Understanding a Deve..

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Understanding a development miracle in China
Demographic transition in China
Education development in China
Financial system in China
Understanding a Development Miracle
 China’s Economic Growth: A Review
 The Key Elements for China’s Growth
China’s Economic Growth: A Review
General description
The People's Republic of China is the world's second largest economy
after the United States. It is the world's fastest-growing major economy
with average growth rates of 10% for the past 30 years. China is also
the largest exporter and second largest importer of goods in the world.
China became the world's top manufacturer in 2011, surpassing the
United States. The country's per capita GDP (PPP) is $7,518 (IMF 93rd
in the world) in 2010.
China’s Economy prior to the start of economy reform
China’s economy experienced modest, but significant, growth
in the decades prior to the outbreak of full-scale war with Japan
in 1937. The pattern of pre-World War Ⅱ economic advance
reflected China’s openness to international trade and
investment. Prewar expansion clustered around two growth
poles: the Yangzi Delta area centered on Shanghai and the
northeastern provinces.
northeastern provinces
Yangzi Delta Area
Shanghai was
the largest and
most prosperous
city in the Far
East during the
 During the 1930s, China developed a modern industrial
sector, which stimulated modest but significant economic
growth. Before the collapse of international trade that
followed the onset of the Great Depression, China’s
share of world trade and its ratio of foreign trade to GDP
achieved levels that were not regained for over sixty
 The economy was heavily disrupted by the war against
Japan and the Chinese Civil War from 1937 to 1949,
after which the victorious Communists installed a planned
 The new China moved to create an economic system
largely modeled after Soviet experience. Soviet advisers
and Soviet-trained specialists worked to establish new
institutions organized around annual and five-year plans,
extensive state ownership, central control over prices, and
material balance plans that issued specific directives
governing the allocation of major inputs, products, and
financial flows.
Failures of planed system
Food scarcity: Chinese villager and city dwellers
Inefficient industry associated with Soviet-style central planning
Underdevelopment of services
Isolation from the international economy
Substantial difference between the rural and urban sectors
 Reform in the countryside: Beginning with the poor
mountain areas of Anhui and then spreading across the
country. Farmers were able to keep the land's output after
paying a share to the state. This move increased
agricultural production, increased the living standards of
hundreds of millions of farmers and stimulated rural
 Reforms were also implemented in urban industry to
increase productivity. A dual price system was introduced.
Private businesses were allowed to operate and they
began to make up a greater percentage of industrial
 Special economic
zones were set up to
absorb foreign direct
investment: All of these
places provide favored
tax treatment and other
advantages for foreign
investment. Laws on
contracts, patents, and
other matters of concern
to foreign businesses
were also passed in an
effort to attract
international capital to
spur China‘s
Shen Zhen: from fisherman village to a modern city
SHANGHAI: Pudong new district
 In the 1990s, the Chinese economy continued to grow at a
rapid pace, at about 9.5%, accompanied by low inflation. The
Asian financial crisis affected China at the margin, mainly through
decreased foreign direct investment and a sharp drop in the
growth of its exports. However, China had huge reserves, a
currency that was not freely convertible, and capital inflows that
consisted overwhelmingly of long-term investment.
------ Financial system burdened by huge amounts of bad loans.
-----Massive layoffs stemming from aggressive efforts to reform
-----Over half of the China’s SOEs were inefficient and reporting
 The large-scale privatization continued and the number of
SOEs decreased.
 Entry into the WTO in 2001
 Reform in the banking system
 The 11th Five-Year Economic Plan aimed at building a “
harmonious society”
 China launched its Economic Stimulus Plan to specifically deal
with the Global financial crisis of 2008–2009 .
Map of countries by GNI per capita compared to China
Date: 26 September 2010
GDP (10 billion RMB)
China’s GDP growth since 1978
Source: China statistical yearbook 2010
GDP per head (RMB)
China’s GDP growth per head since 1978
Source: China statistical yearbook
Economic performance since reform
 Rapid growth has elevated hundreds of millions from absolute
Poverty ratio in
 China’s economy has abandoned its former isolation in favor of
deep engagement with world markets
Before 1978 1985
Economic performance since reform
 The slow retreat of planning has cumulated into a
dominant role for market outcomes.
 Markets for products, labor, and materials are well
developed and increasingly competitive.
 Private entrepreneurs continue to push into sectors
formerly reserved for public enterprise.
The Key Elements for China’s Growth
1. Stable political environment and successive economic policy
 Deng was a pragmatic leader, known less of his
ideological commitment than his slogan: "Who cares if a
cat is black or white, as long as it catches the mice."
Once he consolidated his power, he began to put his
pragmatic policies to work.
 Despite Deng's death in 1997, reforms continued under his
handpicked successors, Jiang Zemin and Zhu Rongji , who
were ardent reformers.
 The conservative Hu-Wen Administration adopted more
egalitarian and populist policies
2. Market incentives mechanism
Particularistic contracting: These contracts grandfathered in
each firm’s existing situation, giving that firm incentives to
improve profitability from the current achieved level.
Particularistic contracting spread to millions of family farms,
hundreds of thousands of state enterprises.
Dual track: Firms operated on both a plan and a market track
under dual track policy. Each firm had to first fulfill its
preexisting plan contracts. Above this base, firms were allowed
to produce for the market at market price. This enabled price
Privatization: For example, for the first decades of reform at
the local level, township and village enterprises were
encouraged. They accounted for a very large share of industrial
output growth in China.
3. Decentralized experimentation
Special economic zones
Reform from county to urban areas
Reform from costal areas to central or west
Let some people get rich first
4. Capital stock
-----High savings. High savings accelerates the rapid capital
formation, which has played a major role in China’s economic
------Massive capital inflow. Foreign investment has become an
important driving force for China’ s economic growth, which
brings the capital ,technology and job opportunities.
5. labor and human capital
-----Cheap labor cost. A huge amount of rural population in
China provides the cheap labor for the foreign and domestic
------Human capital. The education system and the investment in
human capital improve the quality of human resources in China.
The improved human capital becomes the driving force for
6. Urbanization
As one of the most important result of market oriented reform,
urbanization was accelerated during the reform period. Millions
of rural residents have transferred to urban areas, which has
sustained increasing labor supply to the rapid growing industrial
and service sectors.
7. Infrastructure
In the past decades, many rural places’ economic growth is benefit
from better infrastructure. Meanwhile, infrastructure investment
forms part of total capital stock.
8. Huge domestic market
China has a huge population, and the domestic market is very
important for foreign companies and domestic competitors.
9. Political competition
Officials at all levels are striving to outdo its neighbors and rivals
in expanding the infrastructure and absorbing the investments.