The Growth of China


China is an example of a NIC economy that has grown strongly.

  1.       During WW2 it was invaded by the Japanese who left it a weak and divided economy. It became a communist state and developed a centralised economic system, with the government having control of how much of each good and service was produced and how much each citizen could buy.
  2.       The government collectivised agriculture and the state started to invest in heavy industry.
  3.       However, a serious famine in the late 1950s was followed by a period of political upheaval in the 1960s known as the ‘cultural revolution’.
  4.       In 1978, a series of economic reforms were introduced by Chairman Xiaoping. In agriculture private farmers competed against state owned farms. They were incentivised to make a profit and this led to agricultural output doubling in the 1980s.
  5.       In 1990 industry was liberalised and private companies and TNCs were allowed to act in all markets. The government even supported external investment in the economy by creating Special Economic Zones where TNCs were given preferential treatment for tax rates.
  6.       Chinese growth has grown at trend rates about 10% since the early 1990s with the peak of over 14% occurring in the mid 1990s and mid 2000s.  Many TNCs have targeted China for its cheap labour which is good for labour intensive production and their less stringent environmental legislation which allow firms to pollute the environment without costly environmental pollution permits like those found in the EU.
  7.       In 2001 China joined the WTO, pledging to reduce it’s tariffs and quotas in order to allow greater free trade between it and other members. It has capitalised on its factor endowments and comparative advantage theory to produce cheap electronics for the rest of the world. For instance Foxconn producing iPhone and other Apple products.
  8.       Today some heavy industries and products on strategic performance remain state owned, however a wider selection of consumer orientated and lighter industries being privately owned.
  9.       Currently growth rate is around 6.5% this fall in growth has been due to the rise of other economies who capitalise on having lower labour costs and less intensive environmental legislation than China. As a result, China has been investing heavily in increasing the size of its tourism industry. China held the Beijing Olympics in 2008 which, along with it reducing legislation that restricted foreign companies owning hotels has allowed the tourism sector to thrive.

80% of China’s energy supply has come from fossil fuels, the supply is rising rapidly however it’s failing to meet demand.

The Chinese government has heavily subsidised steel to promote industrialisation which has led to production tripling between 2000 and 2006. This has led to oversupply and steel dumping on external markets.China has also played a key role in the petrochemical industry.