Excerpt
Table of Content
1. Introduction
2. Analysis
2.1 Political Success
2.2 Economic Success
2.3 Question of Sustainability
3. Conclusion
4. Bibliography
1. Introduction
In the past three decades China improved the living conditions of its population dramatically and alleviated millions out of poverty. China achieved a tenfold increase in GDP since 1978, became the world’s largest exporter in 2010 and is the second largest economy in the world after the U.S. (cf. Central Intelligence Agency 2013). Overall, China’s rise in the past thirty years has been unprecedented in its scale.
The following essay will address the question of how to explain China’s economic success in the past three decades (2.2) and in doing so, start out with an analysis of its political success (2.1). In a second step, it will be explored if China’s success is sustainable in the long-term (2.3).
2. Analysis
2.1 Political Success
To explain China’s economic success, one has to explain and acknowledge the political success of the People’s Republic of China (PRC). Although not democratic, stable and strong political leadership over the past three decades was a prerequisite for the coming economic success. Especially in contrast to the African countries, China had and has an edge in attracting Foreign Direct Investment (FDI) due to its stability.
The death of Mao was a “critical juncture” (Acemoglu/Robinson 2012: 423) and brought the reform-minded Deng Xiaoping into power in 1978, who gradually introduced market capitalism to China. Following that, China got economically partially more inclusive and managed a turnaround to good governance. While carrying out the turnaround, China learned from the experiences of Russia when abandoning the socialist economic model and avoided a big push for market capitalism. In the decades to come, the Communist Party of China (CPC) proved that it is capable of “self-correction”: The party was quite adaptable and introduced local elections and some decentralization of power. The communist leadership also embraced social responsibility for its citizens, namely basic healthcare, education, tax reform opportunities to step up and minimum wage increases. These reforms helped not only to bolster the legitimacy of the CPC but also the economic capabilities of the society.
China showed that democracies are not necessarily better at promoting economic growth, but Martin Jacques pointed out that most Westerners, when judging China, do not understand its rise because they “understand it in Western terms” (Jacques 2010: 02:50).
2.2 Economic Success
As already mentioned, China did not use the “conventional wisdom” of the “Washington Consensus” in the years following 1978 when abandoning the socialist economic model. China instead embraced state capitalism after 1978, which stands for close interactions between the business world and the government and a regulated and controlled financial system. China supported certain industries over others and created state-owned enterprises (for instance rear-earth metal companies) that are competitive because the state enables them to. Moreover, China protected industries with an average tariff of about 30% in the 90s and worked on gradually industrializing the economy.
Although the economy is in China’s state capitalism in strong grip of the government, the communist leadership liberalized some political and economic conditions. China created a diversified banking system, opened the economy up for FDI, decentralized some power and allowed local leaders to experiment with privatization (cf. Central Intelligence Agency 2013). Once more open, China’s federalist system sparked inter-state competition for investment to boost growth (see Montinola et al. 1995). Furthermore, China went on a “dual-track reform”: Liberalization happened only at the margins to minimize social consequences and it reformed property rights. China created Township and Village Enterprises as well as Special Economic Zones[1], which are especially protected and restrict for example the entry of competitive industries. This is an example on how the state is deliberately used as a player to influence the economic performances through interventions like protection or even industrial subsidies (cf. The Economist 2013).
So much for the policy reforms – but one needs to look also at China’s general standing in the world economy and its export strategy to comprehend its phenomenal economic success. China was able to integrate itself into the global economy due to its export strength that is based on cheap labor and its geopolitical position that helped to ignite growth. Once certain industries settled in East Asia, China could benefit from clusters of manufacturing (“economies of agglomeration”) and attracted a lot of FDI.
Furthermore, China is still in the beneficial position of playing catch-up (cf. Acemoglu/Robinson 2012: 441), which is easier than being up front because it can import techniques and technologies rather than needing to innovate them. China’s economic success is often described as a “The rise of China” but if one considers Angus Maddison’s data on the share of world GDP throughout history, for some it is in fact rather a “Comeback of China” to its strong 1870 position (cf. Babones 2011). Some therefore say that it rings in the great convergence after the Western Powers diverged from India and China in the 18th/19thcentury.
Yasheng Huang actually calls China’s economic success over the past three decades “by no means historically unique” because he argues that China started out after Mao from a position severely under its possibilities. So Huang twists the questions and does not ask why China has grown so fast in the last 30 years, “but why it is still so poor compared with other countries in the region” (cf. Huang 2012).
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[1] They provide export incentives without removing protection for state firms.