Chinese Economic System - Essay Example

? Economic Environment of China Introduction Chinese Economic system is an example of the socialist economy in the world. This implementation of the socialist system in the economy has contributed to the prosperity of the country and has led to remarkable growth rates over the period of time. The system in which the Chinese markets work has made it the fastest growing economies of the world. The international trade of the country is also quite pronounced and it has made the country one of the dominant players in the world market. This paper makes the attempt to analyze how far the socialist structure of economy has been implemented in China and how it has contributed to the GDP growth and the economic welfare of the country. This issue is one of the most sought after topics for the researchers because in the recent years a lot of flexibility has been allowed in the economic system of China. There are several sectors where the private players are being allowed to exist in the market. The stringent restrictions on the property rights of the country have also been relaxed. The paper also analyses the economic systems that the other developed and developing countries have adopted. The comparison of the economic systems provides an insight into the various pros and cons of the set ups that are existent across the world. The fundamental premise for the contention is that the economic structure and the systems of a particular economy are a major determinant of the growth and prosperity of the economy. The world has witnessed the set up of different kinds of economic systems over different eras. There are various countries that have adopted different theories and have tried to implement them into their economies. The economic set up that China, Russia or Poland have followed the socialist structure while that of the US or German Economy have adopted the capitalist set up. In this paper comparison of China has been done with the other countries that work on a different economic model. A variety of economic systems around the world can be observed. In the Capitalist economic system which is alternatively called the market economy, the forces of demand and supply are allowed to operate. The prices and quantities to be sold are determined in the free market and there is no restriction put by the government on the determination of the prices that are sold in the market. Thus the profit or surplus that is earned by the owners of the means of production remains on their hands and the employees or the workers are eligible for salaries or wages (Gardner 27). The economic structure of the United States is of the capitalist type because this ideology has been applied in the economic system of the United States. In an alternative system that is the Socialist structure of the economy, the entire ownership of the means of the production lies with the government of the country. In this kind of a socialist system the surplus that is derived out of the production of goods and services after the payment of the wages are equitably distributed among the people that constitute the residents of the entire nation. Even the disabled people who directly cannot contribute to the production get an equal share of the surplus as the wage earners are entitled to. The main proponents of the theory of socialism were Karl Marx and Friedrich Engels. They believed in the theory of class struggle and the theory of surplus value. A third kind of economic system that has the quality of both the capitalist structure and the socialist structure is the mixed economy. In this kind of an economic structure, the public and the private sector institutions coexist (Conklin 37). The government of such mixed economies does not interfere into the activities of the private sector directly but they do have certain restrictions imposed on them in the form of legal and constitutional regulations. The economy of India is an example of mixed economy where there is the coexistence of the private and the government players in the markets. Literature review The implementation of various policies that the socialist government of China had adopted led to the success of the country under various situations. China had a very high growth rate of population. The guiding principle of the socialist government of the country which includes the one–child family policy has helped to curb this growth rate (Naughton 168). All the couples of the country were restricted to having only one child and almost 36% of the population of China came under this policy as in 2007. This had led to a decline in the population growth rate of the economy. The way in which the Chinese population dropped over the years has been shown in the table below. Chart: Population Growth Rate of China. Source: National Bureau of Statistics of China Due to the adaptation of the communist methods of economic systems the Chinese government put a central control over most of the industries in the country. This allowed the government to accumulate the funds that came out of the surplus production in one place (Cai 203). These funds were then channelized into the right project that needed financial backing. The government during the year 1979 had a rate of investment of 25%. No other country in the world could achieve an investment rate as high as 25% which made China one of the fastest growing nations. Thus the implementation of the socialist structure enabled the proper flow of fund into productive uses. However, the Chinese economy faced various setbacks in form of backward technology in the previous days. The government found that it was essential to invest on the advancement of technology and to make optimal use of those technologies that would speed up the production process. Very soon the country adopted the new methods of production which enabled it to achieve the economies of scale that the country aimed at. Thus the technology that China adapted was almost same as that of the Western Countries like the United States. In the post Mao Zedong period when Deng Xiaoping took the charge of the government he was instrumental in making several changes in the way the economic system worked and introduced several reforms that were popularly known as the market reforms. This was done with the intension of reintroducing the aspects of capitalism into the Chinese Economy. However, the then leader of China was not solely responsible for this change. A number of political, economic and social struggles forced the leaders of China to adopt the market reforms in the country. Thus the country experienced a restoration of the capital structure. Methodology The methodology that has been adopted in this research is of secondary research. This is because the economy of China is a very huge one with a very long history. Conducting a primary research would have made the entire task cumbersome and therefore it would not be completed in the stipulated time frame. The data and the other information have been adopted from the works of the scholars who have previously done research on the Chinese economy and the economic structures. This information would support the fact that the economic system has a direct impact on the prosperity of the economy. Broad Outline of the Chinese Economy in the present day At the present day the economy of China follows the model of the socialist market economy. It is the second largest economy of the world after United States going by the Gross Domestic Product. The country has an average growth rate of 10% calculated over the last three decades which has made it the fastest growing economies of the world. The country is the largest exporter in the world with the mass acceptability of the Chinese product throughout the world. The economy specializes in the manufacturing of goods for which the most technologically advanced production techniques are being used. This technological advancement is mostly observed in the coastal areas of the country which has experienced the advancement while the rural areas are comparatively underdeveloped. However on the basis of per capita income the country is 87th in the world. China aims to develop certain special economic zones which would act as engines of growth and would contribute to the development of China. The country has continuously invested in the development of infrastructure through the Five years plan scheme that the country had adopted. A lot of foreign investors have expressed their interest in the projects that China intends to undertake. The infrastructural developments of the country include the improvement in the roads, airports, railways, power sector as well as the rural expansions. The country has tried to make the different parts of its area well connected by the development of the railways and metro. The National Trunk Highway System has made it easier for the commuter to take the roadway to reach to distant areas. The NTHS was developed for sixty five thousand kilometers as on 2010. Though the construction of roads is mainly the concern of the government of China a lot of private participation has also been experienced. This proves that the government is encouraging the private players in the present day China. Due to this the various other related industries are getting a boost and it contributes to the aggregate demand increase in the economy. Since agriculture is one of the major occupation of the country especially in the rural areas investments have been made to improve the irrigation projects. Source: Chinese Statistical Yearbook Source: Chinese Statistical Yearbook This marvelous development was not achieved by the economy in a one day. A huge amount of discipline and a planned economic structure had led to the success of the country. Background of the Evolution of the Economic System in China In the pre 1950 period the economy of China was at a fragile state. There was lack of infrastructural development and economic prosperity. The frequent uprising and foreign invasions led to communist revolution in the country. The country in its new People’s Republic form aimed at steady economic development and growth. The strict vigilance and monitoring by the government through the regulation of the budget and proper monetary policy helped the nation to contain the inflation that had engulfed the country. The government took control of the entire economy of China by restricting the private enterprises to operate. Thus the socialist model was followed by the country along with the propaganda against capitalism (Chao 44). According to the leaders of China since the country lacked development in the industrial sector, it was necessary to implement communism in the country. A big step in this regard was the nationalization of the commercial banking system in the country. Most of the financial activities were undertaken by the public sector banking which took part in the collection of taxes as well as control of the monetary policies. It led to a lot of generation of revenue for the government. Land reforms were conducted at this time which resulted in a lot of redistribution of land to the peasants who were the actual tillers of the soil. The control of the Chinese economy, politics and law were completely on the hands of the government of PRC. Era of Mao and the implementation of communism in China In 1958 under the initiative of Mao Zedong, the program of Great Leap Forward was carried out (Chai 120). The military reign of Mao forced the people to live in communes. The new working and earning policy for the people were also implemented in which a person would perform as per his ability but get the return as per his needs. The households were forced to take part in the production of steel as a mark of improvement to beat the Western countries. All these had a detrimental effect on the economy of China. The agricultural produce of the country dropped drastically and famine gripped the country in 1960. Aftermath this period the country went through a period of anarchy and the initiative of Mao to change the old ways of culture hampered the education scenario of the country. The post Mao Era in China After the reign of Mao Zedong, China witnessed a series of reforms in the form of a change in the political set up and the economic systems. In the 1980’s the control of China was taken by Deng Xiaoping and Li Xiannian who held a different political ideology altogether. With the change in the top leadership in China, the communist systems of the country started fading and the capitalist features got incorporated in to the political and economic systems in which the country advanced. The government took measures to increase the productivity of the country and took policies that would improve consumer welfare. A huge amount of foreign interaction was encouraged through the liberalization in trade policies in the country that enhanced the export to the other countries (Starr 149). This in turn had a beneficial effect on the net exports of the country or indirectly to the national income. The economic system was completely reengineered, the effects of which could be experienced in various activities like the agricultural sector, industry, the labor markets as well as the banking and financial systems. Along with the liberalization of trade in the country, a lot of foreign direct investments were encouraged from the foreign investors that funded the various capital intensive infrastructural projects that the country intended to undertake. Since the coastal areas of the country were more conducive for undertaking trade special economic zones were created which were treated as the hubs of industrial development. Thus new cities developed in these areas which had all the modern amenities and there were relaxation in the tax systems in these areas. This encouraged the businesses to set up offices and to expand their business. Thus the opening up of trade and the international exposure marked as the inception of the economic development and growth for the country. Later Phases of the development of the Economy of China The process of development in the country took place mainly in two phases. The first phase mainly saw the development in the agricultural front and the second one witness drastic improvement in industry and technological advancement. In the agricultural front, the Maoist system of communal form of peasantry was abolished which did not let the farmers reap sufficient benefits out of their toil. On replacing the old system, the peasants got the opportunity of reaping as much as they desired and they got a decent return of their hard work. The new leadership raised the procurement prices of the agricultural produce which was set extremely low during the Mao reign. Thus the market forces again started having an effect on the economy of China. The rights of land and the leasing system of cultivation for the households were also revised. The surplus production and sales in the market was allowed by the new management which proved that the capitalist system again started operating in the country. The second phase of this development process was perceivable in the industrial sector. The introduction of the private enterprises in the economy had a miraculous effect on the level of production in the country. The capitalistic features had encouraged the surplus production by the firms and thus a large number of people got employed in the country which added to the economic prosperity of the country. Several welfare policies for the workers and the general public were announced that helped in reducing the level of poverty in the country. In the later phase, by the start of the new millennium, the country has been successful in achieving several desired goals. The growth rate of the country soon became above 10% from a phase where the development of the country almost retarded. In the figure below it can be seen that there was a sudden steep increase in the GDP growth rate curve of China from the year 1990. However, the inflation rate of the economy also increased radically with this due to the increase in the money supply. Despite this short coming the financial crisis that hit Asia could not affect China much because of the enormous amount of reserves that China already had. There was a little effect with the fall in the trade position of the country. Chart: growth rate of GDP of China Source: World Bank Group The country faced several problems in its attempt to modernize the ways in which the banking system worked. The public sector companies started performing badly in the country. After the start of the new millennium, there was revision in the laws relating to the ownership of private property. Measures were taken to reduce the poverty level of the country. Along with the developed urban regions different policies were taken to improve the rural areas of the country and to reduce the level of unemployment. Ideal Example of Communist Economy - Economic Theory applied to the Chinese Economy From the analysis of the history of the economy of the country and the present day scenario it is clear that the country has witnessed both types of economic structures. The communist system was followed in the country the way it has been presented by Marx and Engels in their theory. The aim was to allocate the resources to the individuals as per their needs. But the surplus value that the workers reaped was transferred the state funds. This ideology was not practicable and thus it led to a host of reforms and revolution s in the country. The economic condition of the country worsened due to the introduction of communism. Thus the theory though applied in the country failed to make any beneficial contribution and led the country to a slackening of the economic growth. This demanded for a change in the economic system and the incorporation of the capitalist traits in the country. The introduction of capitalist system improved the growth of the country drastically. At present the country practices a planned socialist structure of the economy where the private and the public sector enterprises coexist. Comparisons with the Economic Systems of other Communist Economies The most remarkable example of communist countries where the communist economic system has been applied is Russia. Russia has also experienced similar kinds of economic fluctuations and adversities due to the introduction of centrally planned system. The Soviet Union was formed in the year 1922 with the aim of introducing the principles of communism and socialism in practice. The communist party had the sole control over the political and economic undertakings of the state. Though in the initial years the economy achieved success in form of industrialization and economic development, in the later phases the growth stagnated which led to the dissolution of the Soviet Union. Russia became an independent state and tried to establish a market economy under the guidance of the International Monetary Fund through trade liberalization. However, this sudden change into capitalistic form of economy had some adverse effects for the country. A handful of people became the owners of the privately held businesses (Rosefielde 165). This resulted in the increase in the gap between rich and poor in the economy. The government tried to combat this economic stress with the constant changes in the Fiscal and Monetary policies in the country. Presently the country has recovered from the situation of crisis and as on 2009 the growth rate of the country was 8.1%. Similar features can be noticed in the economy of Poland. In the post World War II period the country received considerable support from the Soviet Union for setting up the new government. However, the communist government also faced a downfall in this country in the 1989. The government recovered in the same line with the other communist counterparts like Russia and China through the liberalization of trade and privatization of the enterprises. Presently it is also a high income country of the European Union and has a GDP growth rate of above 4%. Economic System of US, Germany, Sweden, France and comparisons with China Some of the countries that practice a diametrically opposite political and economic ideology include the capitalist nations. Most of these nations are developed nations that have their market economies at a more advanced stage. The country in which the features of capitalism are most prominent is Germany. The traits are noticed even in the education and the banking system of the country which are governed by private players. The country has achieved prosperity in the industrial sector and in international trade. The smaller entrepreneurs are encouraged to set up their businesses and the laborers are encouraged to be equipped with a variety of skills so that they can switch between industries they work for. The economy of the United States of America is another example of the capitalist structure. Any person who wishes to open up a business in the country would never face any barrier. Private ownership of the means of production is completely allowed in the country and the owners are free to retain the surplus out of their businesses. It is somewhat different from what the economy of China practiced in the era of Mao. With the advent of the economic spurt China is also moving in the same lines of business allowing the privatization of different sectors of the economy. The United States follow a mixed economy model and have made several investments in capital expenditure over the years for the infrastructural development of the country. The other nations that follow the same capitalist model of economy include Sweden and France with GDP growth rates of 1% and 0.5%. The growth rates of these countries are low because of the fact that the countries have achieved development a very long time back. These capitalist countries are mostly included in the list of developed nations of the world. Economic Systems of North Korea and Cuba - Centrally planned economies of the world and comparisons with China North Korea is a nation which on this present day follows the centrally planned model. It is of the similar kind that was practiced in China a long time back. The role of market is extremely constrained in the Korean Economy. The country has a GDP growth rate of 8.75% at present, which is chiefly contributed by the growth in the industrial sector accounting for over 44% of the GDP. The other noticeable contributor to the GDP is the fisheries. However, the per capita income of the country has remained low which has made the country a poor one in the world. Cuba is another nation that follows the same model of central planning as that of North Korea. Most of the businesses and the productive resources are owned by the government with very little private interference in form of foreign investments. Most of the employees of the country are public servants. However, private work has been encouraged in the form of self employment. The country has a GDP growth rate of 2.7%. Comparison with Iran as a representative of the Islamic Economies Iran is one of countries whose major sources of GDP are from the export of oil. The oil and gas industries are the most prominent ones in the country. The country has a mixed economy framework in which 50% is under the control of the government. Being one of the largest Islamic nations the country has Bonyads which constitute almost one third of the government spending. The laws of Islam are implemented in the country and the Bonyad spending does not go through any auditing process. There has been limitation in the public sector growth due to the high levels of corruptions in the country. This is a way different from the Chinese Economic System. Conclusion Over the period of time several questions have revolved around the feasibility of the socialist structure on the Chinese Economy. It has been seen that a large number of countries have made an attempt to implement communism in theory in their countries. Though some of the states in the present day are still existent that follow this set up, most of the countries have experienced failure. Thus the theory that was posited by Marx and Engels though was successful in their writings; it could not be applied to any nation in the present day (Slee 1). On the demise of Mao Zedong a host of political revolution and protests led to the development of the market reforms in the nation which proves that even the common people were not accepting the ways in which China was run under the communist set up. With the introduction of the market reforms the country opened up to the foreign markets and started accepting foreign inflow of capital. Thus the change in the economic structure contributed to the welfare of the country. Therefore it is evident that the economic set up of a country directly influences the wellbeing of the nations. The other countries that have practiced capitalism have experienced steady rates of growth and are now in the group of developed nations. The movement of the country toward a capitalist structure is instrumental in the taking the country towards the growth path. The growth rate of 10% was only achievable because of the privatization of the various sectors. The advancement in the technology of production was also possible with the injection of foreign capital in the country and better exchange through liberalization of trade which was not experienced by the country under the communist regime. Works cited Gardner, H. Stephen. Comparative Economic Systems. Oak Brook, IL: Dryden Press. 1998. Print. Naughton, Barry J. The Chinese Economy: Transitions and Growth. Massachusetts: MIT Press. 2007. Print. Slee, Chris. China today: socialist or capitalist? Links International Journal of Socialist Renewal. 13 November, 2009. Web. 21 October, 2013. http://links.org.au/node/1355 Chai, Joseph C. H. An Economic History of Modern China. Massachusetts: Edward Elgar Publishing. 2011. Print. Starr, John Bryan. Understanding China: A Guide to China's Economy, History, and Political Culture. New York: Farrar, Straus and Giroux. 2010. Print. Chao, Kang. Man and Land in Chinese History: An Economic Analysis. Stanford: Stanford University Press. 1986. Print. Cai, Fang. Transforming the Chinese Economy. Danvers: Koninklijke Brill NV. 2010. Print Rosefielde, Steven. Comparative Economic Systems: Culture, Wealth, and Power in the 21st Century. Oxford: Blackwell publishing. 2008. Print. Conklin, David W. Comparative Economic Systems: Objectives, Decision Modes, and the Process of Choice. Cambridge: Cambridge University Press. 1991. Print. Read More