China is hailed as the second largest economy in the world, and the country has, since the free-market reforms of Deng Xiaoping, on average, doubled its GDP every eight years. The sustained expansion and economic growth has contributed to a decline in poverty unmatched in speed and scale, with over 800 million people in China being lifted out of the miserable phenomenon.
After the foundation of the People’s Republic of China (PRC) in 1949, political leaders of the country adopted a ‘leap-forward’ approach that introduced a strategy that was heavily industry oriented. However, this approach failed owing to a scarcity of capital, low allocative efficiency, and a state controlled structure that curbed autonomy and provided poor incentives to the people. An ineffective planned economy and continued political movements between the 1950s and mid 1970s meant that the country’s economy was characterized by inefficiency, stagnancy and a relative isolation from the global economy. The year 1978, under the leadership of Deng Xiaoping who succeeded the communist leader Mao Zedong, proved to be a turning point in China’s history when mass economic reforms began and the country’s economy shifted from being closed, rural and a centrally planned one to an open, market-based, urbanized economy.
Agricultural reforms were the first to take place. Farmers were offered incentives pertaining to ownership and prices which allowed them to sell a portion of their crops on the open market. Open trade combined with a successful growth in agriculture resulted in other state owned enterprises being privatized. In 1980, China commenced its partnership with two prominent institutions, namely, the World Bank and the International Monetary Fund (IMF). In the same year, the country established four Special Economic Zones (SEZs) in Xiamen, Shenzen, Zhuhai, and Shantou, to attract foreign direct investment, import high tech products and boost exports. A variety of companies set up factories in China to take benefit of the cheap labour available. Economic growth increased by leaps and bounds in the next decade, and real gross domestic product (GDP) was estimated to have achieved an annual growth rate of ten percent (10%). The Deng era encouraged industries that were consumer-oriented and began the process of a reduction in import barriers. The government encouraged citizens to become entrepreneurs by setting up their own businesses. Permission was given to businesses to pursue their own interests after having met the quotas set by the State. China’s economy has, thus, grown substantially since the introduction of the 1978 reforms
In addition to the above, China has successfully weathered various financial crises by implementing policies such as the 2008-9 economic stimulus package of US$586 billion (RMB¥4 trillion) which aimed to finance infrastructure and loosen monetary policies to encourage bank lending when millions of Chinese migrant workers returned to their homeland after having lost their jobs. According to an analyses by the World Bank, China started off as a recipient of assistance in the 1980s from the International Development Association (IDA), a branch of the World Bank that supports the world’s poorest countries, and became a contributor in the year 2007. Economists have concluded that a high rate of domestic savings along with great foreign investment has been a key contributor to the rapid growth of the economy in China. Moreover, the Chinese success in terms of economic performance and growth is a result of the right choice of developmental strategies in place of a stubborn adherence to an industry oriented approach that was deemed to correct by the political leaders of that time. The government identified policies that resulted in positive economic outcomes, and sought to implement them throughout the country while getting rid of the ones that failed. The World Bank encourages nations to learn from China’s experience, and Pakistan would do well by doing the same. Our country must embark on a path to steady economic reforms by adopting Deng Xiaoping’s process of “crossing the river by touching the stones”.
Source: https://nation.com.pk/25-Mar-2019/china-an-economic-miracle
