Just four decades ago, a country like China had a rather weak, lagging economy. The economic reforms that have taken place over the years, which have made the country's economy more liberal, are considered to be the Chinese economic miracle. The pace of economic growth over the past 30 years is incredible and astonishing: on average, the country's GDP increased by 10% per year, and GDP per capita grew by 9%. Today, China occupies a leading position among the world's economies. Let's consider how this country managed to achieve such indicators, how the economic miracle happened, what were its causes and what conditions 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: a liberal capitalist or, following the example of the great power of the USSR, a socialist path of development. The civil war that shook the country until 1949 led to the secession of the island of Taiwan and the establishment of the People's Republic of China, led by Mao Zedong.
With the advent of the Communist Party, the painful construction of socialism begins:nationalization of property and carrying out an agrarian reform, the implementation of five-year plans for the development of the economy … Accepting assistance 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 harsh and uncompromising methods.
Great Leap Forward to Nowhere
However, after 1957, relations between China and the USSR cooled down, and Mao Zedong, who did not share the views of the then Soviet leadership, decides to implement a new program called the Great Leap Forward. The goal of the ambitious program was to boost 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 is experiencing a severe famine, 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 to restore party organizations and improve relations with the United States. After the death of the "Great Pilot" Mao Zedong in 1976, the country found itself in a difficult economic situation, unemployment increased, and a card system was introduced.
From the end of 1976, Hua Guofeng became the head of China. But the actual reins of power are taken by Deng Xiaoping, a politician who fell into the millstones of the Cultural Revolution and was restored to the post of Vice Premier of China in 1977.
Decisive plenum
Considering largely erroneousprogram 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, the course towards a socialist market economy was officially proclaimed, in which two economic systems would be combined: planned-distributive and market.
The new government path is called the course of reform and opening up. 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 reforms will be led by the Communist Party and the dictatorship of the proletariat will be strengthened.
Highlights of change and reform
If we talk about new reforms briefly, then China's economy should be focused on export production and massive investment attraction. From that moment on, the Celestial Empire proclaims itself a country open to expanding ties with other states, which has 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 business leaders. The development of the private sector was encouraged in every possible way, stock markets appear. Serious transformations have affected the agricultural sector and industry.
Fourstage
In the course of the entire reform of the Chinese economy, four temporary stages can be distinguished, carried out under a certain slogan. The first (from 1978 to 1984) stage, implying transformations in rural areas, the creation of special economic zones, had the following slogan: “The basis is a planned economy. The complement is market regulation.”
The second (from 1984 to 1991) stage is the shift of attention from the agricultural sector to urban enterprises, expanding their field of activity and independence. Market pricing is being introduced, the social sphere, science and education are undergoing reforms. 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 is being formed, which implies the further development of the market and determines the instruments of macroregulation of state control on a new basis.
The fourth (from 2003 to this day) is designated as the “Stage of improving the socialist market economy.”
Agricultural transformation
The Chinese economic miracle began with the transformation of the Chinese village. The essence of the agrarian reform was the abolition of the then existing people's communes and the transition to a family contract with a single collective property. This meant the transfer of land to the Chinese peasants for a period of up to fifty years, part of the production received from this land was given to the state. It also introduced free pricing for peasantproducts, market trade in agricultural products was allowed.
As a result of such transformations, agriculture received an impetus for development and emerged from stagnation. The new established system of collective property and family contracts has qualitatively improved the standard of living of the peasants and helped to solve the food problem.
Industrial 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 independent marketing of products. Large strategic enterprises remain under the control of the state, while 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 state of affairs in large state-owned enterprises and did not interfere with the development of the private sector.
The imbalance in the production of heavy industry and consumer goods is gradually decreasing. The economy is starting to turn towards 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 plenum, 14 cities in total were approved as special economic zones. The purpose of the formation of these zones wasattracting foreign investment in China's industry and mastering new technologies, accelerating the economic development of these regions, entering the country's economy into the international arena.
The reforms also affected the tax, banking and currency systems. Value added taxes and a single income tax for organizations are being introduced. Most of the revenues began to flow to the central budgets thanks to a new distribution system between local administrations and the central government.
The country's banking system was divided into state-owned banks, pursuing the government's economic policy, and other credit and financial organizations on a commercial basis. Foreign exchange rates now started to "float freely", which was regulated only by the market.
The fruits of the reforms
Chinese economic miracle begins to appear already in the late 80s. The results of the transformations had a qualitative impact on the lives of ordinary citizens. Unemployment rates are reduced by 3 times, retail trade turnover is doubling. By 1987 the volume of foreign trade had quadrupled 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 China's economy manifested itself 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 with unprecedented growth rates:12-14% in the early 90s. Many experts during these years spoke about the phenomenon of the Chinese economic miracle and predicted that China would become the economic superpower of the 21st century.
Negative consequences of reforms
Like any coin, Chinese reforms had two sides - positive and negative. One of these negative moments was the threat of inflation, which followed as a side effect of the growth in labor productivity after reforms in the agricultural sector. Also, as a result of the price reform, the situation in the industrial sector worsened. Unrest broke out, resulting in student demonstrations, as a result of which General Secretary Hu Yaobang was dismissed.
Only in the early 1990s, the course of accelerating and improving the economic environment proposed by Deng Xiaoping helped overcome the overheating of the economy, create systems to control inflation and the development of the country.
China's economic miracle and its causes
So, now for the reasons. Studying the phenomenon of China's economic miracle, many experts put forward the following reasons for the economic recovery:
- Effective role of the state in economic transformations. At all stages of the reforms, the country's administrative apparatus adequately met the tasks of economic modernization.
- Significant workforce. Demand in the Chinese labor market is always greater than supply. This keeps wages low while productivity is high.
- Attracting foreign investment in Chinese industry, as well as in high-tech industries.
- Export-oriented development model,which made it possible to increase the knowledge intensity of the economy and the development of the latest technologies at the expense of 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 restored the economy through effective market regulation.
China today
What have China's four decades of wise reform led to? Consider the main indicators of the Chinese economy briefly further. Today's China is a powerful nuclear and space power with a modern industry and developed infrastructure.
Some numbers
In the 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% over the period last year. The share in the GDP of the agricultural, industrial sectors, and the service sector is increasing 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 in growth, the Chinese economy (it is rather difficult to briefly describe this phenomenon) today maintains long-term growth potential and continues structural reforms.
Chinese economic forecasts
Having created a market mechanism in the economy, the Chinese government plans to further improve it, while showing the benefits of socialism. However, experts make both optimistic and pessimistic forecasts for the development of the Chinese economy. Some are sure that it will be difficult to resist the growing economic,political and social problems while maintaining communist power. Growing emigration to developed countries, the gap between the poor and the rich can reduce the effectiveness of state power and the role of the party. In contrast to them, other experts argue that, after all, a hybrid of socialism and the capitalist market is possible due to the originality of the Chinese nation and the mentality that is unique to it. It remains only to say that time will put everything in its place.
