China has been undergoing a dramatic transformation to a market economy. As a result, it currently is the world leader in terms of economic growth, industrial expansion, and exports. “It contains an array of potential customers that far exceeds the markets in Europe or the western Hemisphere, and it is rapidly emerging as a new epicenter for industry, commerce, and finance” (Yu, p. 15).
In addition, the so-called ‘Greater China’ has substantial amounts of technology and manufacturing wing in Taiwan; outstanding entrepreneurial, marketing, and services acumen in Hong Kong; a fine communication network in Singapore; and a tremendous pool of financial capital in all three. When these ...
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...resources are combined with the very large endowments of land, resources, and labor, China is already a major superpower in the global economy. The Chinese government is still mainly involved in the ownership, if not the operation, of enterprises.
In the addition to several private ventures, the government owns a great variety of businesses ranging from the central government’s giant steel mills to the local government factories. Most of the trading companies which are engaged in a variety of commercial, banking, and manufacturing activities are owned by the government. Most foreign investments are in the form of joint-ventures with the national government. However, although the term is ‘joint venture’, the foreign investors in such ventures are minority partners and Chinese government takes on the main charge.
Such investments are sometimes risky, however, because government companies being cogs in the central economy do not operate to turn a profit or compete. The concept of bankruptcy and the consequences of poor performance are alien to the state companies. Hence, dealing with the Chinese government is not an easy task as there can always be uncertainty regarding contracts in subsequent future. When Chairman Deng launched the economic revolution, deep splits emerged within the Communist Party over the pace and extent of these ambiguous reforms.
Deng had to overcome the resistance of the Communist Party hardliners in provincial governments. The resulting dilution of central government control – and the mounting tension between Beijing and the provinces – has become a serious problem that requires tough discipline to keep the economy in check. Moreover, People’s Republic now is making it clear that it wants to participate actively in determining the future direction of the economy of Hong Kong which has been often referred to as the gateway to China, and one of the most aggressive pro-business economies of the world.
An improvement in relations with the outside world was one of the important features of Deng’s program of reform better known as Gaige Kaifang (reforms and openness). It implies modernization in four sectors – agriculture, industry, science and technology, and the military. According to him, the process of this modernization could be achieved by ‘socialist market economy’. This means that, China was in the primary stage of socialism and the bounden duty of the Chinese Communist Party was to achieve “socialism with Chinese characteristics”. Of course, this changed policy implies shift from original Marxian dogma.
But, Deng believed that economic modernization in China required some sort of practical deviation from the ideology of Marxian-Leninism. According to him, socialism does not mean shared poverty – there must be rapid economic development for which ‘market forces’ must be given necessary values. Thus, the Chinese government encouraged private investment and, even, foreign enterprises in the Chinese economy. Since his time, agricultural reforms increased peasants’ products and the increase in their purchasing power which ultimately stimulated industrial activities.
Thus, Deng’s economic policy has strong resemblances with Lenin’s ‘New Economic Policy’ (NEP) which was adopted soon after the revolution of 1917. With a revolutionary zeal, Lenin initially sort to introduce an economic policy in the Marxian line. But, due to practical reasons, he had to make some compromises with capitalism in order to strengthen economy. Perhaps, Deng also took lessons from Lenin’s experience. Foreign investment It is significant that, the scope of foreign investment began to increase in 1977-78 shortly after the defeat of the so-called ‘dang of four’.
The ‘cultural revolution’ surely affected the progress of economy to a large extent and hence the Chinese statesmen realized the need of a foreign investment in order to boost up the economy. Above all the ‘ping-pong’ diplomacy introduced a ‘detente’ with America which soon developed a wide market in China. At present US is the biggest investor in Chinese economy. The integration of Hong-Kong (previously a British port) into China has also increased the foreign capital. The majority of Hong-Kong capitals are now largely investing their finance in the Chinese economy (Leonard and Yum 379).
Some other countries like Japan, Taiwan, and Korea are also investing a huge amount of capital in China. Thus, in spite of its Marxian model which discords private investments (especially foreign investments), China has liberally open its doors to the foreign investors. Foreign Trade China’s entry in the international market has surely accentuated the capitalist trend in the economy. In 1992, Deng Xiaoping highly praised the emergence of the capitalist trend and, following him, the Communist Party of China (CPC) declared in October, 1992, that China now adopted the concept of socialist market economy.
Thus, ideological battle was over and the new economic policy surprisingly increased its imports as well exports. The trade-deficit of 1992 soon twined into surplus as exports increased very rapidly by investment of a huge amount of investment, both local and foreign. Development of export-industries proved to be a profitable means of the growth-model. in fact, agrarian reforms replaced the surplus workers of the moral means and they were employed in the export-leased industries.
Foreign invested enterprises also created a large amount of job opportunities and it was eliminated that every 100 million Yuan of exports provided 120,000 jobs. Foreign trade in China is primarily dominated by the state. In the year 1979, China removed some major trade restrictions, paving the way for increases in the relativity small foreign investment and trade activity. By the late 1980s, total exports reached $41. 1 billion while the imports were $46. 4 billion, and since then, both have increased sharply. China exports crude and refined petroleum and oil, cotton fabric, silk, clothing, rice, pork, frozen shrimp, and tea.
Machinery, steel products, automobiles, other metals, synthetics, agricultural chemicals, rubber and wheat form the major imports. Most of China’s trade is with non-communist countries, including Japan, Hong Kong, Canada, the United States Germany, Taiwan, and Singapore. Joining the WTO In the background of such developing condition China signed a deal with the United States in 1999 while enabled to enter the World Trade Organization (WTO) in 2001. It implied, surely, a reduction in the protection afforded to the domestic producers (Barry, p. 235).
Of course, China’s entry into the WTO does not mean a total liberalization of the economy. But, there can be no doubt that it marks a significant turning point in the Chinese economy which, in 1947, started with a policy of isolation and socialistic public-sector emphasis. It has, obviously, raised some political problems as well. It was declared, on Marxian line, that private economy encouraged profit-motive and, hence, paved the way for gross inequality (Joseph, p. 66). But the new economic policy has surely endangered a trend of economic inequality in the society.
China is now at fifth in the list of most unequal economies in the world, and it presents as the fastest-growing rates of inequality in the world. This inequality is surely the direct product of the privatization of the economy in the capitalist line. In that sense, it has markedly deviated from the classical Marxian model which stands for equality and justice by the complete abolition of private initiative and investment. But perhaps, the leaders of the post-Mao era have felt that some concessions to the capitalistic order that is extremely necessary for the rapid growth of the economy.
Conclusion The pace at which China has been growing since the last two decades is really bewildering. Even if the pace of change slows down a bit, it will be beyond any iota of doubt that China of tomorrow will be very different from today’s China. China’s insertion into the global political economy could not have occurred without the actions of the Chinese government at both national and local levels. But how this insertion has evolved owes as much to the interests and actions of external non-state actors as it does to the decisions and policies of the Chinese state elites.
China truly represents a huge market for business enterprises that have been competing to survive in more mature, developed markets that have been flat and where there exists extreme competition. Many economists believe that China’s economy could exceed that of Japan within this decade, and if the trend continues, China would soon become the world’s largest economy surpassing even the United States (Erik, 2002). However, China is still a believer of communism and hence, severe tensions are often arising in the country as an economically backward, communist-led nation attempts to move toward an advanced capitalist country (Shaun, p. 477).
The prevailing political structure has done fairly well and is not likely to respond to these changes passively in the future times (Carol, p. 83).
List of Reference
Barry, N. China’s Trade Regime at the end of the 1990s, in Ted Carpenter and James Dorn, edited from China’s Future: Constructive Partner or Emerging Threat? (Washington: Cato Institute, 2000), pp. 235-60 Carol, L. H. China and the Challenge of the Future: Changing Political Patterns, Westview Press, 1990, p. 83 China’s High-Tech Exports up 58. 3 per cent in January-July, People’s Daily, 11 Aug, 2004 David, M. Car makers Worry China is planning a U-Turn, Wall Street Journal, 31 July, 2003
Todd, C. and Thomas, H. W. P. Deng Xiaoping, Politics and Government, Asian of the Century, Asia Week, http://www. asiaweek. com/asiaweek/features/aoc/aoc. deng. html Deng Xiaoping, Wikipedia, http://en. wikipedia. org/wiki/Deng_Xiaoping Erik, E. Asia Worries about the Growth of China’s Economic Power’ New York Times, 24 Nov, 2002 Joseph, C. States, markets and Civil Society in Asia-Pacific, Edward Elgar, 2000, p. 66 Leonard, C and Yum, K. What are the Determinants of the Location of Foreign Direct Investment?
The Chinese Experience, Journal of International Economics, vol. 2, 2002, pp. 379-400 Nicholas, L. Interchanging China into the Global Economy, Washington Bookings Institution, 2002 Roberts, D. and James, K. How Cheap labor, Foreign Investment and Rapid Industrialization are Creating a New Workshop for the World, Financial Times, 4 February, 2003 Shaun, B. China and Political Economy, Oxford University Press, Canada, 2006, p. 467 Williams, I. China-US: Double Bubbles in Danger of Colliding, Asia Times, 23 Jan, 2004 Yu, Yongding, China’s Microeconomic Situation and Future Prospect, World Economy of China, 1999, p. 15