Concerted efforts spur China’s economic advances
BEIJING (China Daily/ANN) – Planned system brought growth, set stage for later take-off.
China’s remarkable economic growth can be attributed to the reform and opening-up drive launched in the late 1970s, economists say.
However, before embarking on this historic step, great efforts had been made to search for a way out of poverty and underdevelopment after the founding of the People’s Republic of China in 1949.
At the time, the nation was poor and economically underdeveloped, with a vast number of people trapped in poverty. Economic output was basically stagnant from 1913 to 1950, with GDP growth averaging -0.02 per cent compared with the global average of 1.82 per cent.
To shake off poverty and achieve rapid development, the newly founded PRC opted to build a centrally planned economic regulatory system.
Although the planned economy ended up throttling the vitality of labour and production and also failed to distribute resources efficiently, China nevertheless achieved much faster growth under it than before and built a relatively comprehensive industrial system that laid the foundation for its economic take-off in the early 1980s.
From 1952 to 1978, China’s annual GDP growth averaged 4.4 per cent, slightly lower than the global average of 4.6 per cent but much higher than the average from 1913 to 1950.
Cai Fang, economist and deputy head of the Chinese Academy of Social Sciences, said, “While accomplishing historic development achievements in the first 30 years after the founding of the People’s Republic, China ignored the role of objective economic law and used central planning to replace a market mechanism, leading to such problems as a lack of incentive mechanisms for production and labour, low efficiency of resource distribution and an unbalanced structure of the national economy.”
By the end of the 1970s, after the “cultural revolution” (1966-76), the economy had been pushed to the brink of collapse and people’s livelihoods had been seriously affected, Cai said.
Policymakers were fully aware of the defects of the planned economic system and the difficulties the economy and people were facing at the time. As a result, they shifted focus to economic development and embarked on a new road－market-oriented reform－in an attempt to accelerate growth.
This road proved bumpy, but it paid off. By encouraging farmers to increase agricultural output through the household contract responsibility system, gradually liberalizing the State sector, allowing private enterprises to grow, and by welcoming foreign investors, China managed to achieve GDP growth of 9.4 per cent from 1978 to 2018.
“The growth was unprecedented,” said Cai. “It enabled China to catch up miraculously in 40 years.”
Martin Raiser, World Bank country director for China, said the nation was remarkable both for the speed and duration of its high-growth phase. “No other country has grown that fast for so long,” he said.
Raiser said China’s growth path was, to a large extent, due to its “unique” and “pragmatic” reform policies.
“Some of the ingredients of China’s success are well-known,” he said, referring to the country’s favourable demographic conditions, high level of human capital and high savings rate that ensured heavy investment in infrastructure.
“China experienced very rapid productivity growth, at least until recently, as pragmatic, pro-growth policies helped deploy its abundant capital and labour more productively, and this included rebalancing of State and market forces in resource allocation,” he said.
China has maintained a strong and unique State role in promoting industrialization, urbanisation and domestic market integration, Raiser said.
“Economic restructuring saw millions of Chinese move from villages to cities and from agriculture to more productive, wage-paying jobs in services and industry, mostly in the private sector,” he added.
The country is now the world’s second-largest economy, the largest exporter of goods and the second-largest global investor in terms of outbound direct investment value.
It is also the largest contributor to global growth, accounting for about 30 per cent of the annual expansion of the world economy.
In the past four decades, China has also reduced the number of people living in poverty by 750 million.
The significance of the country’s economic success lies not only in its contribution to global growth or poverty reduction, but also because it provides a model for other nations to learn from to improve their governance.
“Maybe the best lesson that countries can learn from China is that there are no one-size-fits-all development models,” Raiser said. “Each country should carefully study the available experience and adapt policies to fit its own needs.”
He said other nations may not have the same conditions for economic growth as China, such as high savings rates and solid human resources, and should therefore not blindly copy its model.
Unlike some countries, China has opted not to totally replace the government’s role in resource allocation with that of the market. Instead, it has adopted a mixed system in accordance with its own conditions to reduce opposition to reform while ensuring high, market-driven growth.
Justin Yifu Lin, the former World Bank chief economist, said China’s way of dealing with reform was a “pragmatic approach”.
“The result achieved transition without tears,” he said. “It was based on the government’s recognition that big-bang reforms could be self-defeating. It was necessary to let private enterprises prosper wherever feasible, but to continue to support important State-owned enterprises while reforming them gradually.”
In a speech in 2011, Lin recalled that around 1990, when the Chinese economy had been steaming ahead at an annual growth rate of 9 per cent for 10 years, many scholars did not believe such momentum could be sustained for much longer.
But the country continued to grow at a similar pace for another three decades, with its average GDP expansion rate hitting 9.4 per cent from 1978 to last year, the fastest in the world.
Cai, from CASS, said China’s experiences in reform and opening-up and development, and its constructive suggestions for global development-oriented rule-setting and governance constituted “a contribution of public good to the world”.
“China does not seek hegemony, nor does it export its development model, but its development, wisdom and plan are very important for the world,” he said.
The Belt and Road Initiative, proposed by China in 2013 to enhance regional connectivity among many countries and regions through both overland and sea routes, is a telling example of how the country’s “wisdom and plan” contribute to the world.
Thanks to efforts by China and other countries involved in the initiative, the BRI has strengthened economic co-operation in participating economies, helping them increase infrastructure investment.
Zhang Hui, deputy dean of the School of Economics at Peking University, said, “The Belt and Road Initiative can effectively promote the transfer of industries among countries with different industrialization levels to promote complementary industrial and trade development.”
He said the initiative will not only promote industrial productivity in those countries, but help them strengthen their “soft power”, such as technology, managerial knowhow and standards.
“The BRI idea comes from China, but the results benefit the whole world,” Zhang said.