Development of the Chinese Economy

Abstract

This paper discusses China’s current Economic system and the transition it has foregone to get where it is today; The driving forces leading to China’s enormous growth in recent years and whether or not currency manipulation has been a factor; and also where China’s economy is going in the foreseeable future.

How would you classify China’s economic system, as it currently exists?

China has an economic system that combines components of capitalism and socialism. The leaders were determined to create a communist economic system, however much of its growth occurred after it adopted some capitalist practices. While China is considered a developing country, their economy is one of the largest and plays an essential role in the worldwide economy.

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Has China’s economy undergone a transition?

Economic reforms introducing market principles began in 1979 and were carried out in two stages. The first stage, in the late 1970s and early 1980s, involved a reduction in agriculture, this opened up of the country to foreign investment and capitalism. However, the majority of the industries remained the possessions of the state. The second stage of the reform, in the late 1980s, involved the privatization and contracting out of the much state-owned industry and the eradicating of price controls, protectionist policies, and regulations, although state monopolies in sectors such as the banking industry remained. The private sector grew remarkably, accounting for as much as 70 percent of China gross domestic product by 2005 (Engardio, 2005). From 1978 until 2013, unprecedented growth occurred, with the economy increasing by 9.5% a year (Scissors, 2009).

The enormous growth of China’s economy

The primary keys to the growth of China’s economy is a combination of socialism and capitalism. It is recognized that capitalism correlates with democracy because capitalism is based on the free-market system which there is no interference necessary by the government.

The hybrid economic system played a significant role in the agricultural production. Deng Xiaoping was in control of the regime when he introduced the capitalism on the Chinese economy system under socialism. The Government of China and many communists claimed that communism could not be integrated with capitalism and get a favorable result. Deng’s main

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focus was to revive the economy, and the reform was successful in improving the economic status in China.

The second part of the hybrid system was a reform to increase productivity in the industrial sector. The industrial reform began with several restrictions under the government’s control that required delegating power and giving up the interests from industrialists. However, the incentive mechanism, which came from the rural area, started to change the power moving from the government to enterprises (“Forces Driving the Growth of Chinese Economy with Capitalism and Socialism (Fall 2012) – Historpedia,” 2012). Finally, the government allowed the businesses to retain a greater part of the profits for their use. This mechanism started the industrialization of China. The success of manufacturing became the reason for the increased population movement to the urban areas and establishments of foreign companies. In result,

many products produced from China were not from a Chinese company. The economic

globalization had begun in China (“Forces Driving the Growth of Chinese Economy with Capitalism and Socialism (Fall 2012) – Historpedia,” 2012).

Currency Manipulation

The Treasury uses three key questions to determine whether or not currency manipulation is being used. The first question is whether the country runs a sizeable surplus in trade with America? The second question is whether its current-account surplus exceeds three percent of

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GDP? The Final question is whether it spends more than two percent a year to buy foreign

assets to control the value of its currency. Over the past year, no country has been accused of answering yes to all three questions. China only answered yes to one question in the latest report (“Champs or chumps?: China and currency manipulation | The Economist,” 2017).

Will China’s success continue?

Economic growth like China has seen over the years has never been witnessed before. Analysts think this economic growth is sustainable even though its banking system will come under considerable strain, and exchange rates may adjust (Mandelson, 2004).

This economic growth will feed an increasing demand for natural resources and put a larger

strain on the environment. Because China is already the world’s biggest commodities

consumer, this unprecedented economic growth will give China a significant stake in the global economic system (Mandelson, 2004).

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References

Spence, M. (2011, May 19). What are China’s next steps? Retrieved from http://blogs.reuters.com/great-debate/2011/05/19/what-are-chinas-next-steps/Footnotes

Fernandez, J. (n.d.). The Chinese Economic Reform. Retrieved from http://www.ceibs.edu/ase/Documents/reform.htm

Engardio, P. (2005, August 21). Online Extra: “China Is a Private-Sector Economy” – Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2005-08-21/online-extra-china-is-a-private-sector-economy

Scissors, D. (2009). Deng Undone | Foreign Affairs. Retrieved from https://www.foreignaffairs.com/articles/china/2009-05-01/deng-undone-0

The Forces Driving the Growth of Chinese Economy with Capitalism and Socialism (Fall 2012) – Historpedia. (2012). Retrieved from https://sites.google.com/a/umn.edu/historpedia/home/economic-forces/the-forces-driving-the-growth-of-chinese-economy-with-capitalism-and-socialism-fall-2012

Champs or chumps?: China and currency manipulation | The Economist. (2017, March 2). Retrieved from http://www.economist.com/news/finance-and-economics/21717997-government-has-been-pushing-price-yuan-up-not-down-china-and

Mandelson, P. (2004, October 12). http://trade.ec.europa.eu/doclib/docs/2004/november/tradoc_120173.pdf [PDF document]. Retrieved from http://trade.ec.europa.eu/doclib/docs/2004/november/tradoc_120173.pdf