on growth of any country. Capital investment has contributed much in China’s growth. Improvement in production technology and well developed infrastructure also contributed to the increase in Chinese GDP.
The ratio between capital employed and per unit output remained the same though expenditure was high between 1979 & 1994. This reflects that capital is not always the major contributor for growth (Liou 231). Labor intensive also contributed to tremendous growth of Chinese economy, it contributed up to 17 per cent, capital contributed 41 percent and the rest was contributed by other factors.
Comparing the previous productivity in China there was an increase during 1979-94 compared to 1953-78 where in the latter China recorded 1.12 increment and 4.0 in the previous period. 1n 1990 China started recording an increase in productivity of more than 50 per cent due to output and 33.3 per cent of employed capital.
Compared to U S which recorded an increase of 0.45 percent during this period, it shows that China can retain this growth for a long period if productive measures are keenly followed. This is because the reforms that were started by China after 1978 were important in productivity. The reforms led to improved efficiency in production of rural dwellers businesses, private companies, and foreign traders due to availability of tax incentives that encouraged trade.
Privatization of business also contributed to a boost where government owned enterprises decreased the total output by 17 percent and that of private enterprises raised by 11 percent. This is due to incentives that were introduced by the government to encourage trade. Business owners devoted much of their time in business and applied labor intensive measures so as to realize more profit (Wei & Chao 360).
The recent trend in China’s economic growth is commendable. Comparing China to other Asian countries, it has made major steps to overtake its rivals on economic matters. China’s currency has also gained value in the world market, it is feared that due to the current devaluation of U S dollar, China’s currency is likely to replace the dollar in future due to its stability (Wang 342).
Before 1978, majority of Chinese were working in the agriculture sector but by 1990 after reforms this changed leading to a decrease of workers in agricultural sectors. People directed their attention to other sectors of the economy and started forming small businesses which are not agriculture based. Prices of agriculture produce swelled which in return made farmers to apply labor intensive measures and modern methods of production to increase efficiency.
Majority of workers pulled out of this sector (Liou 111). This led to an increased growth of small business and many people became entrepreneurs. This transition from agriculture to entrepreneurship eventually led to evolution of industries; that is small enterprises developed to industries. The people became manufacturers and many factories were established.
Due to establishment of businesses in rural areas, infrastructures were put in place and this led to local products to flow easily to the market places. This encouraged both farmers and local traders making them to realize surplus produce and finances (Wei & Chao 75). This excess fund was used to expand other sectors of economy which improved their growth.
The reforms helped the entrepreneurs to set their long-term goals in production; they became monopolies by the fact that they reserved the right to set prices of their produce. This saw them becoming managers who were free even to allocate the surplus capital for future expansion, sucked those employees who were not productive, and identified the suitable markets to sell their products.
These reforms contributed to privatization of business where individuals became the real owners of businesses. In return, employment opportunities were created which left a big number of unemployed youth to get absorbed by these enterprises. Quality of produce also increased where consumers enjoyed varieties of goods of high quality (Liou 68).
Foreign investors have been attracted by China’s economic policies and this has led to big revolution to the China’s economy. The annual cash inflow, which previously was increasing at a rate of 1.0 percent of total fixed investment, increased to 20 percent during 1979-94 periods.
The foreign currency has made China to construct more factories, creation of more employment opportunities, and evolution of modern technology. Many foreign investors have enjoyed tax incentives and that can be proved by visiting the costal region of China where you would find a large number of foreign investors.
Further, the country liberalized economy has contributed to more exports which create a favorable balance of payment. Export value has been rising consecutively since 1978-2002 at 19 percent rate. When export increases, a favorable balance of payment is enjoyed. This has helped China to boost its local industries by the foreign currency accumulated from exports; this triggers growth (Wang 13).
China has also encouraged local producers to be self-sufficient by reforming the prices of consumer goods and those of agricultural produce. A case of inflation which was a major problem that barred the government from liberalizing the prices of commodities in China is now a past tense (Wei & Chao). Though increased growth may lead to inflation, China has been able to control this.
The major reasons that make China to be unique in economic set up has been mostly seen as the political crises that locked China before 1978 that could have made China to focus mostly on economic matters to her strengthen. The political wave was so strong in China such that if the economics status was to be compared with the current one it is much more of a nightmare.
The growth and productivity rose tremendously from 1.1 to 1.7 percent during 1970-90 periods. Before 1978 Chinese mostly concentrated its investments in rural urban areas and never moved to cities (Wang 51). However, due to reforms after 1978 people shifted from these sectors and invested in other areas of economy.
Another unique state that researcher view is the maintenance of stability in China’s productivity gains from 1979 to date. These post reforms, if keenly observed, keep changing leading to continued gain in productivity. The gain keeps changing (Liou 12). This shows that Chinese transferred these gains from one sectors to other different areas. This means that they ploughed back the capital to various sectors of the economy.
China capital-stock data if observed well in the statistics of the national income does not include the data of residential housing. This should be reflected for the new outlays of housing which actually keeps rising since 1978. These investment figures are supposed to be changed subsequently (Wang 102). When these changes are made, it shows that there was no adjustment in productivity growth before 1978 and this contradict with the modern rates of growth.
The initial Capital stock could have been overvalued or undervalued which automatically led to errors. This could be the reasons why various economists get different figures. Capital stock estimates were applied to analyze the data but no solid evidence could dispute the findings. But before 1978 the data reflected negative gain in productivity and after this period up to date it remains unaffected.
The challenge of bridging this gap is of great concern (Wei & Chao 122). The pre-feasibility study and the data collected were being compared with the data collected by other economists that were contradicting. However, the data of productivity was not having so much errors, this indicates that improvement of productivity was as a result of the reforms and the capital-stock calculation. The estimates in 1979-2000 varies with about 4 percent.
Due to other source data, the study that was done might have overestimated the growth after1978 over the previous period before reforms. This can be revealed where some countries tend to undervalue its currency and also over quoting the output.
This mostly is caused by the entrepreneurs for giving false quotations of output and also understating the prices of commodities so as to show that they have hit the target as required by the government (Wei & Chao 99). This now shows that the values after 1978 may contain more errors compared to the previous one due to over quotation.
The nominal out put if underestimated could cause occurrence of major statistical errors. The price reforms and liberalized market makes it difficult to identify the major causes of deflation after 1978 reforms. Also, this can be seen by the central government of China where before reforms inflation was relatively quite high due to presence of black market and lack of some commodities which are mostly needed in day to day activities.
However, the errors that could have been encountered do not necessarily mean it was from data collected after the reforms. In statistics, errors of omission and commission always occur (Liou 104). Different economists were getting differing values and this was due to the statistical errors.
By the fact that China has a unique slot in the economic status in the globe, the trend of its growth and the area coverage of its territory reflect its superiority around the world. The other developing countries should learn from China and apply the correct strategies to get where China stands at economically.
Though most developing countries view capital investment as a major tool that triggers growth, it is also important to implement market based reforms which will favor rural entrepreneurs to realize much profit. If these measures are put in place under well laid policies, a long term growth will be observed in the third word countries. Those countries which have a large number of people absorbed in agricultural sector can lay down the same policies as China and see whether it is practicable.
Due to China realizing the importance of rural enterprises and paying much intention on them through incentives, it led to emergency of new industries which absorbed a large number of unemployed youth. The country mobilized people to work in factories and drop farm labor (Wei &Chao). This has seen tremendous growth. This has also helped China to amalgamate its market with the foreign market.
We cannot forget that the major contributor of China’s improved growth is the reforms that were launched after 1978. This has really helped economy of China to constantly improve in the subsequent years. Though many challenges have made it difficult to measure China’s economic variables, the data act as a key measure of country’s growth (Wang 63). This has given the other developing countries an idea to apply the same strategies to trigger growth.
Conclusion
The developing countries should focus mostly on the areas where they perform best and use labor intensive methods to improve productivity. Capital investment should not be the only resource for growth, countries should use their strategic policies rather than relying on other countries policies.
It is evidence that China, due to political pressure, introduced unique policies that saw its gross domestic product (GDP) rising every year and this led to Chinese economy growing at a very high percentage that is incomparable with other Asian countries.
Works Cited
Liou Tom Kuotsai. Managing Economic Reforms. Indiana: Greenwood Publishing Group, 1998. Print
Wang, Yanlai. China Development and Democratization. Hong Kong: Ash Yale publishing ltd, 2003. Print
Wei, Lin., & Chao, Arnold. China Economic Reforms. Beijing: University of Pennsylvania Press, 1982. Print