China has achieved the most rapid expansion in history by any major economy (World Bank, 2018). As historically one of the poorest nations in the world, it now has the world’s second largest economy and has been deemed by some as an emerging superpower (Angang, 2011). Yet, what are the extensive consequences and ramifications of China’s ‘miraculous’ economic growth and associated economic reforms and policy initiatives?
Causes of China’s Economic Growth
Firstly, it must be noted that whilst Chairman Mao’s rule pre-1978 has been broadly determined as an economic failure and an acutely taboo period in Chinese history, it was a catalyst for the economic growth that ensued in the sense that it led to ‘favourable conditions for the eventual economic take-off after 1978’ (Mitter 2008; 111). Indeed, economists have further argued that the resulting economic development was an inevitability (Chow, 2015) given the political and economic environment present as a result of Mao and the willingness of the Chinese population to assimilate to a new system after witnessing the failures of the planned economy, the Great Leap Forward and the horrors of the Cultural Revolution which freed people of particular ‘ideological constraints’ (Chow, 2015; 93). Thus, we must not ignore this political context when deliberating on agents of China’s subsequent growth post-1978.
However, China’s economic growth since 1978 has been primarily attributed to Deng Xiaoping’s successful economic reforms based on the ‘four modernisations’ of agriculture, industry, science and technology (Chow, 2015). This included moving from China’s planned economy to one that was more market orientated which had been witnessed successfully in other Asian Tiger economies (Chow, 2015).
Some economists have noted that certain elements of China’s success are attributed to the adoption of ‘gradualism’ as opposed to ‘shock therapy’ in government approaches to the transition to a socialist market economy (Chow, 2015). For instance, the first phase of reforms involved reducing production quotas and inflating prices by an average of 22% which incentivised farmers to increase and diversify production, leading to dramatic agricultural production per capita increases (Naughton, 2007). This ‘dual-track’ approach adopted in the early 1990s also allowed aspects of the traditional, centrally-planned system to continue whilst establishing a market-led system where growth could occur (Naughton, 2007). This was particularly effective as it allowed successful strategies to be adopted and others to be ignored, whilst also proving more persuasive in encouraging traditionalists to adopt these new reforms (Chow, 2015).
Another factor which facilitated China’s economic growth since 1978 stems from the adjustment of trade policies which greatly facilitated China’s economic and export-led growth (Kroeber, 2016). For instance, Xiaoping’s ‘Open door policy’ led to Special Economic Zones (SEZs) being introduced in coastal areas in the early 1980s where multinational companies could benefit from vast tax incentives. These were symbolic in China’s opening to foreign investment and the Chinese government’s willingness to re-establish foreign relations, whilst limiting the ‘scope of foreign incursion’ to specific areas (Naughton, 2002; 52). This led to rapid investment and the extending of SEZs to further regions of China. Additionally, China’s accession to the World Trade Organisation (WTO) in 2001 also revolutionised its growth of exports and led to an influx of Foreign Direct Investment (FDI) and reduction in market tariffs. Between 2002 and 2007, net exports as a percentage of the Gross Domestic Product (GDP) increased from 2.6% in 2002 to 7.7% in 2007 (Chen 2009).
An integral influence in China’s economic development also arguably stems from Xiaoping’s implementation of the one-child policy in 1979. This reduced women’s involvement in child rearing or motherly duties and was a considerable factor in China’s attainment of one of the highest female labour participation rates in the Asia-Pacific region (Asian Development Bank, 2017). Additionally, it facilitated an environment in which China could capitalise on a demographic dividend; an economic growth potential resulting from a change in lowering fertility rates and lowering dependency ratios (UNFPA, 2018). However, whilst not a direct result of China’s economic growth per se, this integral component of China’s economic growth has also led to complex demographic implications. Due to the cultural desire for boys this has encouraged gender-biased sex selection (GBSS) and an imbalance in existing sex ratios. This distortion has led to a decrease in population and labour-force growth, distorted patterns of nuptiality and fertility, and increases in demands for the human trafficking of women (UNFPA, 2018). China’s acute labour shortages have also arguably led to the reaching of the ‘Lewis Turning Point’ a threshold in economics that is passed when surplus labour supplies have been exhausted and wages have begun to rise (Cai 2010; Liu 2015; Kroeber 2016).
Consequences of China’s Economic Growth
The range of direct consequences of China’s economic development are also widespread. Firstly, development measures mentioned previously, such as the GDP, mask the huge disparities in China’s increased wealth and tell us nothing about how it is distributed. Thus, whilst market reform of the agricultural sector has been effective, rural poverty is a significant issue as income inequality between urban and rural populations has intensified and per capita income in these respective regions has widened (Chow, 2015). Whilst it should be noted that in terms of absolute income rural regions have improved somewhat significantly, the Gini Coefficient, a measure of income inequality, almost doubled from 0.30 in 1980 to 0.55 in 2012 (Xie and Zhou, 2014). Additionally, rural farmers are also more vulnerable to potential exploitation and illegal activities of local government officials and their ability to seize land with below-marketplace compensation (Chow, 2015). Historically, officials were granted powers to rule over peasants and Chow argues that due to the increase in power they have received post-1978, their potential for abuse of power has increased. Indeed, many economists have argued that such corruption has been a lubricant for much of China’s growth (Chong, 2014).
Additionally, much of China’s economic development and rapid industrialisation has led to significant environmental issues such as pollution and land degradation which is further worsened as a result of western countries outsourcing their greenhouse emissions to China (Feng et al, 2013). Between 2001 and 2005, 54% of its seven main rivers contained water unsafe for human consumption and outdoor air pollution led to 350-400,000 premature annual deaths in 2007 (SEPA, 2007). To some extent, environmental degradation is synonymous with the generic problems to any country in its development stage (Lin, 2012). However, Mitter (2008) highlights that these countries often had specific instruments to solve them, whereas China has certain barriers which prevent this. For instance, the lack of a distinct civil society and the authoritative power of the Communist rule in silencing environmental campaigners. The arrest of freelance journalist Dai Qing and censorship of environmental publications such as Chai Jjing’s ‘Under the Dome’ show insight into this.
Yet, China’s recent ‘war on pollution’ has significantly decreased its reliance on coal and steel, with considerable investments in renewable energy sources. For instance, they now possess the greatest total capacity in Hydropower, Wind and Solar globally (REN21, 2017). However, China still has the 2nd largest carbon footprint worldwide (REN21, 2017).
China’s growth has also been largely funded by increasing levels of debt which intensified after the Global Financial Crisis when China borrowed heavily to shift its high export dependency (Yu, 2009). China’s debt is estimated at over 200% of the GDP (IIF, 2016). In accordance with ‘Stein’s law’ in economics which asserts that what cannot go on forever will inevitably stop, economists have argued that often financial debt has been a precursor to financial instability of economies (Naughton, 2007). Indeed, others have argued China’s ultimate challenge in the future is going to be maintaining its soaring levels of growth (Mitter, 2008). However, China’s debt is unique from other western economies in the sense that it has a state-owned banking system and both borrowers and lenders are private thus this may pose less of an issue in the future (Naughton, 2007). Yet China’s growth rate has slowed in recent years potentially highlighting an imminent crisis.
Lastly, China’s demand for resources to sustain its manufacturing has also led to forms of neo-colonialism due to its increasing demand for raw materials or natural resources and exploitation of the African continent to acquire them. In 2005, China’s Overseas FDI stock in Africa was $1.6 billion (IIF, 2016) and it has now surpassed the United States as Africa’s largest trading partner. This use of soft power in tied aid, investment and loans especially with regard to China’s Belt and Road Initiative allow it to exploit Africa’s natural resources and acquire new markets for low-cost exports (Biggeri and Sanfilippo, 2009).
Conclusions
China’s growth can be attributed in part to its transition from a command to a market-based economy and its ‘dual-track’ approach, accession to the WTO and large female labour participation rates. This has led to significant GDP increase and financial gain. Yet, whilst in absolute terms living standards have increased, wealth distribution has become more unequal. Additionally, the degree to which China’s growth is sustainable is widely contested (Mitter, 2008). From an economic standpoint China has arguably reached the Lewis Point signifying a decrease in surplus labour and decline in growth. Additionally, increased debt-financed investment could signify an imminent financial crisis. Yet major environmental issues such as pollution and greenhouse gas emissions, although being increasingly addressed, may prove the tipping point in the country’s unsustainability.
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By Catherine Greenacre,The European Institute for International Law and International Relations.
