Maravi

(STICKY) (HERALD) Unpacking China’s economic miracle

COMMENT - This is the actual way in which China developed, as opposed to the neoliberal mythology of free trade and unrestricted market access by foreign corporations. The Chinese model is not perfect, but they have a lot more success to show for it than the neoliberal model pushed by the IMF/World Bank and it's 'Washington Consensus'.

Unpacking China’s economic miracle

HOW China turned its economy around is regarded as one of the great mysteries of modern times. The president of the People’s University of China, JI BAOCHENG reveals how China did it in this paper presented at the University of Zimbabwe on September 21, 2010

SINCE 1978 when the new policy of Reform and Opening up was implemented in China, the Chinese economy has undertaken revolutionary changes, which were acclaimed as “China’s economic miracle” by the World Bank. To be more specific, “China’s economic miracle” can be mainly demonstrated from the following five aspects:

First: rapid and steady economic growth.

During the period between the year 1978 and 2009, Chinese GDP had increased over 18 times, from US$211,9 billion (1978) up to US$4960,49 billion (2009), with a 9,95 percent annual growth rate and a less than 3 percent annual fluctuation range. Such a rapid and steady economic growth has recast the record of a 9,2 percent growth rate set by Japan in the successive 23 years from the 1960s to 1980s, becoming a miracle of economic growth in human history.

Second: gradual market oriented reform.

Since 1978, China unfolded gradual market oriented reform in areas such as industrial system, pricing mechanism, foreign trade system, ownership system, enterprises management mechanism. By far, 90 percent of commodity prices have been totally determined by market; 98 percent of the enterprises have completed corporation reformation and gradually a structure composed by state owned economy, private economy and foreign investment economy comes into being, which has laid a solid foundation of ownership for effective competition in the Chinese market economy.

Third: successful strategies for opening up

China has launched opening up reform in the meantime of market oriented reform. With an external oriented development strategy, introduction of foreign capital and promotion of export, China has successfully integrated into the world economy. In 1978, China’s import and export volume was only US$20,64 billion, 9,7 percent of its GDP, yet this figure went to US$2563,2 billion, 62,8 percent of the GDP in 2008, 124,4 times that of 1978. Moreover, direct foreign investment from almost none in 1978 to US$92,3 billion in 2008 makes China the second largest country in terms of attracting foreign investments.

Fourth: high speed industrialisation and harmonious urbanisation

Industrialisation is the core power of China’s economic growth. China’s industrial added value increased from 160,7 billion Yuan in 1978 to 507,448 trillion yuan in 2009, with an annual average growth rate of 12 percent. China has become a “world centre for the manufacturing industry”. It is noteworthy that by 2009, China’s high-tech export ratio had reached 36 percent, bringing China to an industrial giant towards a great power.

In the course of industrialisation, urbanisation has been accelerated, with urban population ratio turning from 17,92 percent in 1978 to 46,5 percent in 2009. Up to 2009, city residents have increased by 400 million or more during the 30 years, which is 3,5 times that of 1978.

Fifth: great improvement in social welfare and near elimination of poverty

GDP per capita in China has increased from US$221,5 in 1978 to $3700 in 2009, with a total up to 16,7 times.

Meanwhile, the poverty stricken population decreased from 250 million in 1978 to 20 million at present, poverty rate down from 30 percent to 2 percent; residents consumption rate rose dramatically with a decline in Engel’s coefficient from 57,5 percent to 34,8 percent; a revolutionary change has taken place in the amount of durable goods owned by Chinese residents, the medical level per head and the amount of public facilities per head. Chinese people have substantially benefited from rapid economic growth, succeeded in getting rid of poverty and achieving a life with sufficient food and clothing.

Driving forces for the economic miracle in China


How did the Chinese economy work such a revolutionary miracle? This is a global proposition. Through extensive research, we have reached the following conclusions.

l Political stability is the prerequisite for the success of reform and opening up.

The major reason for the success of China’s gradual reform is that we follow clear guiding principles at the early stage of the reform, which means that we should explore a gradual reform of socialist market economy on the basis of adhering to the right political principles. These principles and adjustments guarantee concentrated political and economic strength on economic construction in the Chinese society, and avoid spending much resource and power in class struggle and party strife, which are unfavourable to economic development.

The development of the modern world demonstrates that no country can engage in the system and economic construction in turbulent political situations. Therefore, a strong government is the prerequisite for successful reform.

l Mind liberation

In other words, we neglected both traditional and foreign dogma, and followed our own pace, order and means of reform and opening up in accordance with our actual conditions. Firstly, China’s reform and opening up broke the fetters of the far-left ideology in the past and the traditional planned economic system. Exploration in the reform of socialist market economy has been carried out, ingeniously proposing the compatibility of public ownership and market economy.

Secondly, China has also strongly criticised some reform doctrines of developed western nations, and particularly abandoned the neo-liberal dogma of “rapid privatisation, rapid marketisation and rapid internationalisation” recommended to developing countries in the “Washington Consensus”.

It is in critising traditional and foreign dogma that Chinese people can genuinely seek truth from facts, conduct massive exploration on the reform with Chinese characteristics, and eventually accomplish great success of “The China Model” and “The China Route”.

In fact, the Chinese socialist market economy, in which public ownership and a variety of forms of ownership coexist, and the “market-promoted government” are great innovation in human market theories, exceeding not only the constructs of classical socialist theories, but also the comprehension scope of neo-classical liberal theories.

l Economic administration is the core basis for sustainable economic growth.

Economic administration consists of three layers: basic property rights system, corporate administration, and market regulation.

Clear property rights system, modern corporate administration and sound market regulation are essential for the formation of a benign and harmonious market economy. Through methods such as agricultural reform of household contract responsibility system, reform of state owned enterprise, and transformation of government functions, etc, a good economic administration system has been formed in China.

However, it should be stressed that clear property rights do not indicate complete privatisation; that construction of corporate administration does not equal simple diversified equity; and that market regulation does not amount to government’s power and frequent administrative intervention.

The practices in China’s reform show that clear property right is multifarious, with different levels, multi-facets , and various channels; that state-owned and state-controlled enterprises can also achieve excellence in market economy and globalisation; and that the authority of government can only do harm to economic growth, if not conducive to enhancing market functions.

l Financial and monetary regulations.

The Chinese government recognises that to maintain macroeconomic stability, rigid financial constraints and monetary discipline are prerequisites for sustainable economic growth. In the process of reform and opening up, China has paid great attention to the stability of macro-economy, realising that sustainable and rapid economic growth needs to avoid overheating and inflation on the one hand and depression and deflation on the other.

To avoid overheating of the macro economy, the Budget Law and the Law of the Central Bank have been specifically formulated in China, preventing the government from arbitrary taxes or enlarged expenditure and cancelling out financial deficits by currency issue from the central bank, ensuring a certain degree of independence of the central bank in implementing monetary policies.

During the 30 years of reform and opening up, China’s macro-economy has been launched in an environment with inflation rate lower than 5 percent. This is a key to the high investment rate, high saving rate, and high growth rate in China.

l Balancing fairness and effectiveness is the foundation for balanced economic and social development.

The Chinese government fully recognises the dialectical relationship, that “efficiency is the basis of fairness; meanwhile, fairness guarantees further efficiency”.

Thus, as GDP rises rapidly, the Chinese government has also been conducting much work in poverty alleviation, actively building a modernised pension system, low income security system and medical aid system, and extending financial transfer between different regions, so as to make sure that all the people can enjoy benefits and welfare brought by economic growth. These measures ensure that no social turmoil or disorder has appeared in China’s revolutionary reform of economic and social systems.

l Of course, various problems exist in the process of Chinese economic reform and development.

Nevertheless, problems also imply opportunities. To a certain extent, Chinese economic reform and development is a result of commitment to solving emerging problems. The Chinese government pays close attention to the new issues and problems that emerged from the process of development and endeavours to solve these problems. This can be considered as another reason for the success of China’s economic miracle.

Labels: CHINA, DEVELOPMENT, ECONOMY, NEOLIBERALISM

posted by MrK @ 10:01 AM