RISE OF THE CHINESE ECONOMY

 Currently, China is the 2nd largest economy in the world, however it is projected that it will
overtake the United States as the world’s largest economy by 2040.
It’s economic integration in the region makes it the driver of East Asian Growth, which gives it
enormous strength in the region.
The strength of its economy, a huge population of about 1.4 billion, land masses,
resources, regional location and political influence adds to its power in significant ways.

Countries with highest GDP

1) USA : $19.39 trillion.

2)China : $12.01 trillion.
3) Japan : $4.87 trillion.
4) Germany : $3.68 trillion.
5)UK : $2.62 trillion.
6) India : $2.61 trillion
BRIEF HISTORY OF CHINA
• The Qing dynasty which ruled China was weak and
inept. It failed to industrialize China and face foreign
aggressors.
• Many people were dissatisfied with this an wanted to
see China rise on the global scale which led to the
formation of the Nationalist party in 1912. It was led by
Sun Yat- Sen.
• 1912- Republic of china established
MAO’S LIFE
o Mao moved to Beijing at the age of 17 and worked as a library assistant in the University
of Beijing.
o It was here that he came to know about the communist revolution in Russia and was deeply
influenced by it.
o In 1921, he came one of the first members of the Chinese Communist Party.
o Even though the Communist party grew in strength, the nationalist party still remained in
power
o Sun Yat-Sen, leader of the Nationalist Party, in 1923 decided that it was best for China
if the two parties cooperated
o In 1925, Sun Yat-Sen died and was succeeded by Chiang Kai-Shek. This was a turning
point as he was more conservative and started a violent purge of the communist.
o This fueled Mao to led an army of peasants against the Nationalist but he was defeated.
o The communist army retreated to the Jiangxi district where Mao established the Soviet
Republic of China.
• In 1934, Chiang Kai-Shek gathered his troops and surrounded the communist
occupied areas which forced Mao and his troops to retreat
•During this retreat ‘The Long March’, only 30,000 of the original 100,000 survived.
•1937, the Japanese Imperial Army invades China
• The nationalist and communists form a temporary alliance to deal with the situation.
•But after the war things went back to the way they were and the Chinese Civil War
broke out in 1945.
• Chinese Communist Revolution (1945-1949). The nationalist were defeated.
•Military struggle for control of China between the Communist Party under Mao
Zedong and the Nationalist Party under Chiang Kai-Shek.
• Chiang Kai-Shek and the nationalists moved to modern day Taiwan
CHINA UNDER MAO
 The Communist Party of China was formed in 1921. It was
under Mao Zedong's control in 1927.
 Eventually, Mao led a revolution, and the communist party
obtained control in 1947. They followed the example of the
soviet model of development through heavy industry with
surpluses extracted from peasants.
 Consumer goods were left to secondary importance. In the
sino-soviet split of the 1950's, Mao split from traditional
Marxism-Leninism and developed Maoism, the Chinese
interpretation of communism.
Mao was upset with the Soviet leader Khrushchev's position of
peaceful coexistence between the communists and capitalists.
The Maoists started a strong communist tradition, instituting the
Great Leap Forward and the Cultural Revolution.
The Great Leap Forward (1958-61) was instituted to help transform China into a
heavy industrialized society. However, this was largely considered to be a failure and
many Chinese starved to death. In the cultural revolution, Mao overthrew his enemies
and millions of people were killed or persecuted.
Mao attacked his opponents for taking the capitalist road and largely succeeded in
suppressing their proposed policies until his death in 1976. After Mao’s death,
advocacy of various reforms became more acceptable.
MODEL OF ECONOMIC DEVELOPMENT UNDER MAO
After the inception of the People’s Republic of China in 1949, it was under the
leadership of Mao and its economy was based on the Soviet model.
The economically backward communist China chose to sever its link with the
capitalist word and fell back on its own resources and for a brief period, Soviet
advice and aid.
The model was to create a state-owned heavy industries sector from the capital
accumulated from agriculture. As it was short of foreign exchange that it needed in
order to buy technology and goods on the world market, China decided to substitute
imports by domestic goods.
This model allowed China to use its resources to establish the foundations of an
industrial economy on a scale that did not exist before. Employment and social
welfare was assured to all citizens, and China moved ahead of most developing
countries in educating its citizens and ensuring better health for them.
The economy also grew at a respectable rate of 5-6 per cent. But an annual growth
of 2-3 per cent in population meant that economic growth was insufficient to meet the
needs of a growing population.
Agricultural production was not sufficient to generate a surplus for industry. Its
industrial production was not growing fast enough, international trade was minimal
and per capita income was very low.
CHINESE COMMUNIST PARTY (CCP)
 The Communist Party of China (CPC), also referred to as
the Chinese Communist Party (CCP), is the founding
and ruling political party of the People’s republic of China.
 The Communist Party is the sole governing party
within mainland China, permitting only 8 other, subordinated
parties to co-exist, those making up the United Front.
 It was founded in 1921, chiefly by Chen Duxiu and Li
Dazhao.
 It also controls the world's largest armed forces, the
People’s Liberation Army.
However, China kicked off it’s journey from economic isolation to becoming the
world’s factory. That landmark meeting kicked off on Dec. 18, 1978

The US played a key role in helping transform an impoverished nation into a major
trading nation, removing export controls for a wide range of its advanced technology
to China.
Now, China has grown into a $14.5-trillion economy—the world’s second-largest—
and a rival whose technological prowess alarms the US.
Reforms under the new communist system:

-Took land from warlords and turned them into communes.

-Promoted the status of women
-Doubled school population to increase the country’s literacy.
-Increased access to health to increase life expectancy of the people
CHINA UNDER DENG XIAOPING
 After Mao's death, the ideals of China shifted under Deng
Xiaoping to a form of "market socialism."
 He instituted changes in the economic system where they
developed what he considered to be socialism with Chinese
characteristics. He decided to use policies that had been shown
to be effective and followed less the ideologies of the earlier
leaders.
He instituted the "Four Modernizations", describing
agriculture, industry, science and technology, and the military.
Deng is commonly credited as the person who turned China into
the economic world power that he is today. He opened up
China to the outside world and industrialized successfully.
 ECONOMIC REFORMS OF 1978
Between 1949 and 1976, under Mao Zedong’s 毛泽东 leadership, the Chinese
Communist Party (CCP) implemented socialist economic policies.
One important early sign of the new atmosphere was the announcement in
1977 that entrance examinations for China’s universities (which had been
attacked and closed down during the Cultural Revolution) would be
reestablished.
Deng Xiaoping returned to power, and in December 1978 the famous four-
character policy gaige kaifang , a reform of the economic system and an opening
up to the outside world, was promulgated.
Beyond the strong signal that the reforms were intended to remedy some of
Mao’s mistakes, it was not clear exactly what the slogan would entail in practice.
Indeed, even in the early 21st century the specifics of the reforms are still the
subject of substantial disagreements within the CCP leadership.
However, there can be no doubt that the reforms since 1978 generally have
succeeded in both the system reform aspect, marked by the decollectivization of
agriculture and the dismantling of Soviet-style central planning in industry.
And the opening-up aspect, leading to China’s entry into the World Trade
Organization (WTO) in 2001.
It is also beyond doubt that the reforms have resulted in rapid economic growth (by
the official statistics, an average annual growth of real gross domestic product of 9.7
percent between 1980 and 2009).
However, it is also true that in the early 21st century many Chinese people remain
desperately poor, and the reforms continue to be incomplete and controversial.
By 1978, the then leader Deng Xiaoping announced the ‘open door’ policy and
economic reforms in China. The policy was to generate higher productivity by
investments of capital and technology from abroad.
 China followed its own path in introducing a market economy. The Chinese did
not go for ‘shock therapy’ but opened their economy step by step.
The privatization of agriculture in 1982 was followed by the privatization of
industry in 1998.
Trade barriers were eliminated only in Special Economic Zones (SEZs) where
foreign investors could set up enterprises. In China, the state played and continues
to play a central role in setting up a market economy.
The new economic policies helped the Chinese economy to break from
stagnation.
SEZ
oA special economic zone (SEZ) is an area in which the business and trade laws are
different from the rest of the country. SEZs are located within a country's national
borders, and their aims include increased trade balance, employment, increased
investment, job creation and effective administration.
oThe first four special economic zones were created in 1980 in southeastern coastal
China and consisted of what were then the small cities of Shenzhen , Zhuhai,
and Shantou and Xiamen.
oEncouraged by the zones’ success, the Chinese government in 1984 opened 14
larger and older cities along the coast to foreign trade and investment. These “open”
cities offered foreign investors much the same incentives as in the special economic
zones, but their corporate income taxes were higher.
IMPACT OF THE ECONOMIC POLICIES
-Privatization of agriculture led to a remarkable rise in agricultural production and
rural incomes. High personal savings in the rural economy lead to an exponential
growth in rural industry.
-The Chinese economy, including both industry and agriculture, grew at a faster rate.
The new trading laws and the creation of Special Economic Zones led to a
phenomenal rise in foreign trade.
-China has become the most important destination for foreign direct investment (FDI)
anywhere in the world. It has large foreign exchange reserves that now allow it to
make big investment in other countries.
China’s accession to the WTO in 2001 has been a further step in its opening to the
outside world. The country plans to deepen its integration into the world economy and
shape the future world economic order.
CONSEQUENCES OF THE REFORMS
Poverty plummeted
In 1981, just three years after Deng’s reform project was launched, almost 90% of
Chinese people lived in extreme poverty by the definition of the World Bank. By
2013, that number had dropped to less than 2%.

 Incomes skyrocketed
Per capita GDP grew by nearly 24 times from 1978 to 2017.

Shift from agriculture to industrialization

In 1980, agriculture was a larger part of the Chinese economy than industry (e.g.
construction and manufacturing) and services (e.g. healthcare and education). Now,
agriculture makes up less than 10% of the economy.
People moved to the cities
With a shift away from agriculture, Chinese people moved to cities in droves. The share living
in rural areas, which barely budged from 1960 to the late 1970s, fell sharply after 1978.

Where people worked changed

In 1979, Shenzhen, the manufacturing hub just across the border from Hong Kong, had less
than half a million people. In 1980, it became China’s first special economic zone, allowing
foreign investment into the city. It is now one of the world’s biggest cities, with more
skyscrapers built there in 2016 than the US and Australia combined.

People had fewer children

Deng oversaw the introduction of China’s one-child policy, which was introduced to reduce the
birth rate as China’s population neared 1 billion. The one-child policy likely led to a significant
reduction in births.
CO2 emissions increased
China’s immense environmental challenges are a result of the rapid growth set off
by Deng’s reforms. The amount of CO2 emitted per capita has increased more than
seven-fold since the 1970s. Today’s leaders will need to be as radically open to
change as Deng to tackle this problem.
 RESENTMENT

Throughout 1982–85 the CCP carried out a “rectification” campaign designed to

restore morals to its membership and weed out those who did not support reform.
This campaign highlighted the increasing difficulties inherent in
maintaining discipline and limiting corruption at a time of rapid change, when
materialistic values were being officially propogated.

By 1989 popular disaffection with the CCP and the government had become
widespread. Students—eventually joined by many others—took to the streets in
dozens of cities from April to June to demand greater freedom and other changes.
Government leaders, after initial hesitation, used the army to suppress this unrest
TIANANMEN SQUARE MASSACRE, 4 TH JUNE, 1989
Tiananmen Square is located in the center of Beijing, the capital of China.
Hu Yaobang, a former Communist Party leader, dies. Hu had worked to move China
toward a more open political system and had become a symbol of democratic
reform.
Thousands of mourning students march through the capital to Tiananmen Square,
calling for a more democratic government.
In, May 1989, nearly a million Chinese, mostly young students, crowded into central
Beijing to protest for greater democracy and call for the resignations of Chinese
Communist Party leaders deemed too repressive.
 For nearly three weeks, the protesters kept up daily vigils, and marched and
chanted. Western reporters captured much of the drama for television and
newspaper audiences in the United States and Europe.
On June 4, 1989, however, Chinese troops and security police stormed through
Tiananmen Square, firing indiscriminately into the crowds of protesters. Turmoil
ensued, as tens of thousands of the young students tried to escape the rampaging
Chinese forces. Other protesters fought back, stoning the attacking troops and
overturning and setting fire to military vehicles.
Reporters and Western diplomats on the scene estimated that at least 300, and
perhaps thousands, of the protesters had been killed and as many as 10,000 were
arrested. An official death toll has never been released.
 THE TANK MAN
• The politically-charged image -- of a sole, unarmed
protester blocking a line of tanks during a 1989
government crackdown in Tiananmen Square

• The image -- and any mention of the massacre itself -- is

banned in China
 PRESENT DAY CHINA
While the Chinese economy has improved dramatically, not everyone in China has received the
benefits of the reforms.
Unemployment has risen in China with nearly 100 million people looking for jobs. Female
employment and conditions of work are as bad as in Europe of the eighteenth and nineteenth
centuries.
Environmental degradation and corruption have increased besides a rise in economic inequality
between rural and urban residents and coastal and inland provinces.
However,
Regionally and globally, China has become an economic power to reckon with. The integration of
China’s economy and the inter-dependencies that this has created has enabled China to have
considerable influence with its trade partners.
Today the Chinese economy is the second largest in the world and although it
experienced massive growth in that 35-year span, authorities have taken a new
approach to the economy called the “new normal.” To avoid overheating the
economy, authorities are conducting a managed slowdown, which has seen growth
gradually slow year after year since 2010. The economy is projected to grow 6.3%
in 2019, which is nothing to sniff at, but is a far cry from the over 10% annual growth
seen not too long ago.
1978: Chinese Communist Party launches reforms backed by the recently rehabilitated veteran
leader Deng Xiaoping, two years after death of communist leader Mao Zedong. China starts the
“household-responsibility system” in the countryside, giving some farmers ownership of their product
for the first time.
1979: Most urban families ordered to limit family size to one child to stem population growth.
Diplomatic relations with the United States normalized.
1980: Southern city Shenzhen is made the first “special economic zone” to experiment with more
flexible market policies and in a matter of years it is transformed from a fishing village into a
manufacturing and shipping powerhouse.
1986: Student-led protests against corruption and political control spread in Beijing and other
cities. The unrest leads to the dismissal in 1987 of Hu Yaobang, the reformist Communist Party chief
seen as too liberal by Deng and Party elders.
1988: Economic turbulence stirs public discontent. Bank runs and panic buying are triggered by
rising inflation that peaks at over 30 percent in cities.
1989: Anti-government protests spread as other Communist states topple. The Communist Party
sends troops to crush mass student-led protests on the nights of June 3-4, killing hundreds around
Beijing’s Tiananmen Square. Sweeping campaign against dissent launched.
1990: The Shanghai Stock Exchange, the first ever stock market in Communist China, opens.
1992: Deng tours southern China to press for faster economic reforms and quell the influence of
Party conservatives opposed to market liberalization. This sparks a fresh wave of market growth
and some political relaxation.
1997: Deng dies in February. His successor is Jiang Zemin. Former British colony Hong Kong
returns to Chinese rule in July.
1999: In May, Chinese protesters surround and stone the U.S. embassy in Beijing and attack
U.S. consulate offices elsewhere in the country after NATO forces bombed China’s embassy in
Belgrade during the war against Serbia.
2001: China joins the World Trade Organization in November.
2002: The Communist Party of China permits entrepreneurs to become members.
2003: National People’s Congress endorses Hu Jintao to succeed Jiang as president. SARS
breaks out around the country in spring and summer. China’s first manned space flight blasts
off from Gobi desert in October.
2005: China sweeps past Britain, France and Italy to become the world’s fourth-largest
economy. China frees the yuan from a dollar peg, letting it float within a tightly managed
band.
2006: Two great but controversial projects, the Three Gorges Dam and a railway to Tibet, are
completed. China’s foreign currency reserves, already the world’s biggest, top $1 trillion.
2008: Beijing hosts hugely successful Summer Olympic Games, illustrating China’s arrival on
world stage.
Hence, its outstanding issues with Japan, the US, ASEAN, and Russia have been
tempered by economic considerations. It hopes to resolve its differences with Taiwan,
which it regards as a renegade province, by integrating it closely into its economy.
Fears of China’s rise have also been mitigated by its contributions to the stability of
the ASEAN economies after the 1997 financial crisis. Its more outward looking
investment and aid policies in Latin America and Africa are increasingly projecting it
as a global player on the side of developing economies.
MIXED ECONOMY

Mixed economy is that economy in which both government and private

individuals exercise economic control.” –Murad.

It is a golden mixture of capitalism and socialism. Under this system there is freedom
of economic activities and government interferences for the social welfare. Hence it is
a blend of both the economies. The concept of mixed economy is of recent origin.
Mixed economy is that economy in which both public and private sectors cooperate.
 TYPES OF MIXED ECONOMY
The mixed economy may be classified in two categories:

Capitalistic Mixed Economy:

In this type of economy, ownership of various factors of production remains under private control.
Government does not interfere in any manner. The main responsibility of the government in this
system is to ensure rapid economic growth without allowing concentration of economic power in
the few hands.

Socialistic Mixed Economy:

Under this system, means of production are in the hands of state. The forces of demand and
supply are used for basic economic decisions. However, whenever and wherever demand is
necessary, government takes actions so that basic idea of economic growth is not hampered.
 MIXED ECONOMY IN CHINA

China combines market forces with the power of the state to drive the economy. Scholar
Zhang Weiwei argues that while China’s economic model is not perfect, it is performing
more effectively than its Western counterparts.
The model is officially called the "socialist market economy," which is essentially a mixed
economy, a mixture of the "invisible hand" of the market force and the "visible hand" of the
state.

China has largely established the socialist market economic system over the past four decades,
and the system has, in relative terms, the efficiency of resource allocation in a market economy
and the capacity for macro-regulation in a socialist country.
In fact, the Chinese economy has three engines: the central government, local
governments and enterprises.
The central government is responsible for strategic planning and ensuring overall
political and economic stability; local governments compete with each other via
taxation, land policies and other policies to create business-friendly environment; and
enterprises are the driving force in pushing forward the economy.
So the "three-in-one model" is a typical part of the Chinese economic model.
DEVELOPMENTAL ADMINISTRATION
An important feature of the mixed economy model may be described as
"development administration," in contrast with public administration.
For instance, every five years, China produces a Five-Year Plan through extensive
consultations at all levels of the Chinese government and society – an example of
"consultative democracy" of which China is very proud. Every year, the Communist
Party of China (CPC) holds an annual economic conference, usually held in November.
The event is part of a series of institutionalized discussions on economic policies, which
create expectations and demand.
A typical Five-Year Plan in China catches the attention of the vast majority of the
Chinese society, from private firms to state-owned enterprises to individual
shareholders. China’s fast growth is definitely inseparable from these regular and
predictable cycles of expectations and demand creation.
CHINA IS PROJECTED TO OVERTHROW USA AS THE
WORLD’S LARGEST ECONOMY BY 2040