Currently, China holds the title of world’s second largest economy, beaten only by the US. China has also demonstrated never-before-seen levels of GDP growth over the past 50 years, having consecutively doubled GDP growth rate every 8 years for the past 3 decades. China has transformed itself from an impoverished, communist country into a global economic superpower.
The beginning of China's journey towards economic growth can be identified as the year 1979, when leadership passed from Chairman Mao Zedong to Deng Xiaoping, the ‘Architect of Modern China’, having been the brain behind the post-1979 regime.
The policies implemented by Chairman Zedong left the country’s economy poor, stagnant, and isolated from the global economy. Zedong’s government controlled large aspects of the economy such as the resources, set production and prices. This inevitably led to a lack of incentive for firms and workers to perform their best and be innovative. The centralised organisation of projects which focused on quantity over quality reduced the demand among citizens, creating a surplus of unwanted output and a shortage for goods people actually wanted and needed as all of the resources available were being used in the production of unnecessary products. This caused numerous welfare problems such as famines.
Once Xiaoping assumed control of the government, he implemented free market reforms and opened China to foreign trade, creating greater competition. The new regime also established price and ownership incentives for firms; enabling them to sell products on the free market. Xiaoping’s government decentralised the economy by delegating projects to local authorities. Most importantly, the government focused on innovation. They established specific economic zones to attract foreign investments and boost exports, which worked as they are currently the top supplier of goods for the US. To boost innovation, Xiaoping also encouraged citizens to start their own businesses.
China’s GDP continued growing at a steady rate of 9% yearly due to their investments, low-cost manufacturing and exports. While this strategy has been effective in securing China as a upper-middle income country it has led to social and environmental imbalances which its current and future governments must strive to remedy. The Chinese economy has come a long way from the behind and isolated communist regime and only time will tell if it will be the No. 1 economy in the world.
Bibliography:
China’s Economic Rise: History, Trends, Challenges, and Implications for the United States - https://www.everycrsreport.com/reports/RL33534.html
The World Bank in China - https://www.worldbank.org/en/country/china/overview
Understanding China's Growth: Past, Present, and Future - https://www.aeaweb.org/articles?id=10.1257/jep.26.4.103
A Brief History of China’s Economic Growth - https://www.weforum.org/agenda/2015/07/brief-history-of-china-economic-growth/
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