ECONOMIC DEVELOPMENT

Economic Development of China

Economic Development of China

Introduction

China's traditional economy was dominated by agriculture. Before 1949 more than 90% of the population lived in the countryside and drew a living from farming. The dominance of agriculture is easily explained: from earliest times until as recently as the 1980s the central economic problem for China was how to maintain a favorable balance between food production and population. The scale of this challenge is captured in the finding that during almost 2,000 years of imperial history, a seven-fold increase in population was accompanied by a mere doubling in the area of arable land. Throughout this period there is abundant evidence of frequent local famines caused by natural disasters. At times, neglect of the agricultural infrastructure associated with political upheavals and dynastic decline resulted in even more severe food shortages affecting wider areas. Overall, however, the most remarkable historical achievement of China's farmers was their ability to maintain sufficient output growth to meet the needs of a rising population, and to produce a surplus sufficient to support one of the greatest urban civilizations in the world.

During the 19th century, as serious resource constraints and challenges from the West and from Japan increased, the traditional economy began to falter. According to estimates made by analyst Angus Maddison, between 1820 and 1913 China's share of global gross domestic product (GDP) decreased from 32% to just 9%. During thesame period average GDP per caput declined from 90% of the world average to less than 40%. By 1913 the last imperial Chinese Dynasty—the Qing—had fallen and been replaced by a Republican Government. Yet far from this change having heralded a reversal of China's economic fortunes, during the Republican period on the mainland (1912-49) political and military upheavals militated against sustained economic growth. Above all, the war against Japan (1937-45) and the civil war between the ruling Kuomintang (KMT—Nationalist Party) and the Chinese Communist Party (CCP) of 1946-49 had a hugely dislocating effect upon the economy. The impact of these 13 years of war was two-fold. First, it caused massive economic disruption, reflected in depressed levels of agricultural and industrial production, large-scale unemployment, hyperinflation and financial collapse. Second, it devastated China's economic infrastructure through the physical destruction of industrial capital and damage to the all-important irrigation and drainage network upon which agriculture was critically dependent. Such was the economic legacy for the Government of the newly established People's Republic of China in 1949 (Cargill and Parker, 2001, P.1).

The Economic Development China and its Financial Sector

For some of these thinkers, China had also gone too far in restructuring the domestic economy to comply with the interests of the global economy. The specific terms of China's WTO entry were criticized as giving foreign companies too much access to the Chinese economy, to the detriment of domestic producers, while not guaranteeing the same access for Chinese producers to foreign markets (particularly the USA and the EU). Others argued that the Chinese economy had become overly dependent upon foreign investments and markets, resulting in patterns of development that favored external, ...