Factors Caused For Rapid Growth in Economic Development in China

According to government data, China has had the world’s fastest-expanding economy since the 1980s, in 2020, its GDP was 14.72 trillion U.S. dollars. China is the world’s second-biggest economy by nominal GDP and has been the world’s largest economy by purchasing power parity since 2014.  Since 2010, it has been the second-largest by nominal GDP, relying on market exchange rates that fluctuate. China has the fastest-growing major economy in the world, with average annual growth rates of more than 10% during the previous 30 years.

In 1978, the government started economic reforms under Deng Xiaoping’s leadership. Poverty in China has decreased from 88 percent in 1981 to 6 percent in 2017. Foreign investment was allowed into the nation, and other trade obstacles were removed as a result of the reform.

After years of state ownership of all productive assets, China’s government embarked on a significant economic reform initiative in 1978. It fostered the development of rural companies and private firms, liberalized international commerce and investment, loosened state control over some pricing, and invested in industrial production and worker’s education.  

Between 1953 and 1978, China’s central planners substantially invested in the urban industrial sector while restricting migration from the countryside to cities. China has effectively shifted millions of people off farms and into factories without causing an urban catastrophe by promoting the expansion of rural companies rather than focusing only on the urban industrial sector.

Some major sectors where China prove itself:

1. Education

In terms of education, the Chinese people have had a myopic viewpoint. China boasts the world’s largest educational system. Education is state-run, with limited private sector involvement in the educational system, and it is becoming increasingly decentralized. 

Students are encouraged to pursue vocational education institutes after successfully completing the three levels of education—primary, junior, or senior middle schools—according to Chinese authorities.  China has improved the diversity and quality of its education system by implementing different educational policies in order to progress its economic and social growth. China had to assist its universities and vocational institutes in expanding internationally. The strategy also promotes student exchanges as a means of improving China’s system, particularly in sectors like engineering and natural sciences.

2. Health services

Despite a number of setbacks, China has achieved significant progress in the development of its public health system during the last seven decades. The healthcare system can be divided into three major steps:

• Improving the public health service delivery system, with an emphasis on illness prevention and early detection, and emphasizing the public health capabilities of rural and urban primary health care facilities.
• Empowering the community and the general public by establishing a multi-departmental coordination framework for social mobilization and involvement based on the Patriotic Health Campaign’s experience.
• Continually improving basic public health services, including service quality, program monitoring, and in-flight adjustment, efficient and relevant training for more highly skilled professionals, and more integrated IT systems, to ensure that all people have equal access to essential public health services

Getting this development and reform right is critical for China’s future social and economic development, and we believe China’s public health experience can teach other countries a lot.

3. Supply of labor

With a constant stream of rural-urban migrants in pursuit of jobs, China has a sufficient supply of employees. This is owing to agricultural mechanization, which has resulted in rural unemployment and underemployment, as well as an increase in industrial labor in metropolitan regions. Over the next two decades, it is projected that 500,000 million people would leave China’s rural in pursuit of jobs. Rural migration has been followed by an aggressive re-planning programs in which rural communities have been destroyed and new manufacturing towns have been created at a quick rate for former farm households to move into.

4. Workplace participation by women

Female engagement in the manufacturing industry is greater than average in China’s workforce. Gender divides in the workplace are mostly irrelevant in Chinese economic progress, according to Western cultural studies. This, along with the One-Child Policy, which has resulted in women being involved in child-rearing for far less time than in many other nations, has resulted in a significantly bigger workforce.

5. Reforms in agriculture

Agriculture’s gross domestic product (GDP) increased at a rate of 2% per year on average between 1952 and 1978. Over the last four decades, real agricultural GDP has grown at an annual rate of 4.5 percent on average. Since then, agriculture has become much more diverse. Farming is today a highly commercialized industry, with tens of millions of farms producing high-value commodities. Whereas off-farm work was formerly uncommon, it now accounts for the bulk of rural household income. Rural poverty has decreased substantially as agriculture has grown and off-farm employment has increased. 

6. Reforms in industrialization

From the 1950s through the 1960s, its development-oriented nationalist political program aided China’s economic progress. These rural reforms stimulated fast agricultural expansion, resulting in capital and labor surpluses, opening the stage for industrialization. Along with the agricultural expansion, labor mobility and small and medium rural companies were quickly promoted. Before 1984, the financial input to agriculture was greater than the financial output from agriculture, while after 1985, when rural businesses began to take off, more money was taken out of agriculture than was received.

In rural regions, China established a policy of supporting light and labor-intensive businesses. The proportion of such rural companies to total industrial growth grew from 9.9% to 43.2 percent between 1978 and 2006, and the number of rural people working in local state enterprises increased from 28.27 million to 146.80 million. On the one hand, this industrialization approach transformed a skewed industrial structure from heavy capital intensive to a more balanced labor-intensive structure, and it avoided over-concentration of industry and population in cities on the other.

7. The Dual-Pricing strategy

The dual-track pricing system was implemented after 1984. It acts as a planned transition strategy to encourage micro-reforms and the creation of a market system. In the industrial sector and for manufacturing materials, a dual-track pricing system had been introduced. 

Natural resource-rich nations use dual pricing techniques to establish local prices for natural resources that are considerably lower than export market prices. Such approaches enable governments to supply cheap energy inputs to their customers and local industry. These behaviors are especially concerning in businesses that need a big amount of energy input (such as the steel industry) or a substantial supply of resource-based energy commodities (such as the oil and gas industry).

8. Decentralization

Decentralization boosted healthy competition among cities, resulting in more appealing investment climates. Local creativity in the provision of public goods was also encouraged. China’s prosperity has been largely due to local innovation and competitiveness. Some experts suggest that fiscal decentralization provided significant incentives for Chinese local governments to encourage economic growth, resulting in high growth across the country.

9. System of government

Because of China’s non-democratic and authoritarian political structure, it has been feasible to accept a western-style free-market economy while preserving political control. Because the government controls all decision-making, China’s planned economy (where the state regulates economic activity rather than private enterprise) has boosted economic growth in many ways. Since Mao’s death in 1953, the Chinese government has pursued a series of Five Year Plans that have allowed the government to implement any reforms it sees fit. The government has implemented its 12th Five Year Plan (2011-2016), which includes objectives such as allocating 2.2 percent of GDP to R&D and transforming coastal regions from “the world’s factory” to “hubs of R&D, top-end specialty manufacturing, and services.”

10. FDI and Special Economic Zones

During the early stages of economic development, foreign investment was welcomed. They tended to settle in one of six SEZs (Special Economic Zones) or 14 Open Cities, where government regulation and supervision were relaxed, resulting in a more appealing business climate. TNCs (Transnational Corporations) are provided incentives such as lower tax rates to set up manufacturing activities in these authorized zones.

While several nations have established SEZs, China has had the most success in attracting international money through SEZs. Following the success of the first SEZs, the government decided to establish 14 “open coastal cities” in 1984. These cities have comparable advantages to SEZs, such as the ability to approve investment projects, provide foreign investors incentives, and import equipment and technology tax-free.

11. Taking over the world

China has begun to globalize its economy by acquiring international firms, notably in North America and Europe. In actuality, China invested $56 billion in outbound foreign direct investment in 2010. China has changed from a net recipient to a net investor in FDI by 2015, with inbound FDI averaging $60 billion per year, a sign of its economic maturity in many ways.

Conclusion:

China’s economy has matured, and its real GDP growth has slowed substantially, from 14.2% in 2007 to 6.6 percent in 2018, with the International Monetary Fund (IMF) projecting growth of 5.5 percent by 2024. Such reforms are required for China to avoid falling into the “middle-income trap,” which occurs when countries reach a particular economic level but are unable to adopt new sources of development, such as innovation, resulting in dramatically declining economic growth rates.

The primary source of China’s exceptional economic success is the country’s tremendous productivity development, which was sparked by market-oriented reforms in 1978. Despite substantial challenges in China when it comes to measuring economic indicators, these findings hold up after several testing for robustness. As a result, they provide a great starting point for future study into the potential importance of productivity metrics in other developing nations.