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A Brief Economic History of China

Introduction

China has been displaying both supreme dynamism and unrevealed complexity. According to the World Bank, China has consistently been the most rapidly growing economy on earth, sustain an average annual growth rate of 10 % a year from 1978 through 2005, and more than 850 million people have been lifted out of poverty. Moreover, China is the most populous country in the world; its population surpassed 1.43 billion people in 2019 despites a declining birth rate and with this china alone shared 18, 59 % of the world population. Today China is an upper-middle income country and the world’s second-largest economy after the United States of America. In the more than 50 years since the founding of the People’s Republic of China (PRC) in 1949, China has undergone an unusual and tumultuous development process, passing through revolution, socialism, and Maoist radicalism, and then gradualist economic reform and rapid economic growth.

Economic history of China

Time PeriodEconomyHistorical identity

2000 B.C- 220 A.D.

Agricultural economy, cultural glory

Ancient China

220 A.D.- 1600 A.D

Agricultural economy , internal trade and cultural glory, domestic revolutions

Medieval China

1600 A.D- 1911 A.D

Agricultural economy, colonized economy, defeated in several wars, and known as the century of humiliation

Early modern and Modern China

1911 A.D- On wards

Civil war, economic reforms, market oriented communist government, industrial revolution, global economic power, emergence of Corona virus and fighting against it.

Peoples Republic of China

a-brief-economic-history-of-china

China during the industrial revolution in the west

China was the largest and one of the most advanced economies in the world before the eighteenth century for more than a thousand years. According to famous economic historian Angus Madison, China accounted for a third of Global GDP in 1820.

In the fifteenth century, the Scientific Revolution in the West was characterized by mathematics and controlled experiments, in the time leading to the Industrial Revolution in the mid-eighteenth century. When scientific experiments became the basis of invention, technological development in western countries accelerated at an amazing pace, as did their structural transformation and economic development. Many countries in Africa, Asia, and Latin America, defeated in conflicts, were reduced to colonies of western powers and left far behind.

The civil service examination system based on Confucian classics, repressed Chinese intellectuals, and incentives to learn mathematics and how to conduct controlled experiments, so a scientific and industrial revolution could not take place spontaneously in China. Within decades after the onset of the Industrial Revolution, China was no longer a leader in technological and economic development– but was instead left behind. With the industrial revolution in Middle West, European and North-American countries were going through technological and economic booms and during this time period, China had the largest and powerful economy, which was larger than the economy of all the European countries combined. This was due to a few key reasons; one of which was that in previous century’s China-focused on becoming the largest agricultural producer in the world. They begin producing in an abundance wide varieties of food and they had the monopoly of producing different agro-based products like salt and as a result, China still ranks first in the global farm output in many primary food items including wheat, rice, potatoes, tomato, sorghum, peanuts, tea, millet, cotton and so on.

Talking about the rise of the population of china, it has increased from 150 million to over 400 million within a one century and because of this by 1820, one-third of world population lived with Chinese borders. But at the same time, Chinese empires eventually began to crumble as the rest of the world was focusing on new economic policies, new technologies and globalization and china was still focusing on agriculture commodities and domestic trade.

Ancient Agro-based China

Ancient Agro-based China

Devastation of Chinese glory

With the industrial revolution in the western, European countries rose quickly and china slid. And with a weaker economy, this came to had in 1840 when new powered British ships arrived at the border and port of China and this was the start of Opium War where 20 thousand British troops with advanced technology faced off against 100 thousand Chinese troops. The war ended about the last three years and this was the beginning of the end of the glorious Chinese empire and China became quasi-colony, ceding extraterritorial rights in the treaty ports to twenty foreign countries. Its customs revenue was controlled by foreigners and it surrendered territory to British, Japan and Russia.

Since the Chinese defeated in Opium War in 1840, the country’s elites like those other parts of the developing world, strived to make their motherland a powerful and respected nation again. They were also forced to sign unequal treaties with west which crippled the Chinese economy more and enforced them to pay reparation for the war. China suffered repeated humiliations by western powers, and its national sovereignty faced lethal challenges. This was known as the century of humiliation. Under the influence of Confucianism, China’s intellectuals regarded national prosperity as their responsibility, and generations of social elites and patriots strived unremittingly for national salvation. But it was not until the founding of the People’s Republic of China in 1949, or actually not until the reform and opening program started in late 1978, that China began to change its course of poverty and backwardness.

Opium War and downfall of China

Opium War and downfall of China

Evolution of Modern China

The era of the 20th century was the modern era for world economic thoughts and economic history. In 1911, a major revolution took place in China, which abolished the dynastic rule of China for about two thousand years and established the Republic of China, with the amputation of 6 years old last empire of ancient China king Puyi and China was declared a republican country. In 1912, the Nationalist Party of China/KouMinTang was founded by Dr. Sun Yat-sen, known as the first president of the Republic of China and started a democratic governance system at the beginning of the 20th century in China. In 1921, there was the formation of the Chinese Communist Party (CPC) with the objective of the establishment of communist society. Finally, in 1927, the civil war started in China due to ideological deviations in political thoughts and the war ended in 1949. During the civil was Japan also invaded China in 1931 and in 1937 and captured the most fertile geography of China-Manchuria and other important places of china like Canton, Beijing, Nanking, Shanghai, Wuhan and so on before the second world war. Japan was defeated in the second world war and with this Japan surrendered and in 1946 second phase of civil war between nationalist and communist parties of China again underway and within three years of that all the fragmented China was captured by Chinese Communist Party and they came into power in 1949 by defeating the nationalist party of China.

a-brief-economic-history-of-china

What happened after the Second World War?

After World War II the former colonies in Africa, Asia, and Latin America won their independence one after another. When the Chinese Communist Party came to power in 1949, China was a desperately poor country devastated by decades of civil war and foreign invasion. In the short term, their need was to bring peace, stability, and order to the country; over the longer term, like their imperial and nationalist predecessors, Communist leaders sought to design and implement a strategy of economic development which could transform China into a prosperous and powerful country able to hold up its head proudly in the world of nations. They sought these goals through a strategy of socialist development · which would, it was hoped, achieve rapid socio-economic modernization while avoiding the human costs of early capitalist development, and dependence on the advanced capitalist nations.

In the context of the time, the only model which seemed capable of delivering these objectives was that of the Soviet Union, hammered out under the leadership of Stalin in the dire decades of the 1930s and 1940s. Though the Chinese revolutionary leadership had their differences with the Soviet Union before 1949 and though the experience of the Chinese revolution differed markedly from that of the Bolshevik Revolution in 1917, they adopted the basic institutional features of the ‘Soviet model in both politics and economics in the early 1950s. This reflected not only a shared ideological heritage of revolutionary Marxism-Leninism but also the perception that the Soviet Union had achieved, in a relatively short period of time, the kind of rapid economic transformation that China was so eager to achieve. Moreover, the Chinese leadership was pushed towards the Soviet Union by the international environment of the time, the Cold War between the socialist camp and the West and, more powerfully, by the hot war in Korea from 1950 to 1953 which brought Chinese forces into direct combat with those of the Western powers.

First step of China towards planned development under communism

During the early and mid-1950s, a massive process of institutional transfer took place as a vast latticework of Soviet-derived political and economic institutions was laid down across China to control the whole economy and move it forward in a decisive dash for industrialization through a series of five-year plans, the first of which ran from 1953 to 1957; different sectors of the population were incorporated into mass organizations under the party’s command, and productive units were converted into state enterprises and collective farms through the socialist transformation of industry and commerce and agricultural collectivization.

Though the zenith of the Soviet model was economically successful and is nowadays looked back on nostalgically by older elements of the Party leadership, it brought many problems in its wake: some of these stemmed simply from the imposition of a foreign institutional system in an alien context; some from the inherent deficiencies of that model in terms of its high degree of concentration of political power in the hands of the central organs of the Chinese Communist Party (CCP) and of economic power in the hands of the central planners and administrative agencies; some from the incompatibility between Soviet practices and the institutional and ideological heritage of the Chinese revolution, particularly as interpreted by its supreme leader, Mao Zedong (Mao Tsetung). The result was a search sponsored by Mao and his supporters within the CCP leadership, for a distinctively Chinese form of socialist development which reflected this pre-revolutionary experience, and attempted to grapple with the inherent problems of the Soviet model and attune the institutions of Chinese state socialism towards Chinese socio-economic realities. This 'Maoist' paradigm of development, which began with the convulsive Great Leap Forward of 1958-9, dominated Chinese politics and economics for nearly two decades, culminating in the decade of the Cultural Revolution from 1966-76.

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China after Economic Reform of 1978

Until late 1978 communism remained as the main economic model of China and China's share of global GDP shark about 5 percent and stayed low until 1979. The GDP per capita of China was about $160, a third of the average among the developing countries in sub-Saharan Africa, the poorest continent in the world and overall Chinese economy growing at the very lower rate and the majority of Chinese were living in extreme poverty and future didn’t look bright for the Chinese economy. In effect, the Chinese themselves repudiated their own 'Chinese model’(White, 1993). So, the country decided to try a new economic policy and system that something they had not tried nearly in 100 years since the days of their global domination, that system was capitalism. But China did not want to go for full capitalism right away.

So, during the late 1970s, a new model of socialist development, based on market-oriented principles and institutions, emerged under a reorganized CCP leadership headed by Deng Xiaoping (Teng Hsiao-ping). This brought changes in ideology and policy so far-reaching that they seemed to vindicate the Manichean notion of the ‘struggle between the two lines’ depicted by Maoist ideologues during the Cultural Revolution. During this era of economic reform, which continues into the 1990s, China has experienced a process of rapid change unprecedented in its post-revolutionary history. Since then, its economic performance has been miraculous. Annual GDP growth averaged 9.9 percent over the next thirty years, and annual growth in international trade, 16.3 percent.

a-brief-economic-history-of-china

What has china done through the policy of economic reform?

With the new economic policy, China started de-collectivization of the agricultural sector means they allowed the farmers to sell their products in the open market without price control. Then they started opening themselves slow little for foreign investors and eventually they granted few cities of China to allow private small businesses. However, in the 1980s the vast majority of the Chinese economy was still run by the state but after seeing the success of openness and privatization did for them in the first few years of their new economic policy and then they released the economy by de-regulating virtually every industry and they allowed business centers to start their own business if they wanted to do.

They paid their special attention to the manufacturing sectors and manufacturing industries during the economic reform. They started to develop new technological infrastructure with complete control over regulations, laws, and wages. They also saw that they could establish a stated-owned planned business ecosystem that would be much more efficient to do business and they thought theoretically, they can have all of the suppliers, manufacturers, government agencies and consumers in the same location. They converted their plan into reality by opening certain Special Economic Zone (SEZ) like small-town Shenzhen. Shenzhen had 50,000 populations of people in 1980 before beginning the technological hub of the world. Enterprises and factories were allowed to keep, use merit pay and offer bonuses and incentives and thereby increase productivity. In such ways, they reformed and decentralized the state economy by replacing central planning with, market forces, breaking down the collective form and getting rid of state-owned enterprises.

Transformation and Achievements

The change in the destiny of China started in December 1978 when the Communist Party of China ushered in the reform and opening strategy – to reform the economic structure and open the economy to more foreign trade. An economy’s openness is usually measured by the ratio of foreign trade-to-GDP to the foreign trade dependency ratio (Lin, 2012). Mainland China’s foreign trade at $20.8 billion in 1978 was 12% less than that of Taiwan. China’s imports accounted for 4.8% of GDP, exports, 4.7%, and total trade, 9.5% early in 1980, Deng Xiaoping, the architect of China’s reform and opening strategy, proposed a target for that program: to quadruple China’s 1980 GDP by the end of the twentieth century, possible only with average annual growth of 7.2 percent.

At the end of 1978, China had a population of 1 billion, with farmers accounting for 80 percent of the total, and a huge number of illiterates. So, it was less than credible that a country as backward and impoverished as China could sustain 7.2 percent growth for two decades. But two decades later Deng’s aim turned out to be timid. As stated, in the thirty years from 1979 to 2009, China’s average annual growth was 9.9 percent, 2.7 percentage points higher than the targeted 7.2 percent. China has got success to increase its aggregate economic volume 18.6 times that in 1978. Since 1978 the average annual growth of foreign trade has been 16.3 percent, 6.4 percentage points higher than GDP growth. By 2009 the volume of foreign trade exceeded $2.2 trillion, a 107-fold jump in thirty years. Deng was thus a true statesman with great vision. Embarking on a seemingly impossible mission, he would prove that his ambitious targets were attainable (Lin, 2012).

By 2005, private sector industry accounted for about 70 % of the total GDP of China and China is able to lift out more than 80 million people out of chronic poverty with their new economic model. Shenzhen, once a little city with little population has turned into a global technological hub now. Apple, Nike, AT&T, General Electric (GE), Duracell and other international and regional companies began moving their manufacturing over china and this allowed these companies to double their profit or allowed these companies to reduce the price of their products to consumers. By 2010 China overtook the USA interims of total manufacturing industries and as of 2020 China controls about 30% of global manufacturing value. It means now one-third of the world is made in china. The World Bank promoted China from lower-income to lower-middle-income status at the end of the 1990s and now China is the upper-middle-income country as per the World Bank.

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Current economic status and rank of China

By 2020 China has become a second-largest economy of the world with one by third global manufacturing and supplies to almost all the economically prominent countries of the world. Following points show the current economic status of China under the rule of one of the greatest leaders of the world Xi Jinping;

  • China accounts for 30 percent of global manufacturing which was only 3 percent in 1990. It means China has increased its share in the global manufacturing world by 10 times in 40 years and has become a global supply chain.
  • China is the second-largest economy in terms of nominal GDP with $15.269 trillion and the largest economy in terms of Purchasing Power Parity with $29.471 trillion
  • It is the 65th largest economy in terms of GDP per capita income with $19,504 based on PPP in 2019.
  • The economic growth rate of China was 6.1% in 2019 and which was lowest in the past three decades. The GDP has included 51.6, 40.5 and 7.9 percentages from the service sector, industrial sector, and agriculture sector respectively in 2017.
  • China has the world’s largest total banking sector with assets of $39.9 trillion and $26.54 trillion in a total deposit.
  • China was second in the number of billionaires and millionaires in the world with the number of 476 billionaires and 3.5 million millionaires in 2018. Similarly, in the same year, 120 Chinese companies were included in Fortune’s global 500 lists of the world’s largest corporations.
  • The unemployment rate of china in 2018 was 4 %, China was in 46th rank in ease of doing business rank, interims of global competitiveness index china was in 28th rank, out of 140 courtiers in 2019.
  • The largest country of the world in terms of export, and growing consumer markets and second-largest country in terms of import; Chinas main export partners are USA, EU, Hong-Kong, Japan, South Korea, and India, and China’s import partners are EU, South Korea, Japan, Taiwan, USA, Brazil, Russia.
  • China has the two largest stock markets as Worlds fourth rank Shanghai Stock Market with Market Capitalization of $4 trillion and the World’s eighth rank Shenzhen Stock Market with Market Capitalization of $2.5 trillion in 2018.
  • The tourism industry of China is the World’s fastest-growing industry and it could give a challenge to any tourism industry in the world. According to the report of the World Travel and Tourism Council in 2015, China was the fourth most visited country in the world after France, the USA, and Spain with 56.9 million international tourists. In 2017 tourism sector contributed 11.04 % to GDP and provided employment about 21 million people of China and the official report of china has forecasted that China will take over France in the best destination for travel by 2030.
  • China has 9 of the world’s 20 biggest valuable telecommunication companies in the world in 2018 and China is the world’s biggest telecommunication market with the largest number of active telephones with over 1.5 billion as of 2018. In the same year, China was accounted to have the largest number of internet users also.
  • China has the world’s largest E-commerce market amounted to 42% of the global market and in 2018 the Chinese E-commerce market did an online transaction of value $1 trillion.

Emergence of Pandemic Corona Virus (COVID-19)

With the increasing phase of development, expansion and becoming a global house of manufacturing, there emerged global pandemic Corona virus-COVID 19 in Wuhan, China and the outbreak of the virus, has sickened more than 1.5 million people and at least 90,000 people have died up to 10th April. Now global economy is facing the risk of coming great economic fluctuation and powerful and economically prominent countries like US, China, Germany, Spain, Italy, etc. are facing the most serious health crisis and the world economy is now in the edge of the knife and if the pandemic will not come out from its distressing form then world economy could face the most serious and chronic economic recession and probably maybe depression of the generation. But one thing is sure that it has already shown the symptoms of the global economic crisis and the cost will be devastating for the life of human beings. China is taking back its shape after about three months of the emergence of pitiful COVID-19 with the almost full cure of sickened people in China but China is already having worsted economic growth of the decades due to coronavirus and it is forecasted that china is having the worsted economic year under the communist economy.

Summary

Once China was an economically strong nation with its glorious history. with phases of time, China has faced internal fragmentation, historical humiliation, colonial evasion, and economic crunch. In modern times China has become one of the most powerful economies of the globe with communist supremacy. In the more than 50 years since the founding of the People’s Republic of China (PRC) in 1949, China has undergone an unusual and tumultuous development process, passing through revolution, socialism, and Maoist radicalism, and then gradualist economic reform and rapid economic growth. The PRC government after 1949 at first created stability and economic growth, and rapidly left behind an era of war, civil war, and widespread poverty. Economic and political ideologies have changed completely, and many have been discarded. Institutions have been reshaped. The material basis of the economy has been completely rebuilt. Moreover, it is now clear that the Chinese approach of incremental reform and steady economic progress has succeeded in practice.

There is the global pandemic spreading throughout the world and which has driven the global economy into a downturn and recession in the generation and there is panic radiating throughout the society. Various reports have indicated that developing and developed, all the nations might have to face the tragic economic crises due to coronavirus any time after the virus will come into control.

References

Lin, J.Y. (2012). Demystifying the Chinese Economy, New York: Cambridge University Press

White, G. (1993). The Politics of Economic Reform in Post-Mao China, London: The Macmillan Press Ltd

Comments

JC Scull from Gainesville, Florida on April 14, 2020:

Tilak,

Very good article. The Middle Kingdom is quite fascinating.

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