China’s Rapidly Growing Economy Causes
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Published: Fri, 23 Jun 2017
At present, many developing countries strengthen the economic development. China is a good example. After opening reform, Chinese economy has kept rapid development for 30 years, which has already grown to third largest economies in the world. The main purpose of this report is to identify and critically evaluate the key economic, political and technological factors conditions of China that have enabled it to become a ‘Rapidly Developing Economy’. And also this report will give some recommendations for China to sustain economic growth. Initially, it will have an overview about Chinese economic development and systems in recent years. Following it, this report will analyze the key economic, political and technological factors specifically that promote the country to become a “Rapidly Developing Economic”. At last, it will put forward the recommendations to sustain economic growth of China from two main points.
Since reform and opening policy in 1978, Chinese economy has been in a rapid growth. From 1978 to 2007, the average growth rate of China’s per capita GDP is 8.6% per annual, until now it has not show any signs of slowing down. From 2000 to 2007, the average growth rate is 9.2% per annual, and the growth of China GDP accounted 35% of the world (Linda, 2012). It has not seen in the past that China, as a large population country, increased so fast, and China has started to eliminate poverty situation since1978. What’s more, the transformation from planned economy to market economy is very difficult during the early reform.
The first stage of the economic reform concentrated on rural areas from 1978 to 1984. Non-farm enterprises in rural areas are allowed to establish by the government, which encourages household savings (Spencer, 2012). Enterprises began to manufacture the light industrial products which nationalized business cannot supply. The rapid production improved the efficiency of agriculture, and people who live in rural area can find more jobs.
The process of the urban economic reform is the following stage from 1985 to 1992, especially for the national business, it has been gradually granted greater operational autonomy (Daniel &Germà, 2012). The national ownership agent restricted the efficiency of the national business, and the ownership enterprises are the beginning participants, then the competition is from the domestic and foreign private enterprise.
The third stage of the economic reform is from 1993, which is primed by Deng Xiaoping’s speech and the aim is to support more radical reform. The reform of administrative supervision canceled a variety of constraints on economic growth, which contained rural-urban migration, the banking system, tax system, international trade and foreign investment.
In a word, the reform built the market mechanism and incentives, which were lacked in the socialist planned economy. The Government absorbed the wealth of resources and labor into the ever-expanding, more productive activities, and also promoted economic growth. It is believed that the combination of these factors have made China’s economy in a high growth rate.
2.0 Factors that Enable China to Become “Rapidly Developing Economy”
2.1 The key Economic Factors
- Social-economic structure
Social-economic structure refers to the state of mutual adaptability, quantities proportion and arrangement relevance when diverse economic sectors, industrial sectors and various aspects of social reproduction in national economy start forming one system (Rasgotra, 2011). The social-economic structure mainly includes industrial structure, distribution structure, exchange structure, consumption structure and technical structure. Among them, the most important one is industrial structure.
The growth rate is not a problem, but the key point is that economic development should be sustainable and inclusive (Malcolm, 2010). Chinese government insists the new path of industrialization with Chinese own characteristics. The government also insists to expand domestic demand, especially the consumer demand, for promoting the economic growth which is depending on the investment and export (Nic &David, 2012). The transforming from the scientific and technological progress, the quality of workers, management innovation will promote China’s economic growth. Under the guidance of this strategic approach, Chinese economy is promoted in a large degree.
Chinese government promulgated a series of major economic policies, such as energy saving, industrial adjustment and revitalization plan, technological innovation, the regional economic development plan, outdated elimination and excess capacity. All these policies have promoted Chinese economy to grow fast. There is an important point of economic structural adjustment that the economic growth promotion is transforming from investment and exports to the consumption, investment and exports. Due to the strong domestic demand growth, Chinese economy coped with international financial crisis and external demand pressure. It is effective to achieve the stable and rapid economic development. Exports, domestic demand and investment grow fast and go hand in hand. However, they are the basic demand for the long-term sustainable scientific development of the Chinese economy (Sean & Sarah, 2012). The last concern is to promote the urbanization actively and steadily. Chinese economic development potential depends on the economic structural adjustment and domestic demand expanding.
- Economic Development Level
The improvement of Chinese GDP and national income has stimulated the domestic demand, which also promote the development of tourist industry. At the same time, Farmer-friendly policy promotes more Chinese people to go out of China. Thus, farmer-friendly policy stimulates the economic development of the world. In 2011, the average annual GDP growth achieved 7% and new employment people reached 450 million (Gerald & Pak & Lai-Ha, 2012). The unemployment in 2011 was controlled within 5% (Gerald & Pak & Lai-Ha, 2012). Price level keeps stable. International revenue and expenditure tends to be balance. Economic growth quality and efficiency have been enhanced obviously.
- Economic System
The reform and opening policy of China is the most fundamental motivation for China’s rapid economic development. Three great turning points belong to this reform. Firstly, Previous planned command economy is changed to the socialist market economy system. Secondly, China has transferred from a closed and semi-closed society to the wide opened community. Thirdly, people’s living level are enhanced. The economic system of China tried to introduce a little market mechanism into the planned system, implementing the household contract responsibility system in rural areas and reforming the state-owned enterprises in the city (Sean & Sara, 2012). In the world’s economic crisis, expanding domestic demand is the fundamental principle to stimulating economic growth.
- Macro-economic Policy
The two major macro-control policies of fiscal and monetary significant changes will have an important impact in the future economic, and the goal of the policy is to promote the stable and rapid economic growth. Implementing the proactive fiscal policy and then increasing the fiscal spending and government investment can stimulate the whole social investment. All of these are helpful to stimulate the economic growth.
Moderate loose monetary policy aims to achieve the purpose of stimulating economic growth by adjusting the money supply, interest rates and credit management (Scott, 2012). At the same time, the adjustment of the moneyï¼Œas cut interest rate and the deposit reserve ratio relax the credit supply. China government pays more attention to the trends after international economic financial crises, and coordinate with other major economies to strengthen the macroeconomic policy. The proactive fiscal policy and loose monetary policy are implemented together in line with the current macroeconomic policy, which will play an important role in the future economic development.
- The current economic situation
The main current economic situation of China is the downward trend economic growth rate. The growth rate of retail sales of social consumer goods and consumer confidence index are in a slow decline of foreign trade in recent months. The import and export growth remained at low levels. Shrinking external demand, economic growth important constraints, and sluggish foreign trade situation are the important constraints for the economic growth. Based on all the above, Chinese government insists on implementing proactive fiscal policy and prudent monetary policy, strengthening and improving macro-control policies, and then keeping the stable and rapid economic development (Daron &James, 2012). In a word, with the introduction of policy measures gradually put in place, China’s economic growth will be further stabilized, which would lay the foundation for the next round of steady and rapid development.
2.2 Political Factor
- Effect of China’s national policy
In the unique social structure of China, politics always plays a leading role to economy. Economic development will inevitably require the change of the political system. Otherwise, politics cannot promote the economic development, but resistance to economic reform. To maintain political stability and unity for a long time, the core problem is to keep the political stability (Andreas, 2012). Now in China, the stable politics is a basic condition for economic development and the improving legal system is a necessary condition for economic growth.
China has changed previous planned economy to market economy. Market economy has promoted a hunge change for Chinese economy. Market economy also has had a significant impact to the social structure, ideology and culture. These changes of economic, social and cultural aspects will also affect China’s political development. It is an important issue in Chinese modernization process. In addition, the development of the market economy also needs a new political environment besides the necessary policy. Stable political environment can promote and make commitment to the development of the market economy. In other words, China needs a new political environment which could adapt to the change of the market economy. The policy also should promote the coordinated economic, ideological and social development. The market economy can be guaranteed on this base. In short, all the developments need to be on the basis of stable politics.
- China Trade Agreement with other countries
Chinese trade agreements with other countries optimize the structure of foreign trade and protect both profits. From the export structure, the products of labor intensive, electrical and high-tech keep a rapid increase. From the import structure, the import products for domestic construction reflect the beneficial economic (Kerstin, 2012). At the same time, the agreements help the economic exchanges of China coastal cities more closely and frequently.
2.3 Technological Factors
The improved technical level speeds up the upgrading of traditional industries, enterprise technology, equipment and management. In meanwhile, it can also enhance new product development as well as improve the technological content of products and value-added, and increased the upgrading of products and product quality improvement, enhance the competitiveness of companies. These are the bases for the rapidly developing economy of China. Through these efforts, Chinese traditional industries are out of the slowdown economic development in the world. It also washes out the backward productivity actively and optimizes the transformation in depth to maintain the economics of China.
3.0 The recommendations to sustain economic growth of China
In order to sustain economic growth, China needs to take effective measures. Investment growth and technology improvement are two main recommendations for China.
3.1 Insisting Investment
Investment growth is the primary factor to sustain Chinese economic growth. The investment has played a vital role for Chinese rapid growth economy in the past 27 years. Investment can keep a economic growth for long time. At present, Chinese economy is in accelerating growth stage, so it needs massive investments. Technological progress needs to be achieved by capital accumulation, It is a rule that the more investments are, the higher economy increases (Rebecca, 2012). In China, more than 20% investment is on housing and nearly 30% investment is on the infrastructure investment (Rebecca, 2012). Therefore, it means that the 50% of current Chinese investments are consumptive, which is also needed by short and long term economic growth , thus the investment can be sustained (Maung, 2011). The saving rate of China shows a slow growth trend in general. In short term, saving rate is more than 40%. In long term, saving rate will always keep about 40%, not be less than 35%. China has a high saving rate which is growing slowly, in order to provide sufficient possibilities to meet the high investment rate.
The government should increase educational investment and reform education system. At the same time, government may strengthen investment on new rural reconstruction and environmental protection. As a consequence, government needs to control the investment more scientifically and rationally. In macro-control, Chinese government should keep the investment to comply with the requirements of market economy. Regulation means must be more and more institutionalized and standardized. Only this, investment growth is still capable of supporting China’s economic growth constantly. In addition, the government needs to develop the tertiary industry largely or construct modern service industry. However, these all need a process to transform. At last, it is rather critical to sustain Chinese economic growth by insisting investment growth.
3.2 Technological Improvement
Technological improvement is the key factor in the continued growth of China economy. The economic theory shows that technological improvement is the “sustainable engine” for the economic growth (Julian &Andrei, 2012).
Although China was a major economic power and trading power in the world, there is still a great gap with other developed countries on scientific tech, China do lots of copies, purchasing and other ways to achieve the technological progress (Gerald, Pak and Lai-Ha, 2012). This is the process which restricts the continued growth of China economy keeps increasing. The core technology of some industries in China are controlled by others. Many industries are basically at the end of the national industrial value chain. More than 80% adopts processing trade and exporting products have low technology with a low added value. The science and technology investment took up 1% of Chinese GDP in 2000. This proportion has far below with developed countries level that is 2.3% (Andrew, 2012). During the past years, proportion of research and develop expenditure in GDP is growing year by year. In 2005, the proportion has increased to 1.34% (Maung, 2011). It means that the research and develop expenditure is growing faster than the GDP growth rate, which is an exciting trend. Chinese government should continue to keep this trend.
Technological improvement plays a crucial role in China’s sustained economic growth during long-term development. However, systematical reform to promote technology progress is the determining factor. Only if systematical reform constitutes a correct strategy and direction, technological advance and continuous economic growth may happen. Technological improvement should rely on stimulation of benefit of market mechanism. Moreover, enterprise should depend on the guide of thorough market systemï¼Œlegal environmentï¼Œsystem guarantee and stimulation of interest, in order to implement the technological improvement. A wide range of innovation and economic growth can happen only with sufficient market incentive. Vehicleï¼Œreal estate and other high growth industries could provide breakthrough in stimulating China’s sustained economic growth. Automobile industry not only processes linkage effect but has high technological content. Technological improvements enahnced labor productivity, saved labor cost and promoted economic growth. On the other hand, the technology is also a kind of investment. Any of the technical achievements are needed to put into human capital and resources, new technology development and applications are inseparable from investing activities. In addition, strengthening the technical investment and investing research study are necessary conditions for the technological improvement.
In summary, with the economic growth and social development, the saving rate and investing rate of China are bound to be a natural process of deceleration. It requires technological progress becomes the main driving force of China sustained economic growth gradually. China government already has begun the construction of ‘innovative country’, and the conclusions shows that the economic growth of China should be rely on human capital and technological improvement as the main driving force to achieve the sustainability of economic growth. At last, technological improvement is the key factor in the continued growth of China economy.
In conclusion, the transforming of the economic, political and technological factors have enabled China to become a “Rapid Developing Economy”. All the changes should be coordinated with each other. Political changes are the bases for the others, which can promote the development of economic and technological aspects. At the same time, the change and innovation of economic and technological ensures Chinese national policy, which maintain social stability of China. For the future strategic direction, Chinese government should insist investment growth and technological advances together. Both of them are indispensable because it would promote Chinese economy to sustain economic growth.
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