Just four decades ago, a country like China had a rather weak, lagging economy. The economic reforms that have taken place over the years and made the country's economy more liberal are considered to be a Chinese economic miracle. The economic growth rate over the past 30 years is incredible and amazing: on average, the country's GDP increased by 10% per year, and per capita GDP grew by 9%. Today, China has a leading position among global economies. Consider how this country managed to achieve such indicators, how the economic miracle occurred, what are its causes and what kind of situation preceded it.
China in the middle of the twentieth century
After the end of World War II, China stood at a crossroads and did not know what to choose: the liberal capitalist or, following the example of the great power of the USSR, the socialist path of development. The civil war that shook the country until 1949 led to the secession of the island of Taiwan and the creation of the People’s Republic of China led by Mao Zedong.
With the advent of the Communist Party, the painful construction of socialism begins: the nationalization of property and the implementation of agrarian reform, the implementation of five-year plans for the development of the economy … Taking help from the USSR and focusing on the political and economic system of its socialist neighbor, China is industrializing the economy. Sometimes it was necessary to resort to tough and uncompromising methods.
The Great Leap For Nowhere
However, after 1957, relations between China and the USSR cooled, and Mao Zedong, who did not share the views of the then Soviet leadership, decided to implement a new program called the Great Leap Forward. The goal of the ambitious program was the rapid development of the economy, but the new direction was unsuccessful and had tragic consequences for both the people and the Chinese economy as a whole.
In the 60s, the country was experiencing severe hunger, a cultural revolution and mass repression. Many state instruments ceased to function, the communist party system collapsed. But in the early 70s, the government took a course towards restoring party organizations and improving relations with the United States. After the death of the “Great Helmsman” Mao Zedong in 1976, the country found itself in a difficult economic situation, unemployment increased, and a card system was introduced.
Since the end of 1976, Hua Guofeng became the head of China. But the actual reins of government are assumed by Deng Xiaoping, a politician who fell into the millstones of the cultural revolution and was reinstated as vice-premier of China in 1977.
Decision Plenum
Considering in many ways the program of the Great Leap Forward, Deng Xiaoping, relying on the support of the Communist Party, begins the implementation of a program to modernize the economy. In 1978, at the next plenum of the Communist Party, a course towards a socialist market economy was officially proclaimed, in which two economic systems would be combined: planned distribution and market.
The new government path is called the course of reform and openness. Xiaoping's liberal reforms are based on the gradual transition of economic structures to market rails and the preservation of the communist system. Deng Xiaoping assured the Chinese people that all transformations would take place under the leadership of the Communist Party, and that the dictatorship of the proletariat would be strengthened.
Highlights of Transformation and Reform
If we talk about new reforms briefly, the Chinese economy should be focused on export production and mass investment attraction. From this moment, the Celestial Empire proclaims itself to be a country open for expanding ties with other states, which attracted foreign investors. And the liberalization of foreign trade and the creation of territories of special economic zones for foreign entrepreneurs led to an unprecedented increase in export performance.
First of all, Xiaoping reduces state control over many sectors of the economy and expands the managerial functions of enterprise managers. The development of the private sector was strongly encouraged, and stock markets appeared. Major transformations affected the agricultural sector and industry.
Four stages
In the course of the entire reform of the Chinese economy, four temporary stages can be distinguished, carried out under a specific slogan. The first (from 1978 to 1984) stage, which implies transformations in rural areas, the creation of special economic zones, had the following slogan: “The basis is a planned economy. Addition - Market Regulation. ”
The second (from 1984 to 1991) stage is the shift of attention from the agricultural sector to urban enterprises, the expansion of their field of activity and independence. Market pricing is being introduced, reforms are being made to the social sphere, science, and education. This stage is called "planned commodity economy."
The third (from 1992 to 2002) stage was held under the slogan "Socialist market economy." At this time, a new economic system was being formed, implying a further development of the market and defining tools for macro-regulation of state control on a new basis.
The fourth (from 2003 to the present day) is designated as "The stage of improving the socialist market economy."
Transformations in the agricultural sector
The Chinese economic miracle began with the transformation of the Chinese countryside. The essence of agrarian reform was the abolition of the then existing communes and the transition to a family contract with a single collective property. This meant the transfer of land to Chinese peasants for up to fifty years, part of the production from this land was given to the state. Free pricing for peasant products was also introduced, and market trade in agricultural goods was allowed.
As a result of such transformations, agriculture received an impetus for development and emerged from stagnation. The new system of collective ownership and family work has improved the quality of life of peasants and helped solve the food problem.
Industry transformation
The economic system of industrial enterprises was almost freed from directive planning; they were supposed to be turned into self-sustaining enterprises with the possibility of self-marketing of products. Large strategic enterprises remain under state control, and medium and small enterprises are given the right not only to manage their business, but also to change their form of ownership. All this contributed to the fact that the state focused on improving the situation in large state-owned enterprises and did not interfere with the development of the private sector.
Gradually, there is a decrease in the imbalance in the production of heavy industry and consumer goods. The economy begins to turn in the direction of growth in the production of goods for domestic consumption, especially since the large population of China contributes to this.
Special economic zones, tax and banking systems
By 1982, as an experiment, some coastal regions of China declared themselves special economic zones, and after the 1984 plenary session, 14 cities in total were approved as special economic zones. The purpose of the formation of these zones was to attract foreign investment in Chinese industry and the development of new technologies, accelerate the economic development of these regions, and the country's economy entering the international arena.
Reforms affected the tax, banking and currency systems. Added value-added taxes, a single income tax for organizations. Most revenues began to flow into central budgets thanks to a new distribution system between local administrations and the central government.
The banking system of the country was divided into state banks, pursuing the economic policy of the government, and other credit and financial organizations on a commercial basis. Foreign exchange rates now set off on a "free float", which was regulated only by the market.
The fruits of reform
The Chinese economic miracle began to appear in the late 80s. The results of the transformations qualitatively affected the lives of ordinary citizens. Unemployment rates are reduced by 3 times, retail turnover is doubled. Foreign trade volumes increased by 4 times by 1987 compared with 1978. Billions of dollars of foreign investment were attracted, and by 1989 there were 19, 000 joint ventures.
In short, the development of the Chinese economy has been manifested in a decrease in the share of heavy industry and an increase in the production of consumer goods and light industry. The service sector is expanding significantly.
China's GDP hit an unprecedented rate of growth: 12-14% in the early 90's. Many experts during these years spoke about the phenomenon of the Chinese economic miracle and predicted the role of the economic superpower of the 21st century to China.
Negative Consequences of Reforms
Like any medal, the Chinese reforms had two sides - positive and negative. One of such negative aspects was the threat of inflation, which followed as a side effect of the growth of labor productivity after reforms in the agricultural sector. Also, as a result of price reform, the situation in the industrial sector has worsened. Unrest began, resulting in student demonstrations, which resulted in the resignation of Secretary General Hu Yaobang.
Only in the early 90s, the course proposed by Deng Xiaoping to accelerate and improve the economic environment helped to overcome the overheating of the economy, create a system of control over inflation and the development of the country.
Chinese economic miracle and its causes
So, now about the reasons. Studying the phenomenon of the economic miracle of China, many experts put forward the following reasons for the economic recovery:
- The effective role of the state in economic transformation. At all stages of the reforms, the country's administrative apparatus adequately met the tasks of economic modernization.
- Significant labor resources. Demand in China's labor market is always more than supply. This allows you to keep low salaries at high productivity.
- Attracting foreign investment in China's industry, as well as in high-tech industries.
- An export-oriented development model, which allowed increasing the knowledge-intensiveness of the economy and the development of the latest technologies due to foreign exchange earnings.
However, China’s main economic progress has been the rejection of “shock therapy” and the gradual formation of a market mechanism that has revitalized the economy through effective market regulation.
China today
What did the four decades of China's wise reforms lead to? Consider the main indicators of the Chinese economy briefly below. Today's China is a powerful nuclear and space power with modern industry and developed infrastructure.
Few numbers
For three quarters of 2017, China's GDP reached about 60 trillion yuan. This is 6.9% in annual terms. The increase in China's GDP in 2017 is 0.2% compared to last year. The share of GDP in the agricultural, industrial, and service sectors is growing by an average of 5-7%. In 2017, the growth trend of innovative and high-tech sectors of the economy continues.
In general, despite a slight slowdown, China's economy (it is rather difficult to briefly describe this phenomenon) today retains the potential for long-term growth and continues structural reforms.
