The economic history of China

The economic history of China

Today, China is one the most important economic powers of the world. It has been described as the factory of the world. However, the economic rise of China has been recent. Just 30 years ago, China was one of the weakest Asian economies. So what happened in China that caused the economy to grow so rapidly? To answer that question we have to start after the second world war.

Mao Zedong

The portrait of Mao Zedong at the entrance of the forbidden city in Beijing

China was and still is controlled by the China Communist Party (CCP). It was established by Mao in 1940s and controlled by him until 1976. Mao followed not only very poor social and political strategies but also managed to deteriorate China’s economic state even further. As some of you may know, Mao brought more social and economic disasters than Stalin and Hitler together. Because he was a communist leader, he followed Stalin’s example of having five-year plans and collectivization of the land. Mao encouraged the peasants to denounce and torture their richer neighbors and to distribute their land among themselves. He also encouraged them to form land cooperatives where each commune had to produce a specific amount of grain. Later on, he followed Lysenko’s teachings and announced that every citizen had to join the ‘sparrow-cide’ which brought hunger and increased the death numbers in 1950s. In terms of the five year plans, Chinese citizens tried to please Mao by overstating the production of steel and iron. At one point, all the steel and iron utensils were melted to be used in production of other appliances of which only 10% was usable.

Deng Xiaoping

So, how did China emerge as an economic power in the 2000s? After his death in 1976, Deng Xiaoping succeeded Mao as the undisputed leader of China. Deng’s economic policies were focused on trade, modernization of agriculture, industry, science and technology aka the four modernizations, decentralization of the decision making in production (household responsibility system), and through the creation of SEZ (Special Economic Zones). SEZ are designated areas that possess different economic regulations than most areas in a country.

Deng Xiaoping
Deng Xiaoping

Through importing machines from the West and Japan , Chinese factories were able to increase the output they produced due to taking less time and fewer employees to produce a good. In economic terms, this is often referred as export-led growth. Furthermore, China was able to improve its agriculture, industry, science and technology because foreigners were allowed to freely enter the country. The Western countries were even encouraged to invest in the special economic zones. The SEZ attracted many foreign investors because they were not taxed, were independent of China’s policies, meaning the factories were driven by market forces. However, the two rules that contributed mostly to China’s economic growth were that the factories had to be joint-ventures or partnerships with a Chinese entrepreneur as well as products being primary export-orientated. The SEZ led to foreign direct investment improving China’s economy and the lives of the average citizen. Furthermore, decision making of the factories was solely given to managers, and not to the government. Decentralization allowed each factory to specialize in a certain product and to improve the income of the employees. The Household Responsibility System increased agricultural production by allowing households to contract land, machinery and other facilities from collective organizations to increase output of grains. Through HRS, China’s grain surplus increased in the succeeding years and a new trading market was formed. Many peasants still worked on the fields but because they could sell their grain surplus, each year, their production of grain increased.

Through all these policies, Deng managed to improve China’s economy after the rule of Mao, forming a firm base for China to emerge as an economic leader in 2000s.

Problems with Statistics

Even though Western historians have access to documents from Mao’s and Deng’s eras, statistics about the number of deaths during each period, the economic growth, the agricultural and industrial output are distorted. The numbers were always overestimated as the information moved higher up to please Mao. Although Deng knew the real situation of China’s economy, cross-referencing historians, the numbers differ too. Thus, providing actual data in this article is hard.

Modern Policies

Since Deng, Xi is the most popular Chinese leader. His policies are aimed at fighting corruption and encouraging an even greater privatization of firms. He overhauled the household-registration system which Mao implemented to forbid citizens to roam freely from town to town, or province to province.  By improving the household-registration system, Xi allows citizens to move freely among their country without forcing them to settle down in any one place. Through privatization of government-owned firms and even encouraging new private enterprises to be established, Xi encourages the economic growth because in this way Chinese citizens will enjoy a greater product/service quality and higher quantity as well as even differentiation of products depending on different firms engaged in the same market.


Interesting Reads:

Wild Swans by Jung Chang

China: A New History by John King Fairbank & Merle Goldman

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