The Rise of China as an Emerging Global Power

Introduction

Prior to the advent of trade liberalization and economic reforms that were enacted nearly four decades ago, China had maintained policies that did not promote economic growth in the country, keeping its economy stagnant, vastly inefficient, very poor, and relatively secluded from the global economy. However, the enactment of free-market reforms in 1979 and opening the country to foreign investment and trade has led to the rapid economic growth of China. Today, China is among the world’s fastest growing economies with a GDP that has grown exponentially, a phenomenon that has been described by the World Bank as the fastest sustained expansion ever known to human history. This growth has enabled China to double its GDP, making it the world largest economy, merchandise trader, and manufacturer globally. This has led to China becoming the United States’ main commercial partner. The economic reforms of 1979 have significantly contributed to the rise of China as an emerging global power, placing it on the spotlight on the global economy.

China’s Economic Development: The History

Initially, China exercised a centralized economy where majority of the activities in the country were controlled by the central government. During this period, the largest share of China’s economic output was controlled and directed by the government. The implication is that the Chinese government entirely controlled the prices of commodities in the country as well as allocating resources for key stakeholders in the economy and setting commercial goals for producers. One of the strategies that the government was using to control the economy was the formation of collective communities which all households were supposed to be part of the community. However, the industrialization period in China was characterized by large scale investment of the government on different sectors of the community which led to the revolutionized China.[1] This gave the government an upper hand in owning enterprises across the country which followed a centralized system of ownership. At the time, the government had implemented stringent regulations and laws that discouraged foreign investment and private enterprises in the country.

The main objective of the federal government at the time was making the country to be dependent on its own resources. The government limited the capability of foreign traders to import goods that could not be manufactured locally in the country, meaning that it reduced the importing capacity of foreign firms. Implementation of such policies and laws created distortion in the economy. As a result, there were no mechanisms that were designed to effectively allocate resources in the market since most elements of the economy were controlled and directed by the central government.[2] This meant that there were less incentives for firms operating the country, as well as incentives for farmers and workers. Hence, production in the country was on a minimum since most workers, farmers, and firms were focused on achieving the outlined goals by the government rather than enhancing the quality of goods.

In the 1950s and 1960s, majority of Chinese government officials exaggerated their production levels for gains that were politically inclined, especially those officials at the sub-national levels of administration. According to the Chinese government reports, it is argued that China’s GDP averagely increased at a 6.7% rate annually between 1953 and 1978.[3] Some critics, such as Economist Angus Maddison, argued that at the time, China’s GDP growth was on the average of 4.4%.[4] This showed that the officials were determined to exaggerate the figures for their political benefits in the national government. Consequently, the leadership of Mao Zedong was characterized by China suffering significant economic downturns which had detrimental impact on the country’s economy.[5] However, between 1950 and 1978, the living standards of the citizens doubled. Immediately after the death of Chairman Mao Zedong, the state was open for different forms of trade and economic patterns. The government started accepting foreign traders to invest in the economy as a way of bolstering its economic performance. The introduction of these reforms was anticipated to positively influence the country’s economic growth and improve the living standards.

The Introduction of Economic Reforms

            After the death of Chairman Mao Zedong, the Chinese government abolished the old economic system that was active in the country to open China’s economy to foreign investments based on free market principles. This opened the country’s economy to Western investors, in the hope that the country will experience exponential economic growth. In 1979, the Chinese government launched several economic reforms that targeted empowering production and growth in the country. The government initiated several programs that were supposed to empower the local citizens to start their own ventures and sell their goods and services at the open markets in the country.[6] Additionally, the government established four primary economic zones along the coastal region. These special economic zones targeted foreign investors and focused on boosting the country’s exports and importation of high-end technologies in the country.

Notably, the Chinese government started accepting the Westernized principles of free markets and economy, and started enacting different measures and approaches that were focused on decentralizing the economy. This meant that the management of enterprises that were initially owned by the federal government were contracted to smaller governments, which included the local and provincial governments. These two entities were allowed to compete in terms of production and efficiency in the free-market model that was being introduced in the country. this meant that they did not follow the outlined objectives that the federal government had initially enacted. This initiative aimed at empowering the average citizen to be dependent. To improve the economic performance of the country, the government secluded several regions along the country’s coastal line that were considered to be experimental regions to test the efficiency of the economic reforms that were enacted. Reforms that gave a positive impact in the development of these coastal regions and attracted more external investment were considered to be viable for implementation on a larger scale.

As the Chinese government continued implementing the reforms, it also eliminated all the barriers that were discouraging external investment in the country. This involved the lifting of regulations that barred international investors from investing in the country. The liberalization of trade in the country was a major success factor that contributed to the exponential growth of the country’s economy. The Chinese government eliminated the stringent trade barriers that barred foreign investors from coming into the country. The initial impact of trade liberalization in the country was an increase in the percentage that the country was receiving as FDI inflow.  The gradual implementation of economic reforms in the coastal regions and cities sought to recognize some of the policies that positively impacted the economy and those that had adverse impact on the economy. This way, the government could identify which policies were favorable to be implemented in the other parts of the country that could have positive economic outcomes.

Economic Reforms and Growth Since 1979 to Present

            The advent of the economic reforms in China in 1979 marked the substantial growth of the country’s economy as it avoided economic disruptions that could slow down the growth rate. After the economic reform, China has been able to double its economic progress as reflected in its GDP that has been increasing annually.[7] Nevertheless, the 2008 economic crisis had a detrimental impact on the country’s economy, same way it had such consequences on the global economy. According to reports given by Chinese media houses, approximately 20 million migrants retuned home due to job lose that was significantly contributed by the economic crisis.[8] Also, during the last quarter of the 2008 financial year, the country reported a decline of the GDP to 6.8%. These challenges affected the country’s initiative to reform its economy and become and economic giant in the Asian region and the world.

However, the Chinese government responded to these challenges by introducing a stimulus package in the country. The injection of the stimulus package into the country’s economy was intended to support and fund infrastructure development as well as research and development in the country. Through the federal stimulus package, the government was able to evade the detrimental consequences of the 2008 economic crisis that significantly affected other economies around the world. This resulted in the increase of the country’s GDP as compared to other states which were suffering to neutralize the aftermath of the crisis on their economies. Surprisingly, the growth rate of the GDP declined slowly between 2010 and 2016. The GDP declined from 10.6% and 6.7% between 2010 and 2016.[9] According to the International Monetary Fund approximations, China’s economic growth was anticipated to decline in the following decades. Most economist suggested that the economic growth would continue to decline if the relationship between China and the United States is interrupted by the punitive economic measures that the two countries continue to impose. Based on the Organization for Economic and Cooperation and development (OECD) projection, if such punitive measures continue to be implemented, China’s GDP growth rate was expected to reduce.

Causes of the Chinese Economic Growth

            Professional literature attributes China’s economic growth and success to two key factors; rapid productivity growth and large-scale capital investment. China was able to enhance its production and manufacturing efficiency by increasing its resources which improved the output that the country was producing for export. When the economic reforms were first introduced in 1979, the country’s domestic savings was averagely 32% of the GDP.[10] A bigger percentage of the saving during this period were generated from state-owned enterprises which were used for domestic investment by the central government. However, the economic reforms increased the potential of cooperate and household savings due to the decentralization of the country’s economic production. This made China have the highest percentage of gross saving globally compared to other major economies. As a result, the government has been able to support investments in the country. Surprisingly, the expenditures of the country did not exceed the internal savings, meaning that the country was left with surplus funds. This made the country to be recognized as the leading lenders of finances in the world.

Additionally, some researchers have argued that China’s productivity gains have significantly contributed to the country’s rapid economic growth over the decades. The main cause of China’s increase in efficiency and productivity was mainly caused by the relocation of its resources to focus on productive uses. This relocation mainly focused on areas that were heavily controlled by the central government previously. Some of the sectors include trade, agriculture, and service provision. For example, the country focused on improving the overall production of the agriculture sector. This meant that employees in the sector had sufficient time to focus on other productive sectors such as research. Consequently, the decentralization of the country’s economy led to the rise of privately owned firms which pursued more productive operations as compared to enterprises that were state-owned. Also, privately owned entities were market-oriented in their business approach, making them more efficient in production. Furthermore, the economic reforms exposed the export sector to more competitive forces, forcing it to focus on providing quality services due to competition. This led to the junior governments to compete in the free market without facing stringent government rules and regulations.

Another fundamental factor that has contributed to the economic growth and rise of China in the global scale is its technological advancements. After the implementation of the reforms, China became as major center for innovation and new technologies that enabled the country to implement comprehensive economic reforms that aligned with contemporary measures.[11] Majority of low-income states have experience significant stagnation when transitioning from low-income economies to middle-income economies which is attributed to their lack of sustaining substantial economic growth. However, for China, this is not the case since the country has embraced technology and is using it to advance its economy. According to the Chines government, the country is expected to cross the high-income threshold in the next five years.

Recent Developments

According to World Bank’s comparison, China was able to advance from 1,150 to 3,225 in its gross value added of manufacturing between 2006 and 2016 whereas the United States advanced from 1,790 to 2,161 in its gross value added of manufacturing within the same period.[12] Manufacturing has been recognized as a key player in China’s economic growth. China heavily invested in its research and development sectors and advanced technologies, placing it as the world’s most competitive economy. As the world’s largest manufacturer, China has been able to initiate several diplomatic ties between it and other key players in the global economy.[13] Such ties have contributed to the rise of the country on a global scale.

The initial step to open up the country’s economy to foreign trade and investment by aligning to the Westernized economic patterns had substantia impact on the China’s foreign direct investment. An increase in the percentage that the country has been receiving as part of its FDI has been identified in professional literature to be a significant factor towards the economic rise of China on the global scale. By 2010, foreign owned companies and businesses had employed a significant number of citizens in the private sector which translated to about 15.9% of the country’s urban workforce.[14] The high number of foreign invested enterprises in the country have significantly accounted for China’s high industrial output. Consequently, 2016 marked China’s historic peak in its FDI outflow after hitting a $196.1 billion. This has been a major contributor to China’s rise as a global power today.

Conclusion

            Before the implementation of the economic reforms and open trade markets in 1979, China was following the Society-style of economic policies that restricted foreign investments in the country as a tactic of making the nation self-sufficient. Mao Zedong maintained a centralized economy plan. Majority of the economy during this time was controlled by the central government. However, shortly after the death of Mao Zedong, the government abolished all the restrictions that were implemented and opened the country’s economy to foreign investments. The reforms started by establishing four economic zones in the coastal regions of the country that were used to experiment the effect of the reforms on the economy. Later, the reforms that had a positive impact on the economy were implemented across the country. The government gradually eliminated all trade barriers, leading to an economic surge in the nation. The stimulus package that was introduced after the 2008 economic crisis focused in funding infrastructure development in the country. As a result, the country experience rapid productivity growth and large-scale capital investment. Today, China has been identified as the world’s largest manufacturer, which has contributed to its high FDI inflow and outflow.

 

 

 

 

 

 

Bibliographies

Lei, Jiasu, Qingzhi Zhang, and Yaoyuan Qi. “Innovation-led Development: The Logic of China’s Economic Development.” Journal of Industrial Integration and Management 5, no. 01 (2020): 1-11.

Lesnic, Diana, and Rodica Crudu. “The shift of power to emerging economies on global arena.” In Simpozion Ştiinţific Internaţional al Tinerilor Cercetători, pp. 136-138. 2019.

Morrison, Wayne M. “China’s economic rise: History, trends, challenges, and implications for the United States.” Current Politics and Economics of Northern and Western Asia 28, no. 2/3 (2019): 189-242.

Pogoson, Aituaje Irene. “Issues, Trends and Challenges in an Emerging Global Power Structure.” Canadian Social Science 14, no. 2 (2018): 5-15.

Xing, Li, and Zhang Shengjun. “The international political economy of the rise of China and emerging powers: Traditional perspectives and beyond.” In The Routledge Handbook to Global Political Economy, pp. 74-91. Routledge, 2020.

[1] Aituaje, Pogoson, Irene. “Issues, Trends and Challenges in an Emerging Global Power Structure.” Canadian Social Science 14, no. 2 (2018): 5-15.

 

[2] Jiasu, Lei, Qingzhi Zhang, and Yaoyuan Qi. “Innovation-led Development: The Logic of China’s Economic Development.” Journal of Industrial Integration and Management 5, no. 01 (2020): 1-11.

[3] Wayne, Morrison, M. “China’s economic rise: History, trends, challenges, and implications for the United States.” Current Politics and Economics of Northern and Western Asia 28, no. 2/3 (2019): 189-242.

 

[4] Wayne, Morrison, M. “China’s economic rise: History, trends, challenges, and implications for the United States.” 2019.

[5] Li, Xing, and Zhang Shengjun. “The international political economy of the rise of China and emerging powers: Traditional perspectives and beyond.” In The Routledge Handbook to Global Political Economy, pp. 74-91. Routledge, 2020.

 

[6] Aituaje, Pogoson, Irene. “Issues, Trends and Challenges in an Emerging Global Power Structure.” 2018.

[7] Wayne, Morrison, M. “China’s economic rise: History, trends, challenges, and implications for the United States.” 2019.

[8] Diana, Lesnic, and Rodica Crudu. “The shift of power to emerging economies on global arena.” In Simpozion Ştiinţific Internaţional al Tinerilor Cercetători, pp. 136-138. 2019.

[9] Wayne, Morrison, M. “China’s economic rise: History, trends, challenges, and implications for the United States.” 2019.

[10] Wayne, Morrison, M. “China’s economic rise: History, trends, challenges, and implications for the United States.” 2019.

[11] Jiasu, Lei, Qingzhi Zhang, and Yaoyuan Qi. “Innovation-led Development: The Logic of China’s Economic Development. 2020.

 

[12] Wayne, Morrison, M. “China’s economic rise: History, trends, challenges, and implications for the United States.” 2019.

[13] Li, Xing, and Zhang Shengjun. “The international political economy of the rise of China and emerging powers: Traditional perspectives and beyond.” 2020.

 

[14] Diana, Lesnic, and Rodica Crudu. “The shift of power to emerging economies on global arena.” 2019.