Many developing countries have sought rapid and sustained economic growth, but few have encountered China’s success. What are the key explanatory factors accounting for the so-called “Chinese miracle” of the past three decades? Introduction The landscape and the economy of China has extremely changed and developed for thirty years. The “Chinese miracle” as we called is a really interesting topic such no one country had known a lightning economic ascent as China.
Several factors explain that rise to power but I think it is better to talk about almost entirely a few of them instead of name ten factors and develop them during only some sentences. That’s why I have chosen to develop three elements for this essay which are, in my opinion, the main key factors explaining the potential ascension of the Chinese economy of the past three decades. Of course, for this subject, we have to talk about the Reform and Opening up of 1978 without which China would not be the second world economic power nowadays.
Given that it is an essay of a few pages, I will develop a few aspects and not all the elements of this economic reforms’ program. China’s Reform and Opening up In 1978, thanks to Deng Xiaoping who led the Communist Party of China, China knew the world’s biggest economic reform of the nineteenth century. This reform is the most important key factor which can explain the so-called “Chinese Miracle”. It provides the country an open-minded economy on the world. The reform and opening up took place in two steps.
Firstly, in the first ten years from 1978, the reform involved stopping collectivize of agriculture and doing the opposite, the opening up for the foreign investments and to allow businessmen to start up business. Secondly, from the end of 1980s, it entailed privatization of companies and contracting out of a lot state-owned industry. Although state monopolies in sectors such as banking and petroleum remained, the economic reform brought lifting of price controls, protectionist policies and regulations.
Thanks to this economic reform which is the largest, foreigners and also overseas Chinese began to invest in China. During the past 30 years, the investment range of overseas Chinese has developed from labor-intensive to capital or technology-intensive industries and has expanded from the hometowns of overseas Chinese to western China via the coastal areas, the inland and central, eventually leading to the all-round opening-up of China. Overseas Chinese businessmen and their enterprises have made a huge contribution to the expansion of “Made in China” products all over the world.
At present, investing in China has become a trend for overseas Chinese. Although statistics are not complete, overseas Chinese and compatriots from Hong Kong and Macao who have found enterprises represent about 70% of the total of overseas-funded enterprises in China. In the past thirty years, they have donated billions of yuan to Chinese public services, to set up thousands of middle and primary schools. They also donated vehicles, medical equipment, motorcycles, nylon cloth, fertilizers, chemical fibers, refrigerators and agricultural machines.
The return of many overseas Chinese directly changed the daily lives of ordinary Chinese people at that time by means of televisions, washing machines, sewing machines and radios which were scarce items. When we notice all the capital, the investments and donations which have been brought for three decades by the overseas Chinese and the foreigners, we can say that without the Reform and Opening up which gather a lot of economic reforms, the economy and quality of the life in China would not be what it is now.
Population, production costs and way of life in China According to me, ones of the most important factors which can explain the surprising and rapid growth of China are the population in China, the cost of living and the way of life of Chinese people. Although some of countries in Europe enjoyed a fast growth decades ago, no one benefited from a growth with two numerals during several years like China. One of the reasons is the population in China which exceed 1. 300. 000.
000 persons, which means that more than one person out of five on the Earth is Chinese. With the biggest population of the world, it is not surprising that China is one of the biggest economic world-power because the country disposes of a huge workforce. Although having a big population for a country bring it to be a big economic power in the world like the United States, France and Russia, it is not enough for a country to establish itself as the first worldwide producer in a lot of different sectors.
Indeed, China can base its economy on its population but especially on its cost of living therefore on the production costs. The cost of living is the biggest known reason of the economic success of China since we had known the globalization because all the production costs for the companies are cheaper than in Europe and the United States. Since our world economy entered in the globalization, almost of the companies from the secondary sector (in contrast with the primary and the tertiary sector) had begun to produce their goods or some pieces of their goods in China.
Worldwide companies except non-profit-making organizations and a few ones have as goal to make profits. So, since China has opened its borders to foreign countries to doing business with them three decades ago, multinational but also small and medium-sized firms took advantage of this great opportunity to outsource their factory in order to reduce their production costs substantially and so to make more profits. However, it’s also the way of life, the culture of the Chinese people which contribute to make this kind of large-scaled producing system possible.
Chinese people have a different consideration about their job, their work more and they have less leisure time than European people. They work hard, they usually finish their workday at 8 pm and they have fewer days off than in Europe or the United States. They consider the job as emancipating, an opportunity to socially go up. Of course, it is the case for the graduated Chinese who went at school and university and not for the Chinese who work in the toys or textile factories for example.
It is easy for Chinese companies or foreign companies like Foxconn to find workforce like this second part of workers whose agree to work more than ten hours per day in hard working conditions without a good salary because they don’t have work in their village and also in order to bring back money at home to pay the school of their children. In my opinion, these three factors mixed together come to one of the most important reason that China imposes itself as regards world economic power.
For a few years, China is the factory of the world. Billions of goods come from the factories of China and most of the biggest factories in the world are located there. Nowadays, the result is so that the Chinese industry carries weight in the world economy. China is the first producer of the toys sector, the shoes sector, the textile sector, the household electrical goods and many more thanks to its huge workforce. The monetary policy of China The second key explanatory factor is the monetary policy of the Chinese government.
If China was able to establish itself as nowadays the second economic world-power, it is mostly thanks to its substantial exportations. In fact, we can easily understand that the rate of exchange of the Chinese currency, the Yuan or RenMinBi, play an important part to promote or not the exportations of the country. That’s why for several years, the Chinese government has chosen to devaluate its currency in order to boost its exportations which make for China to maintain a strong rhythm of growth.
When we look at the recent history of the RenMinBi, we notice that since 21th July 2005, a nearly-fixed parity vis-a-vis the U. S. Dollar was organized. However, starting from that date the authorities decided to index the Yuan to a basket of currencies and a devaluation of 2% of the Yuan was also decided in parallel vis-a-vis the U. S. Dollar. Facing the American pressure, Beijing agreed to revalue the Yuan little by little until it will be again index to the dollar by a fixed parity in 2008. Since 2008, the Yuan has not evolved weighty in the exchange rate market.
For three-four years, we see arguments from Europe and the United States about the Yuan’s exchange rate. According to them, Beijing often maintains its currency to a low artificially level. However, not long ago, even if China wants to keep the control of its currency and not to be dictated by Europe, United States or the IMF about the exchange rate of the Yuan, that one was revalued by its government. So, we can notice that the low rate of the Yuan has greatly favored the Chinese companies compared to European and American firms for many years.
Today, the Yuan’s rate has already begun to increase in relation to five years ago. Some experts say that the Yuan is undervalued by more than 20%. But even if the Chinese economy is based on the exportations for three decades, the re-value of the RenMinBi will give again some purchasing power for the households, restart the consumption and will bring China to be less dependent on its overseas trade. Conclusion In conclusion, we can notice that the “Chinese miracle” has been possible for the most part thanks to the Reform and Opening up in 1978.
However, this single reform program doesn’t suffice to explain the fast economic growth of China. Factors as the production costs, the huge population of the country, the culture of the work and the devaluation of the Yuan are key factors which have led China to be the second, and first soon, economic world-power. For three decades by means of these mixed factors, China has greatly improved the state of its economy, the quality of the life of its population, its infrastructure, its education system, etc.
Moreover, thanks to the Reform and Opening up in 1978, Chinese people became more open-minded of others cultures. They could meet foreigners and started doing business with them. We can also notice that China is indebted to overseas Chinese who has brought a lot for their country with their bountiful donations. However, although the life’s quality of the Chinese people is better than thirty years ago, we don’t have to forget that in China the Gini coefficient is the highest and so the contribution inequalities are the biggest.
One of the next challenges of the Chinese government is to watch out for what more Chinese can take advantage of the good health of the economy. Bibliography Websites : * http://www. china. org. cn/china/reform-opening-up/2008-12/19/content_16978369_2. htm * http://www. china. org. cn/china/reform-opening-up/2008-10/15/content_16645211. htm * http://www. china. org. cn/china/reform-opening-up/2008-12/10/content_16926213. htm * http://www. china. org. cn/international/2008-06/20/content_15859984.
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