Five interesting tips on Chinese economy

Five interesting tips on Chinese economy

China is on its way to become the largest economy in the world. This history of this growth is fascinating because of the many challenges it has successfully met along the past 35 years, and the challenges that lie ahead of this semi-industrialized economy.

 

1- A successful evolution to market economy

In 1978, China had a centralized economy, which was inefficient and slow without any possibility of an economic market.

In order to avoid discontent from Chinese People, a new Chinese Government then restored a new policy reform little by little, starting with the dissolution of Communes. Each reform led to the next one and were entitled “reform without losers”.

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Mid 1990, China works on a reform coalition which opened the economy to market, and privatized it on several front.

This way, Chinese government achieved creating a semi-marketised economy, in which the government continues to play a major role, for instance through the power of the remaining state-owned enterprises and the state’s domination on the financial system.

2-  An amazing growth

This new policy has allowed an increase of the Chinese economy of 10% per year during more than 30 years. This policy succeeded “thanks to’’ a 300 million people population and the famous dollar a day poverty.

This high rate of accumulation was actually necessary for a quick growth which was assisted by several factors like a ready supply from the rural areas and a new policy about primary and secondary schooling.

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Furthermore, a high rate of productivity allowing a labor-intensive manufacturing at low cost has contributed to make China the Workshop of the world.

3- China is the most inegalitarian country in Asia

This quick growth created more inequality between rural and urban areas: discrepancies in income compared to the cost of life of skilled workers in urban areas are one of the key factors.

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High-productivity and very low income even for skilled workers has contributed to this rise of inequality. Chinese government considers this phenomenon as a threat to social instability and is currently trying to reduce it.

4- China: a political economy success which still has weaknesses.

If China has centralized a political governance, its economic governance is decentralized. According to some economic experts, this sharing of government power is dangerous for economy itself, because the government cannot control if these economic decision-makers pursue the aims decided by the Head of power.

Furthermore, after a quick and powerful economic growth, China seems to see its economy slow down because of a lack of labour-workers and a rise of corruption, together creating more social instability.

Chinese political economy has been a success but is now very fragile and needs a financial adjustment program to secure avoiding a financial crash.

5- The life satisfaction of Chinese people

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In China, measures are regularly taken regarding life satisfaction. With a rise of household income, we could expect a rise of life satisfaction too. But some studies revealed that the average was not higher in 2010 than in 1990. Actually, it depends of several key factors such as relative incomes (which has not risen), people’s sense of economic and social security (China has seen the biggest migration in human history with 100 million rural migrants heading to cities for work), perception of corruption and environmental degradation.

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