Asia

China Economic Development Part I

Economical growth

At the 14th party congress in 1992, the so-called second wave of reforms became more marked by capitalist means. The strategy for the 1990s was economic reform with still strict political control. Deng Xiaoping’s voyage to southern China in December 1992 is considered historic; Here he stated that the rapid development of the special economic zones was patterned for the rest of China. This was taken as a signal to unleash market forces.

In the spring of 1993, the People’s Congress Deng’s “socialist market economy ” entered the Constitution as China’s economic foundation. This was the start of a new wave of reform after the leftist forces, led by Prime Minister Li Peng, had slowed the pace of reform. In 1998, the pace increased again with the active reformer Zhu Rongji at the prime minister’s post. China has moved further in the direction of capitalism. A constitutional amendment in 2004 strengthened private property rights, including production assets. Private property is equated with state and other public property.

China’s economy had a difficult period after 1989, partly as a result of Western sanctions. In 1993, growth accelerated again; with as much as 13.4 per cent, China this year accounted for the largest economic upswing in the world. Inflation was a major problem. In 1994 it officially set a record of 21.7 per cent, but was reduced in subsequent years. With the new pace of growth, China already reached the long-term goal of Deng Xiaoping in 1980: in 1995, quadrupling China’s GDP by 2000. The Shanghai region and Guangzhou with the Pearl River Delta near Hong Kong now marked themselves as “locomotives” for China’s export industry.

China’s first two stock exchanges opened in 1990 in Shenzhen and Shanghai. At the turn of the millennium, more than 25 million Chinese were shareholders. This despite the fact that the stock exchanges had received a lot of criticism for price manipulation and speculative “bubbles” with large losses for small savers.

Western technology and investment capital formed the basis for some of the growth. China was by far the world’s largest recipient of foreign direct investment, reaching almost a record year; in 2004, more than 60 billion US dollars were pumped into “the whole world factory”, now called the People’s Republic. Fears that a huge “bubble” was being formed, pumped up by cheap credit, caused the government to tighten its fiscal policy in 2004, but did not succeed. Growth continued to increase by close to 10 percent – three times higher than in any other major industrialized country. The outside world is also anxious that a “China bubble” that bursts can have major negative consequences for the world economy.

Increased differences between city and country

Economic restructuring led to increasing tensions and inequalities between social groups and regions in the 1990s. A growing unemployment problem is plaguing the countryside. Under Mao, the main rule was that the Chinese were bound to their people’s municipalities throughout their lives. After the abolition of the people’s municipalities, China had a large “floating” population of 80-150 million, according to varying estimates. Many broke up from their homes to seek casual employment, especially in the urban construction industry. Farmers’ dissatisfaction was reflected in some serious rural unrest.

The flow into the cities has also shown a growing trend since the turn of the millennium. In 2003, the government came up with a long-term plan for the largest population migration of all time: If the peasant population’s living standards are to be raised, more people will have to move into industry and service industries, while fewer will take care of agriculture. As an approximate target, the number of Chinese farmers should be reduced by between 250 and 380 million by 2020 – despite the fact that China has been a net importer of food since the turn of the millennium. The goal is to increase the urban population from around 500 to 800 million by 2020. We do not want mass migration to the big cities, but to smaller industrial communities spread across the country. This is seen in the context of China’s growing role as an industrial nation. The hope is that the large relocation plan will secure the industry and give growing service industries an inexhaustible reservoir of cheap labor for decades to come.

China Economic Development 1