China’s rapid economic growth and what the future holds for China

9 Mar

In 1949, the People’s Republic of China was established and so began the era of socialism. Focus was placed on heavy industry and capital-intensive factories producing metals, machinery and chemicals (Ishikawa, 1983). The existing policies were resulting in a very poor and stagnant economy, which was being centrally controlled (Morrison, 2014). All foreign exchange was controlled by the state (Wei, 1995a). Companies and individuals were unable to import or export goods without state trade corporations intervening. Before the revolution, China relied on Pacific trade, which it then stopped during the 1950s, instead refocusing its trade to the Soviet Union (Naughton, 2007a). The Chinese economy therefore became isolated from the global economy.

In 1978, China’s economy underwent a massive transition, implementing various economic reforms, which saw China moving from a controlled,planned economy to a market-oriented economy (Chow, 2004a) and rapid growth. One initiative hugely instrumental in the growth of China’s economy was the open door policy, which Deng Xiaoping announced in December 1978 (‘Open Door Policy’, 2014a). Before the reforms, China’s foreign-trade system was tightly controlled. All imports and exports were monopolised by twelve national foreign-trade companies (FTCs) (Naughton, 2007b). During the 1980s, trade reforms completely liberalised the foreign-trade system. Decision-making in exports and imports was decentralised by the government to local governments and regional FTCs (Wei, 1995b), allowing more companies to participate in foreign trade (Naughton, 2007c). Furthermore, special economic zones (SEZ) and coastal open cities (COCs) were set up, stimulating exports and attracting foreign direct investment (FDI) (Hayashi, 2003). Deng acknowledged that for China to continue growing, it required Western technology and investment, thus the open door policy provided opportunities for foreign businesses to invest and set up in China (‘Open Door Policy’, 2014b). China shifted from a highly structured, controlled trading system to a much more liberalised trading system, enabling China’s exports to grow considerably. China therefore went from a largely closed economy whereby FDI was almost non-existent and international trade and exchange was scarce to an open economy receiving large amounts of foreign investment and playing a crucial role in global trade (Tisdell, 2009a). Figure 1 shows how since 1978, FDI has increased almost every year.

Image

(Figure 1)

China’s rapid economic growth has not been without implications. Income inequality sharply increased, particularly between urban and rural areas (Tisdell, 2009b). In 2010, rural dwellers had an annual average per capita disposable income of 5,900 yuan, compared to 19,100 yuan for urban residents. The divide between urban and rural has continued to widen since the 1978 reforms (see figure 2). Furthermore urbanisation has increased, through rural-to-urban migration whereby people relocate to cities searching for employment and a better quality of life. Between 1978 and 2004, urban dwellers within China increased from 170 million to 540 million, i.e. from 17.9% of the total population to 41.8% (Song and Ding, 2007). Before the reforms, policies and labour restrictions prevented people from freely migrating from rural to urban areas (Junor, 2014). Increasing urbanisation presents China with problems such as growing pressure on energy resources and housing.

The main impact however has been on the environment. For many years China focused solely on economic growth without considering environmental consequences. China relies heavily on coal for its primary energy generation and with a fast-growing economy and subsequent demand for energy, the country is now the highest consumer of energy (Watts, 2010). This has impacted China’s air quality, causing severe pollution in some areas. Last year it was predicted that such air pollution can result in people in northern China, where pollution is more common, to live an average 5.5 years less than those in southern China (Kaiman, 2013). Pollution is still a huge problem in China and according to the Ministry of Environmental Protection, in 2012; it suffered the worst air pollution in 52 years. However, China recently announced plans to tackle pollution by “declaring war on pollution” (Branigan, 2014). One example is by closing down coal-fired furnaces, which will significantly help in improving China’s environmental conditions. China is subsequently a major contributor to global warming and with it being the world’s most populated country; demand on natural resources remains unsustainable.   

Image

(Figure 2)

 After opening up its economy and forging connections with the rest of the world, China accelerated its growth. Today, China is the largest exporter, attracting high amounts of foreign investment and investing billions of dollars abroad itself (‘China profile’, 2014). In 2011, China overtook Japan to become the second-largest economy in the world (McCurry, 2011). Some predict China will soon overtake the US as the largest economy, although recently it has been said that if this happens, it will not be until around 2028 (He, 2013). China’s economy however, is beginning to slow, showing signs of stabilising, with China’s Premier, Li Keqiang, recently setting the 2014 growth target at 7.5% (‘China sets growth target’, 2014). This illustrates how China is beginning to focus less on economic growth and more on targeting pollution and improving quality of life (World Bank, 2014a). The rapid growth in China’s economy has brought several advantages. With an average 10% GDP growth a year, more than 500 million people have been removed from poverty (World Bank, 2014b). China’s economic reforms also helped stimulate economic growth globally (Tisdell, 2009c). Moreover, people in China are receiving more economic freedom, with opportunities for private investment, and greater liberty in moving within China for labour (Tisdell, 2009d).

China is beginning to try and move away from economic growth from investment and exports, instead focusing on domestic consumption (‘China economic growth’, 2014), in order to rebalance the economy and protect it by avoiding economic crashes. There has therefore been a drive to increase consumption within China, for example by encouraging migration from rural to urban areas, as those in rural areas tend to consume less. China’s economy is increasingly influential in the global economy and consequently needs to ensure it can continue to grow in the future in a sustainable manner to provide for its demanding population.

Word Count: 992

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