China Trend Analysis IV: Economic Trends 1970-2008

Part I: The Growth of China’s Economy 1978-2008

The Manoa School of Futures Studies like to look at long term trends, with 30 years being about the shortest encouraged length to begin a study. The reason for this is the importance that 30 years can have on something the scale of, for example, the global population. In 1978, China was finally able to begin instituting the economic reforms that Deng Xiaopang and top Beijing leaders had been calling for. The encouragement of market economics, and policy reforms that encouraged increases in personal income and consumption began. Thirty years later, China is home to the world’s 2nd largest economy, and has a growing influence in global politics and power.

In the course of 2-3 generations China has radically changed not just its own economy, but the way the entire globe must think about the nation and its policies.

The decade of the eighties was highlighted by a number of economic reforms aimed at providing incentive for people to become more productive. Agricultural reforms, the lifting of market pricing restrictions, and the institution of the concept of private property were the first steps. Paralleling this were policy pushes to encourage foreign investment; not just in money but in managerial and structural ideas that could be implemented to encourage long term economic growth. The highly touted Special Economic Zones were initiated through policy, and China slowly enticed foreign investment to its shores. Strictly by the numbers, China’s economy (measured by GDP) increased from 1980 to 1990 approximately ten fold, from approximately 200 billion RMB per year, to nearly 2000 RMB. What is more amazing is the story of the 15 years following that.

From 1990 to 2005 China’s economy again grew ten-fold, and now in 2008 China has a GDP of over 19 trillion RMB, or about 2.75 trillion USD ( 7RMB to 1USD exchange rate)—the world’s second largest economy.

What happened during the 1990’s and first part of the double-0’s? A number of factors are linked to China’s surge in GDP including the proliferation of the SEZ system, continued reform of the State Owned Enterprises (SOEs), and monetary policies.

The initial round of SEZ creation included 14 cities, and 3 regions, most of which were coastal. The 1990’s saw that number rise to over 2000 special economic zones, each one tailored in policy and governance to encourage foreign direct investment through a more relaxed bureaucracy, tax incentives, and other motivators. The long-term nature of much of this investment later buffered China from the Asian Market Crisis. A strong and non-fluid currency also helped China build its reputation as a mainstay in regional and global economics.

Additional policy was passed to address the under performance of many SOE’s that were reporting losses during the period. Increased privatization has led to increased competition, more streamlined operations, and a growing wealth of industrial information used in the practice of manufacture and business. The continued privatization has also led to rises in unemployment that are in need of address.

The Chinese Yuan, while currently the focus of a number of debates, is another key factor in the economic boom of China during the 1990’s. By aligning itself to the powerful US dollar during this time period, the Chinese Yuan was able to grow in value as the US economy grew, and weather the Asian Financial Crisis with little impact. The supply of Yuan is tightly controlled by the nation’s economic planning committee; an economic control heavily used by highly centralized governance. Another trend lies in China’s consistent use of this economic control to curb inflation, and direct development.

2005-current

Since the passing of the 11th Five Year Plan by the Chinese Communist Party in 2005, the stated direction of China’s national governance has been towards a “harmonious society.” This term, despite its vagueness, has been allocated by a number of white-papers issued by different branches of the central government, including the Central Military Committee.

In terms of economic growth, the national economy has reported growth of over 10 percent annually since 2003, reporting growth of 11.9% in 2007. Many analysts have differing opinions on the consequences of such a rate of expansion. The official response to such prolonged and rapid development has been a call by the government to limit this growth soon. Growing inflation, per-capita income disparity, and energy concerns have spurred this decision.