By Nicholas Miller

 

The Chinese economy is considered to be one the world’s second largest economy and is the world’s fastest growing economy and been sustaining an average growth rate of 9.4% for the past 30 years.

After the revolution in 1949 the Chinese economy was structured along the Soviet socialist model with a heavy emphasis put on rapid industrialization, state control over all major industries, and during the Great Leap Forward Mao instituted widespread collective farming. The results of Mao’s economic reforms were devastating to the country. The industrialization lead to widespread famine throughout the country in an effort to bring China on a fast track to a rapid industrialization.

Enormous changes within China’s economic structure occurred during Deng Xiaoping’s helm in 1978. Deng ended the collective farms, allowed private businesses to start their own businesses and worked to create special economic zones for foreign investment.[1]The next stage of economic reforms, were known as Reform and Openness, as Deng started the privatization of the state owned enterprises (SOEs) that were seen as one of the major impediments of economic growth. In addition to larger decentralization of Deng allowed for township and village level leaders to nominally be owned by the state but in fact be privately owned.[2]

The economic reforms instituted by Deng divided the elites as these reforms were seen as betrayal to Marxist – Leninist principles. As the country was transitioning into a mixed economic structure Party elders was using their influence to get their children positions in SOEs that were transitioning to the private sector. The opening of the economy lead to rise in corruption and increased inflation helped acerbate the conditions that lead to the Tiananmen Square incident.[3]

During the 1990s Deng orchestrated the retiring of numerous Party elders that were instrumental in blocking his economic reforms. After Deng’s death in 1997 his successors, Jiang Zemin and Zhu Rongji, continued Deng’s reforms. In the late 1990s more extensive privatization of SOEs occurred. The number of SOEs dropped by 48% from 2001-2004.[4] In addition Jiang implemented reforms to the banking sector, ended the rest of Mao’s ‘iron rice bowl’ programs, and helped China attain a membership member in the WTO in 2001.[5]

The “Three Represents” (三个代表)— During Jiang Zemin’s era the “three represents” political theory was introduced into Chinese Marxism. It was through this theory that allowed private enterprise and capitalists to be members of the CCP. This was a necessary step that the CCP had to take to continue its legitimacy of ruling the country as the CCP further stepped away from its socialist roots and further implemented capitalist reforms throughout the country. [6]

During Hu Jintao’s administration there has been a greater concern for rising social instability and economic inequality that more populists policies and economic distribution between the provinces. During the Global Financial Crisis China launched a massive economic stimulus plan to focus on the completion of major infrastructure projects: such as railroad networks across China, roads, ports, etc.[7] It is estimated that China will become the largest economy in the world by 2020 at the earliest.[8]

Chinese Statistics

In the past Western commentators have cast their suspicions on the accuracy of China’s official statistics. What commentators and analysts questions is the ability for China to continually achieve and sustain such a high rate of growth for several decades. What is unknown is how much of the annual GDP needs to be recalculated because of the over-inflating of the data that is done through local officials.[9]

chinese_statistics

[1] Loren Brandt, et al, China’s Great Transformation, Cambridge University Press, Cambridge, 2008, p. 9

[2] Barry Naughton, et al. “”A Political Economy of China’s Economic Transition” in China’s Great Transformation, Cambridge University Press, Cambridge, 2008, p. 114

[3] Barry Naughton, p. 105

[4] G. Thomas Rawski, “China’s Industrial Development”, China’s Great Transformation, Cambridge University Press, Cambridge, 2008, p. 573

[5] Loren Brandt, et al, “China’s Great Transformation”, China’s Great Transformation, Cambridge University Press, Cambridge, 2008, p. 128. The iron rice bowl program was a social stability program that was instituted during Mao’s reign that applied to the state owned enterprises of guaranteed employment, health care, and food for the workers. A person’s job was secure and their wages were dependent upon their adherence to Party doctrine over performance. Within this program the Party had control over where the worker would live, when to marry, change employment, and move. More information can be found here –

http://news.bbc.co.uk/hi/english/static/special_report/1999/09/99/china_50/iron.htm

Neil Hughes, “Smashing the Iron Rice Bowl,” Foreign Affairs, July/August 1998,

http://www.foreignaffairs.com/articles/54211/neil-c-hughes/smashing-the-iron-rice-bowl

[7] Edward Wong, “China’s Export Economy Begins Turning Inward,” New York Times, 06/24/2010; John D. Fleet, “Can China Manage its Economy?” The Diplomat, 01/21/2010 http://the-diplomat.com/2010/01/21/can-china-manage-its-economy/

[8] Shamim Adam, “China to Exceed U.S. by 2020, Standard Chartered Says,” Bloomberg Business Week,11/14/2010

[9] Stephen Green, “Reforming China’s Economy: a Rough Guide,” The Royal Institute of International Affairs, 2003, p. 6

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