China's Obsession with Growth
Eom, Kevin, The New Presence: The Prague Journal of Central European Affairs
Since Deng Xiaoping's economic reforms in 1978, China has moved cautiously away from a centrally planned economy. The shift toward a market-oriented economy coupled with conditions conducive to growth prior to its reforms entailed immense economic evolution, and the Chinese economy still remains bullish even in the midst of the global recession.
What is the source of its economic potency, and is China's obsession with growth sustainable in the long run?
From Reform to Growth
The "dual-track" strategy constitutes the core of China's reforms. This strategy allows market and planned tracks to coexist in the pricing system, the enterprise ownership structure, and other areas such as urban and housing reform.
Goods and services were allocated at both market and state-controlled prices based on a cost-plus principle, while the state price was adjusted incrementally until its convergence with the market price. The proportion of planned production of output decreased gradually, steadily liberalizing sectors of the economy. Likewise, both state-owned enterprises (SOEs) and non-state sectors, including private, semi-private enterprises, and foreign joint ventures, drove the high-speed Chinese economy forward. Furthermore, special economic zones (SEZs), mostly the coastal regions, were granted institutional autonomy. Such autonomy allowed for rapid growth, while the interior provinces grew sluggishly.
As a whole, Chinese economic reforms have been widely regarded as a success. Four factors have played a particularly critical role in China's progress according to Wing Thye Woo, Professor of Economics at University of California, Davis, and Yuan Zheng Cao, Deputy Director of the Institute for Economic Systems Management.
China's initial economic structure and conditions were well suited for generating growth. The country's surplus agricultural labor force as well as the absence of large macroeconomic imbalances and a severe external debt crisis--unlike Russia and Poland--allowed China to develop its economy by revitalizing the idle agricultural sector through township and village enterprises (TVEs).
Meanwhile, China's smooth integration into the global economy accelerated the movement of labor into highly productive industries, enabled its purchase of cutting-edge technology, and essentially attracted foreign direct investments.
The high savings rate (23 percent of disposable income in China versus 21 percent in Japan, 18 percent in Taiwan, and 8 percent in the United States (World Bank, 1990)) reduced inflation by preserving macroeconomic balance and social stability.
Lastly, the two disastrous leftist campaigns, the Great Leap Forward (1958-62) and the Cultural Revolution (1966-76) politically exhausted the central party and provided Deng Xiaoping with the power to decentralize economic policy-making.
Challenges and Sustainability
Even with more than two decades of double-digit GDP growth (average growth of 10.3 percent from 1987 to 1997 and 9.5 percent from 1997 to 2007), China still faces structural and social challenges.
"In the big picture, a lot of people are very poor," says Kenneth Rogoff, Professor of Economics at Harvard University. "Coastal regions have been served but the interior of China is still very poor. The big challenge in China is to help spread the middle class across China. Having a more domestic-oriented economy would be very helpful."
Joseph Stiglitz, Professor at Columbia University and Nobel Laureate in Economics, agrees that disparate development and regional income inequality ought to be fixed. He further addressed China's need to find the right opportunities for investment: "The answer [to Chinese economic recovery] is not more consumption ... it's more investment on climate change and for poverty reduction." Growth fueled by the consumption-oriented market loses its momentum quickly; its contribution to the fall of the US economy should send a message to the rest of the world that support for long-term benefits needs encouragement. …