“China’s Economic Growth, How China became the 2nd Largest Economy in three decades”

China’s economic growth can be the best example of, how fast can a nation grow. In 1990, India & China had almost similar GDP. Today China is the second-biggest economy with over $14 trillion GDP. The country is wanting to outperform the biggest economy on the planet the United States. In Q1 2021, its fares became by practically half contrasted with the earlier year’s quarter, to around $710 billion. China’s assembling industry has gotten predominant in creating pretty much anything from typical family things to vital pieces in auto assembling.

China's GDP over the decade

Unlike Russia & the U.S.A who built their maximum economy on the basis of natural resources in their territories, China had no similar advantage. Then how did the country manage to develop dramatically?

To comprehend the development and why the nation growing exponentially, we have to look at the past.

History

Political Revolution

Till 1966 Mao Zedong was the leader of China. His economic policies were massive failures. Under the ‘Great Leap Forward (GLF)‘ policy in 1958, the Chinese Govt. took over all the lands under its control. Thousands of Chinese citizens died due to the poor execution of agriculture policies.

Under the same GLF policy, China also built ‘Backyard Furnaces‘ in small units of steel production in a decentralizing manner to argue the steel production. Again due to the poor technology & lack of technical expertise, this initiative has also failed. Only large steel plants were able to produce good quality steel.

Due to this kind of large-scale destruction, famine, poverty rebel forces were born within China’s Communist Party or CCP.

The ‘Cultural Revolution‘ started by CCP in 1966. It is to suppress the rebel voices & during this time so many dissenting leaders were executed.

Mao died in 1976, after his death Deng Xiaoping came to power. He reversed all policies of Mao & introduce a large range of reforms in China in the 1990s.

China’s Human Resources

As per the data of the World Bank, China’s population in 1980 was over 1 billion. This massive workforce of China paved the way for a higher economic growth rate in China’s economy.

The agricultural reform-

Although China had a massive workforce, yet they were not skilled at that time. One of the main reasons for this was the ‘cultural revolution ‘ by Mao had resulted as most of the schools and universities were destroyed.

Deng Xiaoping worked extensively to utilize China’s massive workforce by teaching educating them with the required skills & knowledge.

Later, China released land control from Govt & encourage private farming. Before the complete earning was going to state & farmers would get a little salary or wage but after the free-market initiative, farmers can sell their product after giving the tax to the Govt. This initiative was a massive success for China. After the boost of the agricultural sector, China pulled itself out from poverty & increased farmers’ income. 

The commercialization of agriculture boosted the cash crops & China became the world’s largest cotton producer in 1990.

China’s Enterprises of Township & Villages

After the agricultural reforms, it was time to slowly create a skilled force for industries. Xiaoping started to promote ‘Township & Village Enterprise (TVE)‘. TVE became one of the major foundations for China’s economy along with the textiles. Under the TVE China started to produce toys, fertilizer, furniture, etc.

Deng released Govt control over them & adopted a bottom-up approach empowering local government to control these micro-units.

China's TVE scheme in 90s

This helps to increase China’s GDP & employment rate. Output increased by 25 percent from the mid-1980s to the mid-1990s. And it creates millions of rural jobs in China.

Increasing skills & education Priorities

In the 1980s, China’s Govt spends more than 70 percent on skilling their people, education, and other expenses related to that. 9-year schooling was compulsory, which includes vocational education as well.

Due to the intensive efforts, primary education in China became universal in 1990 & the number of undergraduates increased from 1.65 lakh in 1978 to 1.9 lakh in the 1990s.

The Era of Electronic Goods

At the beginning of the 1990s, East Asian countries like Japan’s Sony & Panasonic, South Korea’s Lg 7 Samsung became a valuable brand worldwide. The demand for their products was increasing rapidly. But to expand more & more they didn’t have that much labor or land.

Here China played a big role. The massive skilled workforce & availability of land attracts these large global companies to invest in China & built manufacturing center there.

From here China started its unstoppable journey of growth.

That helps the local entrepreneurs to utilize the available technology from these companies & set up manufacturing plants. They started building telephones, VCR, Televisions, etc.

The technology boom in the US

In the late 1990s, technology & the internet boomed in the United States, like HP, DELL, APPLE, etc. These companies also wanted to expand more, but cheap labor resources were not much available in the U.S.

And it was the time China started manufacturing sources. Before this East Asian Companies has invested a lot in China, which made China a little more powerful. And that gave the bargain power to China.

China introduces a ‘Special Foreign Investment‘ plan. Through this foreign companies had to tie up with the local ones & transfer their technology to manufacture their products. For example, with the tie-up of Foxconn with Apple, now Foxconn produces and exports products for Apple. Like this, HP, Compaq, Dell all started their business in China.

China’s Global Export Dominance over time-

Starting in the last part of the 1970s, China’s share of global exports remained at under 1%. Today China trades 15% of the multitude of the world’s merchandise.

China's export Dominance

So how does it changed this exponentially?

During the 1980s, a few urban communities and locales, similar to the Pearl River Delta, were assigned as Special Economic Zones. These SEZs had tax incentives that attempted to draw in the foreign ventures.

By the 1990s, the world saw the ascent of worldwide worth chains and transnational creation lines, with China offering a modest assembling center because of low work costs.

China’s assembling industry has gotten prevailing in creating pretty much anything from ordinary family things to necessary pieces in auto assembling.

China’s Empowering Service Sector-

When service-based companies like Facebook, Google, and Microsoft boomed, China also got benefits from it. Their skilled workforce played a major role in this. China has built Zhongguancun Technology Park, where so many global & China’s large companies formed their headquarters. And it became the Silicon Valley of China. Companies like Google, Microsoft, and AMD built their research center there. Microsoft research headquarter is worth over 280 million dollars.

This has also helped China to increase its GDP from 25% in 1975 to 54% in 2019.

Although there are some controversies like Copycat Culture. Some experts claim that 3rd wealthiest man Jack Ma’s Alibaba business model was a copy of Amazon, eBay. Where Tencent’s WeChat mobile messenger was a copy of WhatsApp, Facebook, Skype, etc. And the similar we heard about Baidu search engine, it was kind of a copy of Google as well.

After Google left China, Baidu became a monopoly business. It has grown to 80 more nations.

China is trying to adopt AI & 5G more rapidly. They believe that it will be the future of technology.

Again it can be a massive profit generator for China, because China’s Huawei, ZTE is the major source for 5G equipment.

Recently the United States & Sweden have banned their equipment. They claim these can help CCP’s surveillance.

2008 Financial Crisis-

From 1990 China has grown exponentially. But, the impact of the 2008 financial crisis, weaken China’s aging population, increasing wages, Chinese predatory policies of western countries.

Moreover, Chinese government entities, such as the State Administration of Foreign Exchange, the China Investment Corporation (a $200 billion sovereign wealth fund created in 2007),6 state banks, and state-owned enterprises, may have been more exposed to troubled U.S. mortgage securities.

But China’s ‘Belt and Road initiative‘ played a major role after this. It assists China with returning quickly on track.

Challenges-

In any case, China actually faces a progression of difficulties, for example, Population decay, the rise of ASIAN exchange powers, similar to Vietnam, reports of forced labor, Trade battles with the U.S., and authorizations from other exchange accomplices, similar to Europe and more.