Analysis of China's Economic Development Sources from 1978 to 2011

This essay provides a comprehensive analysis of the sources that fueled China's remarkable economic development from 1978 to 2011. It examines the economic reforms implemented, including the opening up of the economy, privatization, and agricultural reforms. The essay explores the impa...Read More

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[Year]
Sources of China Development from 1978 to 2011
Essay

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Introduction
China is currently the fastest growing economy in the world, it has made tremendous
progress since the economy was opened to the world in 1978. On an average the economy of
China is growing at the rate of 9.72% (Xu,2011). The growth and development of China in
such a short time is historically unprecedented. The country was open to the world and
changes its reform in 1978 and after that the economy of the country is growing at the
increasing rate. The sources of development have come from labour inputs, increasing
capital, productivity growth and increasing efficiency (Zhu,2019). The main source of
development for China is export as the country made reforms to open up to the world by
opening up 100 sectors out of 160 sectors in business (Xu,2011). In order to know what
reforms were implemented by China for development and the role of government analysis of
policies adopted and implemented by China is done for period of 1978 to 2011. This essay
focus on the sources that China adopted or strategies that China implemented in order to
grow and develop at the global level.
Literature Review
China rise from a poor developing country to a major economic power in about last three
decades has been spectacular. In accordance with the World Bank, China has “experienced
the fastest sustained expansion by a major economy in the history and lifted more than 800
million people out of poverty between 1978 to 2011” (See figure 1). According to Woo
(1996), Economic reforms that China adopted were the reason of that tremendous growth.
Before 1978, China was dominated by central planning and state ownership and that time per
capital income of country grew at the rate of 2.9% annually (Moore et.al,2002).
China developed after implication of economic reforms in 1978, the implementation was
done in two stages. First stage started in early 1980s that included opening up of China for
the world, privatization, de collectivization of agriculture and boost to start-ups. Second stage
started in early 1990’s that mainly focused on protectionist policies, lifting of price control,
getting state monopolies in sectors such as petroleum and banking (Todaro and Smith,2015).
This private sectors after reform grew tremendously and contributed 70% of China economy
in 2005. Zhu (2012), said that this growth was experienced by China because of reforms and
policies adopted by China. The reforms that were adopted by China related to agriculture,
foreign direct investment and international trade. The success of China economic reforms and
manner of their adoption and implementation bought changes in economy of China and

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improved life of Chinese people. The benefits that the country experienced were reduction in
poverty, higher employment rate, infrastructural development and improved standard of
living (Chen et.al,2011).
Figure 1: Economic Growth of China after implementation of 1978 reforms
Source: (Lippit,2018)
Golley and Meng (2011), criticized the model and reform that were adopted by China for
development and growth as this model is not applicable or used by any developing country.
The criticism that China faced regarding its policies and reforms of 1978 were increasing
inequality, shift of people from rural to urban area and overutilization of resources of the
country at lowest price (Lippit, 2018). Further, because of increasing FDI and exports
impacted on the production and consumption pattern of people at the domestic level. The
consumption pattern of Chinese people reduced and they produced for boosting export of
the country (figure 2).

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Figure 2: Domestic consumption in China decreased between 1978 to 2011
Source: (Lippit,2018)
The export of the country contributed to approximately to 14.24% to the GDP of the country
in 2011, minimum of 2.49% in 1970 and maximum of 36.04 percent in 2006 (Lippit,2018).
Due to increasing export by the country the domestic consumption reduced that led to
dependency of China more on international trade rather than domestic consumption or
production (figure 3).
Figure 3: Increase in Exports of China from 1978 to 2011
Source: (Xu,2011)
The reason behind the development of China economy was its policies and reforms but that
impacted the country in negative way in longer run as dependency of the country on exports

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and boosting FDI impacted the resources of the country, environment of the country and
impact directly on life of Chinese people in negative way (Bramall,2000). Due to these
consequences many criticized the economic reforms and policies that were adopted by China.
As any developing country is not able to adopt this model of development of China and this
model might need to be changed by the country in longer.
Hongyi (2010), said that the benefits that the country get from these reforms are more than
the drawbacks or negative impact of these reforms. So, the contribution of these reforms in
development is more than its drawback. The development measures included rate of
employment in china, production in the country, capital contribution and boost of innovation
in the country. The growth of the country is affected by the
Reforms
Agriculture Reforms
The agricultural reforms that changed after 1978 impacted the agriculture sector as the
country production and focus on agricultural products increases and in between 1975 to 1985,
25% of production contributed to GDP (see figure 4). These reforms were also adopted and
implemented in urban areas to boost up the productivity in agricultural sector. In 1978, Deng
announced open door policy that resultant in boost of foreign investment in the country in
agriculture sector as well as other sectors. Further, many sectors in China except few
monopolies converted into private sectors (Wang et.al,2016). In 2005, again the policies
changed and more control on agriculture sector was maintained by the government of China
in order to control agriculture production and to stabilize the prices of food and beverages in
the country.

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Figure 4: Contribution of Agriculture segment in development of China
Source: (Wang et.al,2016)
Economic reforms
The economic reforms adopted by the country bought China into a dominating position in
which the company exceeded record of the world developed country that is the US. The
adoption of open-door policy and privatization of 100 sectors (see figure 5) in China leads
development, changes in the factors of production and reduction in poverty. Further, changes
in country’s monetary and fiscal policy helped China to develop and to grow rapidly.
Figure 5: Expansion of Private firms in China

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Source: (Shambaugh, 2013)
The purpose of China reforms was to be develop “socialism with Chinese characteristics”.
The result of these reforms was transformation of China. As China earlier was an economy
with low level trade and no foreign investment. Many indicators shown that China developed
tremendously between 1978 to 2011 (Lippit,2018). The main reform that contributed in the
development of China was “reduction of bureaucratic centralized management of the
economy and elimination of political impediments to achieve economic development and
economic efficiency” (Giles,2005). These reforms were continued by all the leaders of China
with some amendments and with that boosted or promoted economic openness through
international economic investment, economic cooperation, exchange and trade (Aryama
et.al,2004).
In 1989, the economic development was dependent on the technological and scientific
progress and on labour quality (Wei,2013). With that China investment on education and
capital sector increased and leads to development of skilled labour and this led to better
quality of workers and executives and that contributed to the development of business
segments in China. This policy adopted by China helped the country to improve its per
capita income (Wang and Yao,1999).
But the criticisms of this reform were reflected on capitalist cities as environment conditions
of the country affected by more production this was mainly seen on the side of private
enterprises and businesses in special economic zone. This was the negative impact of
China’s economic policy and due to that foreign direct investment and production decreased
in 2008 (Lippit,2018).
International Trade Reforms
International trade plays an important role in the development of China economy as the
exports contributed approximately 11 percent to 14 percent to GDP of the country
(Wei,2013). The international trade reforms included export and import policies and reform
in the country with rest of the world. China trade agreement with other countries was
developed to protect the profits of firms that are involved in exports or international trade.
Further, this reform included the agreements that focused on the exchange of China coastal
cities more frequently and closely.
The contribution of China in export at the global level is high and the main trading partner of
China is the US. The total trade volume of the country export is more after reforms of 1978.

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In 1978, the total amount that was contributed by China in international trade was $20.6
billion that was only 1 percent of GDP and ranked 32th in world trade (Lardy,1993). But
foreign direct investment and open-door policy leads to development and growth of export
sector in China and contributed more to development of China from two decades (Wang
et.al,2016).
Role of government
China’s political situation also plays an important role in the development of the country.
Unique political structure of the country always plays a leading role to the country. Political
system of China is required for economic development (Brandt and Rawski,2008). The basic
requirements of any economy that help in growth and development are legal system and
political system. The government of China changed policies, implemented some reforms that
leads to adoption of market economy from planned economy. The concept of market
economy that was implemented by the government led to huge changes in the economy of
China. Further, this market economy idea of government impacted people, society and
culture of China. These changes related to cultural, social and economic aspects affect the
political stability of China (Brandt and Rawski,2008).
The government of country is the one who implemented policies and reforms and done
planning for development and growth of the economy and changes in the political
environment direct impact on industries and country’s growth. In case of China, government
interference earlier was hight but after privatization policies in 1978, the government control
on many6 sector shifted to private enterprises. But still the role of government in the
development or system is more than expected. All the development policies are dependent
on the stability of the government in the country (Lippit,2018).
Sources of China Development
The sources that leads to development in economy of China are identified by understanding
the policies and reforms that implemented by the government of China in the country. It is
identified that mainly exports of the country contributed in the development of China as it
accounted for 14 % to GDP of the country. Economic growth of China since 1978 dependent
on the following sources that are; 1. Surplus potential output ( contribution : 12.65%), 2.
Tangible capital growth and inputs of labours (contribution: 55.71% and 9.67%), 3.
Technological advancement or progress (contribution: 7.97%), 4. The impact of economies of
scale (contribution: 13.99%) (Brandt and Rawski,2008).

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It is analysed that the development of China attributed to the growth of tangible capital,
tangible labour and tangible output. The growth or success experienced by China measures
through high foreign investment rate in the country, high national savings rate, hight
employment rate and surplus labour. The sources that are stated above led to this
development in the country and that factors contributed in different proportions in the
development of China economy. From the view point of several economists it is also known
that productivity or efficiency is another factor that contributed in the development of the
economy ( Wei,2013). The efficiency in operations or productivity improvement mainly
cause from proper allocation of resources mainly in segments such as trade, agriculture and
services. However, technological progress in China was also a factor that led to efficiency in
productivity as more use of capital-intensive techniques resultant in more production and
output that contributed more to GDP.
Figure 6: Decrease in domestic consumption pattern of China
Source: (Garnaut et.al,2016)
Hence, the sources of growth and development of China involves huge role of government in
the changing reforms and policy implementation in the country. The sources of development
may change over the course of time as per the political and legal system of China. So, the
main source of development is export of goods to the rest of world and labour output.
Conclusion
It is concluded from the essay that the development model adopted by China resultant in
tremendous growth of the economy. Before 1978, the economy of China grew at the rate of

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2.5% and now the GDP of the country is approximately 9% and in that 14% contribution is of
exports of China to rest of the world. This indicate that the economic reforms adopted and
policies implemented by the government of China prove to be beneficial for the country and
also proved as a better development model. Further, it is also concluded that agricultural
reforms that were implemented by the country does not contribute more to the development
of the country and this segment even affected negatively. In a nutshell, the sources that
contributed to the development of China between 1978 to 2011 are tangible outputs,
technology, exports, labour market and investments.
From the analysis it is identified and concluded that after various criticism of development
model adopted by China, the benefits are more to the society, to the people and to the world.
Hence, the development model that included three pillars that were privatization, open door
policy and agricultural reforms. All these reforms and policies related to these pillars
contributed in the development of Chinese economy and due to that China becomes the
largest exporter in the world and second largest country in term of GDP contribution at the
global level.

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