Some Chinese are very rich, and China is an incredibly big economy, but there are almost 5 times the people inside the other incredibly big economy – the USA.
If we consider the average GDP per person, it is smaller than lesser economies. In 2018 China reached the 72nd place in GDP per person as a country, a bit above Bulgaria.
The huge growth of this value over time, though, tells us that China is getting nearer and nearer to developed countries. China is still an economy “in development phase”, and the fact there are so many rich Chinese, or that the entire Chinese economy matters so much for the world does not mean China is a first world country – not yet. But it surely means there has been an economic boom in China.
But there are so many questions about why Chinese economy can be growing so fast.
Why did it happen, how, and when? Where did it start and who promoted it? Can we quantify this boom and compare it with other countries?
Let’s get on those questions one by one:
1. When did it happen?
The Chinese economic boom, for many, started with the opening up reforms advanced by Deng Xiaoping in 1978, just as the Cultural Revolution was reaching its conclusion. This opening up was needed to allow for foreign investment and trade to improve, as Deng Xiaoping believed in opening China to the world market.
2. How was it managed?
Deng Xiaoping managed to solve some of the issues present in that moment in the Chinese government, and to do so he combined principles of free market with government interventionism. In this way, Chinese could use the advantages of both: free economy allowed for a cultural context where competition, innovation and price are valued and drive economy, and government interventionism ensured limitation to foreign competition in the local market and invited foreign investors in key areas to cooperate with their Chinese staff and promoted the establishiment of local branches (for example in the automotive field). From there on, thanks to proper planning from the government, combined with the centrality of entrepreneurship typical of Chinese Confucianism, millions of private companies tried, failed, tried again and eventually achieved success.
3. Who promoted it?
Deng Xiaoping’s thought was followed by the Communist party even after his death: even though it was quite different from Mao Zedong’s, it was widely recognized as the one path who could fix the issues that PRC had in that period. Even today, Deng Xiaoping’s thought is considered extremely important, but not devoid of errors.
4. Where did it start?
China started from SEZs (Special Economic Zones) in 1980, Shenzhen, Shantou, Xiamen and Zhuhai, and later opening another 14 coastal cities. Those were to be the centers mostly involved with trade and connected with foreign technologies, and where economic experiments would take place to improve local economies with procedures which later could be adopted nationwide. As a matter of fact China is too vast for such a great change in one time, and there was not a sure direction to take.
Even today, several tests of liberalization of the economy are being done in FTZ (Free Trade Zones) all over China. For this reason, while entrepreneurs are mostly living in cities, the countryside still has a huge percentage of farmers. Although in the past 40 years the farmers became in percentage less and less, they still are a great part of the Chinese population.
5. Why it was done?
While the first years of PRC did benefit of Mao Zedong’s thought and management of a country trying to recover from dozens of years of civil war and several invasions by Japanese (and earlier by Western countries), it eventually could not be used forever. The Communist Party understood that, no matter how clever or great can the thought of their founder (or anybody else, for that matter) be, it may not be perfect for every context where the country can found itself into. After all, Mao did adapt Karl Marx’s ideas to adapt them to the context of China – a country where a massive percentage of population was farmers, in contrast to the huge amount of workers in Germany. With farmers being less and less and with education letting the country advance further, it is quite understandable that the leading thought of the country had to be reformed.
6. What is the extent of the boom and how does it compare with other countries?
From the data on the graph we can see USA, European Union and China’s GDP growth per year in percentage: since the boom started in 1978 there was a considerable increase of the GDP growth per year – at times being above the 10%, with peaks of 14-15%, the last being in 2007. The growth was also considerably above the one registered by developed countries such as USA or the European Union sphere. Of course, before this period, there actually were also years of big growth, but they were alternating with years of low growth or even decrease of the GDP. Since 1978 till 2019, China had only three years with an increase under the 6%, and never had one single year with an increase under 3,9%. The GDP per capita growth had also very similar numbers, which means Chinese citizens earned more and more every year, supporting the economic growth even further.