Introduction
China’s economic development has been recognised or accredited by most studies and economists across the world. In a short period of time, it has improved to become among the biggest economies across the globe and it is expected that by 2030, the Chinese economy may rise above that of the United States (Kambara & Howe, 2010, p. 13). Recognition of this rapid growth of economy is directed to its communist government that implemented various economic reforms and policies intended for economic growth and development.
Several international economic factors that contributed greatly to the rapid economic growth include foreign investors, foreign loans, international economy trade opportunities, foreign advice, available export market, investment, support to investors by Chinese government, and encouragement from Japan and other Asian ‘tigers.’
In 1978, China had the tenth biggest economy in the globe with a GDP of around US$160 billion, which was equivalent to 6% of the United States’ GDP in the same year (Holz, 2008, p. 1668).
By 2005, however, the economy of China had increased to around US$2.1 trillion, or 18% of the United States’ GDP, causing China to become the fourth biggest in the globe following US$12.6 trillion of the United States, US$4.6 trillion of Japan, and US$2.4 trillion of Germany (Holz, 2008, p. 1668).
In economy dimensions, China in 2005 was only exceeded by the USA, Germany, and Japan, and its portion in international economic development between 1995 and 2002 was approximated at 25 percent, matched up to 20 percent for the USA (Holz, 2008, p. 1669).
Since the commencement of economic reforms in 1978, China has provided a steady growth of around 9% every year (Saw & Wong, 2007, p. 1). To have a clear understanding of how China experienced rapid economic growth and what its position as a global economic power resembles, this paper provides a brief path of China’s economic history.
It also provides the current position of China’s economy in the world, reforms employed to achieve this development, and challenges faced by China when maintaining its steady growth. Some lessons that are very important to be adopted by developing countries are also discussed.
China’s Post-1978 Economic Development
Some leaders started to reform China’s designed economy into the market economy and allowed the country to open-up into international trade, export opportunities, foreign advice and international investment; all passing through China’s government guidelines and supervision.
Objectives set by China aimed to enhance a keenly designed and directly monitored, but market oriented, economy that could attain the benefits of participation in the rapid-growing international economy.
The objective of China’s post-1978 was fast-growing economic growth that is the same as the four Asian ‘tigers,’ and China emphasised domestic instead of international or foreign benefit (Clarke, Murrell, & Whiting, 2007, p. 380).
After 1978, the government of China would carry on to possess and rule most economic and industrial zones in China; including transportation, production companies, financial services, energy, and communication sectors, which are important in the Chinese economic growth (Chow & Li, 2002, p. 251).
Private management of agricultural land was initiated through leases on long-term basis for farmers, and free market was initiated to minor entrepreneurs and those offering consumers commodities. International investors were also allowed to get involved in corporations with domestic businesses and ultimately to be capable of starting wholly-owned businesses under Chinese control in chosen regions of the China’s economy.
In nearly all years since 1978, the internal economy of China has increased radically while a gradually greater percentage of the economy has inclined to possession of Chinese and foreign corporation investments, and to personal Chinese entrepreneurs, and individual foreign investors (Lin & Zhu, 2007, p. 211).
However, regulation of the biggest Chinese economic sectors, such as transportation, manufacturing, communications, financial services, and energy, has maintained continuously by the government of China, which provides limitations and regulations.
The economy of China has grown every year at a standard rate of eight to ten percent since 1978 and this development rate is almost unprecedented for derived and huge agricultural nation and brings about doubling of the Chinese economy after around seven years (Prasad, 2009, p. 105).
If the elevated rate of economic growth goes on, China is estimated to turn into the biggest economy in the globe by around 2025 relative to acquiring power equality. Until now, China has been capable of attaining its economic achievements without surrendering regions of sovereignty and has maintained its key industries and financial services mainly under its possession and regulation.
China has also continued to create its currency somewhat nonconvertible. All at once, China has turned into the biggest beneficiary of direct international investment in the globe, attains the second biggest foreign exchange reserves in the globe behind Japan (around US$ 1.2 trillion by the end of 2007), and currently believed to be the producing or manufacturing ‘workshop’ for the world (Lin & Zhu, 2007, p. 211).
Difficulties and challenges exist that are related to China’s latest economic development reforms, including oppressive government regulations, increasing competition with the foreign economy for limited energy and other essential resources, and misuse of environment. Most international analysts, though, consider that China will be capable of going on to grow at around 8% to 10% towards 2025 (Kwan & Yu, 2005, p. 45).
Current Economic Development State
By 2010, it was clear to international analysts and economists that China was poised to change from export reliance to development of a domestic market and economy. Wages were increasing very fast in all sectors across the country and Chinese government was requesting and intending for raised standard of living.
In 2010, GDP experienced in China was appreciated at $5.9 trillion and exceeded Japan’s GDP of $5.5 trillion, and turned into the second biggest economy in the world behind the United States (Chan, 2012, p. 61).
China is expected to be the biggest economy in the globe sometime in the beginning of 2020s relative to nominal GDP. China is the biggest creditor country in the globe and possesses around 20.8 percent of U.S. Treasury securities owned by foreign investors.
It has also emerged that knowledge economy and Noopolitik had grown to be critical issues of the PRC’s economic policy in nearly every year since 200, where China portrayed evidently its transition to ‘Innovated in China’ from ‘Made in China,’ according to (Xu, 2010, p. 40).
While costs of commodities increased gradually, GDP of China returned to advanced growth rate and its economic system and structure steadily turned into market-oriented.
Guangrui and Rui (2011, p. 2) claimed that China, which became the second biggest economy in the world in 2010, can grow to be the biggest economy in the world in 2025, surpassing U.S., if existing trends are maintained.
Challenges experienced include income inequity and pollution, and Chan (2012) supported the idea above stating that China economy may grow to be the biggest economy in 2020.
Some other studies approximated that if through purchasing power parity, China will surpass U.S. in 2016 and by 2030, two-thirds of the middle class in the world will reside in China.
Liu (2010, p. 43) said that taking that the economies of both China and the United States have grown, in that order, by 9% and 4% in real sense that inflation rate experienced in China is 3.5 percent and the United States is 2.1 percent (the averages of the past 10 years), and that the RMB appreciates relative to the dollar by 3.5% annually (the average of the past five years), China would turn into the biggest economy in the globe by 2022.
During that period, the GDP of both nations will be around $25 trillion.
In 2011, the IMF cautioned that banks regulated by the government might be increasing inequalities that hinder growth and make the system seriously impacted.
In 2011, the IMF estimated that GDP of China (purchasing power parity accustomed) would surpass that of the U.S. in 2015, which shows that Chinese economic will have steady growth compared with the economic growth of the United States (Guangrui and Rui, 2011, p. 2).
Economic Reforms
The Chinese government expected that steady reforms implemented in the country would bring about major economic growth and enhance the standard of living. This expectation eventually became reality, and agricultural reforms were among the first reforms to be experienced. Agricultural reforms allowed farmers to maintain and sell some sections of their produce to some private units.
The government also implemented four exclusive economic districts along the coast to draw international investors longing to cash in on the minimal labour costs in the country. The intention was to arouse more advanced technology imports to the country and promote exports (Chai & Roy, 2006, p. 39).
China has commenced the process of economic decentralisation and local government has been assigned to have some economic control over different projects in Chinese provinces. They were approved to carry out and compete derived from the standard of free competition.
Some cities and coastal areas where selected as development districts and certified to trade openly or directly, and provided fiscal incentives to draw international investors. Price controls directed towards some goods were steadily reduced.
Theories that describe China’s economic development are likely to reflect on the economic reforms as the biggest factor that allowed for this rapid growth. For instance, Swinnen and Rozelle (2004) believe that the formation of private venture in every sector of the economy and great saving rates are primary in the situation for economic growth in China.
Other case supporting economic growth in China include a huge underemployed labour eager to assume jobs for comparatively low wages with a cultural practice of behaviour, historical conditions, and adjusting rapidly to the advanced system rules.
Chow and Li (2002) assert that the increase of free trade and government incentives facilitated the current and rapid growth of economy in the country, and reforms were effective due to the implementation of non-orthodox economic policies.
China has attained the 1870s aim of ‘wealth and power,’ and has created approach to foreign trade that has taken advantage of international trade, but passed up the East Asian crisis that took place between 1998 and 2000.
To date, China has also been capable of solving all economic growth difficulties and challenges, such as overstaffed state owned enterprises and bankrupt banks, from the advantages of economy of its more effective economic development strategies and principles, such as China’s huge international exchange reserves, comparatively high real wage rate, excessive saving rates, comparatively high employment stages, and minimal inflation rate (Lardy, 2002, p. 39).
Factors Responsible for China’s Rapid Economic Development
According to Clarke, Murrell, and Whiting (2007, p. 391), the economic development experienced in China can be attributed to two major issues: steady growth in productivity and significant foreign and domestic investments funded by internal savings and foreign investors.
The reforms implemented to control Chinese economy have raised economic competence and ability to obtain resources needed for the development of industrial and agricultural productivity. The benefits of output or productivity were because of the redistribution of resources in the sections or sectors that, before, were managed by the state, such as financial services, commerce, and agricultural sectors.
Agricultural Reforms
For Swinnen and Rozelle (2004, p. 414), Deng Xiaoping’s agricultural reforms are among the factors that contributed mostly in the growth of the China’s economy, which started in 1979. China was reliant on change after three decades of planned economy with the management from Mao Zendong and this change derived itself from experimentation and pragmatism.
Chai and Roy (2006, p. 69) also stated that allowing the country’s economy to get exposed to international investors and commerce, as well as agricultural reforms, were the foundation for an economic reform that led the country’s economy to the market demand.
The fact that these economic reforms were adopted steadily donates notably to prevent economic crises in the initial phases of these reforms, together with being simpler to enlarge economic spending following the achievement of various huge harvests.
Export Sector
For China’s case, another significant factor was the expansion in the export zone. The support for exportation is believed to be an essential device for economic development, especially in emerging economies. Through the history of China’s economy, an emerging economies or developing countries may support their economic developments through putting more focus on human capital (Lardy, 2002, p. 39).
Through growth strategies intended at exports, a country can raise its output, employ its resources more economically, and boost its innovation of advanced technology. As the economy of developing country enlarges, it is likely to integrate itself effectively into global markets and this encourages more growth in economy.
In general, constructive factors existed in China that facilitated growth during the initial stages. Other essential conditions included quantity and quality of human capital, as well as a comparatively huge amount of decentralisation.
Woo (2009, p. 116) concluded that China is an example of a remarkable emerging country that experienced challenges in the past and projecting itself among the positions of the largest economies in the globe in a very short duration. All factors discussed were more supported together with increasing globalisation across the world, which raised the supply for Chinese commodities further.
Challenges Experienced by Chinese Government and Investors
Presently, the common challenges experienced by the Chinese government take place when stimulating domestic consumption and this domestic consumption increased after the implementation of economic reforms, but has been declining since 2000. In 2005, domestic consumption included just 39% of GDP of China, the least participation rate among the biggest economies across the globe.
In the United States, domestic or internal consumption made up 70% of GDP in 2005, just like China, and in England, they experienced 60%, while India had about 61%. Even Japan, recognized for its frugality of its people, had a domestic consumption of around 58% of its GDP in the same year as China (Pollack, 2010, p. 115).
In all difficulties experienced in China, some factors and issues that might most influence Chinese economic development are financial and corruption theory. Several effective entrepreneurs were successful not only by their personal value, but also by effects from government and political relations.
Several foreign businesses face challenges when starting business in China since its structures may be incompatible or not transparent adequately (Pollack, 2010, p. 115). Intellectual property rights, as well, unguarded because of China lacking a self-governing judicial structure. Inadequate law enforcement in China restricts the resourceful distribution of commodities in the economy of the country.
In the latest global recession, the China’s principal trading partners are experiencing financial challenges, driving then to decrease importation of goods. This is placing force on the Chinese authority to change its policies for development of economic.
This is essential if China is to preserve it advanced rate of economic development and to bring other advantages to the population. These benefits include higher quality between urban and rural populations, safer drinking water and air, improved public medical care, and superior purchasing power of end users.
Lessons from Economic Development of China
The rapid growth of Chinese economy can be a better example to other developing countries around the world. Other emerging economies should learn to employ profitably different valuable factors of market globalisation, as they maintain control on the possible risks brought about by global market in emerging economies (Lin & Zhu, 2007, p. 211).
These challenges are also possible to be experienced by other emerging economies and so far, most components in economic reforms in China were induced instead designed.
The path that China passed through can offer a helpful lesson for planning and implementing economic reform policies in other developing countries where the heavy-industry-oriented approaches or other equivalent approaches have been implemented based on capital-scarce situations.
Positively, phases of development, cultural heritage, political arrangements, and financial structures are different from one economy to another throughout the countries. To be successful, real reform processes must take the primary situations of economy into consideration and use all positive domestic and outside factors.
Detailed design and series of economic reforms must not be imposed, but should be induced to provide effective transition (Lin & Zhu, 2007, p. 211). However, other than the broad advice of preserving political and economic strength and directing the economic reforms in a path-independent way, the above lessons can be helpful for a country imposing reforms in an economic scheme, which is close to that of pre-reform China.
Through China’s experience, developing countries should apply grant independence to the micro-management section to enhance the incentive arrangement and make a new flow of resources through enhancing productivity.
They should permit the new flow of resources to be distributed by the independent enterprises outside the strategy and at market prices to the undeveloped areas or enterprises as they preserve the continued existence of older priority sector with the resources, which are still controlled by the state.
Conclusion
China has implemented economic reform policies that, in different ways, breach the rules of neo-classical economies and these reforms have been effective in providing rapid transition. Around the world some, including Western analysts and economists, debate whether China can maintain its record of success, and other debates focus on whether China’s economy has really grown (Zhang, Xing, & Fan, 2008, p. 9).
However, World Bank analysts and other researchers consider that China will maintain its present effective path to growth at remarkable economic rates of no less than seven percent per year for another 25 years. China has also facilitated other Asian economies, for instance India, which has started to grow at around seven percent annually.
Other than having a complete sovereignty, China has also taken advantage of the more positive international economic setting.
Chinese sovereignty, and economic strategy, coupled with a highly sovereignty-respecting international economic setting, has from 1950 allowed China to attain its target of independent Chinese economic growth for the gain of China that had been greatly unachievable as from 1860 (Kwan & Yu, 2005, p. 45). In the next 20 years, China may recover its position as a largest economy in the world.
Developing countries may use China’s experience and strategies to develop their economies. China has provided a better example to other emerging economies and foreign investments have greatly supported Chinese economic growth.
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