How did China Become an Economic Superpower?

BY SOUMYA RANA

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From one of the poorest to the second largest economy in the world

Do you recognize any of these items? What do they have in common?

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They are all manufactured or made in China.

Well, it wasn't always like this. China went from run-down cities that were nothing compared to the western world to some of the futuristic skylines in just over 30 years.

So, how did China become a global superpower?

In 1949, post World War 2, under the rule of Mao, the people's republic of China was created. He adopted the Soviet model and, for 30 years, launching the anti-rightist campaign in 1957. China was an agriculture-based, rural economy. It was deplorable that more than 88% of the people were surviving on $2/day. Between 1958-1962, he starved between 20 million and 60 million people.

Around this time, the Chinese economy grew at a plodding pace, remaining one of the poorest nations in the world at a GDP of about $60 billion. This slow growth was due to the communist policies that kept the economy poor, stagnant, centrally controlled, vastly inefficient and relatively isolated from the global economy. A large share of economic output was directed and regulated by the state, which set production goals, controlled price and allocated resources throughout most of the economy.

For example, in the 1950s, if you had a household farm, it would be collectivized into large communities. You would be able to grow your own crops, but the prices were set by the Chinese state.

On September 9, 1976, Mao died, and this era ended. Consequently, in 1978, the Chinese government decided to break ties from the Soviet-style economic policies by gradually reforming the economy according to free-market principles--opening up trade and investment with the west in the hope that it would boost economic growth.

In 1979:

• The government initiated price and ownership incentives for the farmers. This enabled them to sell a portion of their corps in the free market. Businesses were able to set their own prices.

• The government established four special economic zones along the coast to attract foreign investment, boost exports and import high technology products to China. These places were also offered trade and tax incentives to boost exports. And companies came because China asked for lower wages than the United States or other western countries.

• Citizens were encouraged to start their own businesses.

• Later, China further opened 14 coastal cities to overseas investment, including Shanghai.

With these economic reforms, the Chinese economy has grown substantially and avoided significant economic disruptions. From 1979 to 2020, China's annual GDP growth averaged 9.5%, almost doubling the size of its economy every eight years.

So, how did China's economy skyrocket?

Although the United States' economy is almost 7 trillion more than China's GDP, it has replaced the US as the engine of the global economy. This can be attributed to two reasons: significant scale capital investment, financed by considerable domestic savings and foreign investment, and rapid productivity growth. With its large population, China has boosted its productivity through low costs of labour and increasing machinery. These have gone together hand in hand, making China the biggest exporter and manufacturer globally.

With such a fast-paced growth comes costs to the environment. Smog, landfills, reduced vegetative cover are to name a few. At present, the Chinese government has indicated its desire to move from a fast-growth model at the cost of the environment to more smart economic growth. This seeks to reduce reliance on energy-intensive and high polluting industries, to rely more on high technology and green energy to continue.

Credits:

Godement, Francois. “China’s Economic Power: Catching up with the United States by 2025?” Assessing China’s Power, 2015, pp. 21–39., doi:10.1057/9781137534613_2.

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