The 1979 paradigm shift in China’s economic ideologies brought in its wake a cascade of economic growths that launched the country out of its difficult past into the league of the world economic powers. Though the economic potentials of the 1.3 billion-population nation had been identified all along, yet these were not fully harnessed until that year when the reformist leader, Deng Xiaoping, orchestrated the reforms targeted at liberalizing the erstwhile conservative system of economy. The ensuing effect of Deng Xiaoping’s bold stride was that China whose economy as at 1978 ranked as the tenth largest in the world leapt straight to number four position in 1995, behind the USA, Japan and Germany in that order.
And with a steady annual economic growth averaging 9% and even spiking to 13% in several peak years, it came as little surprise that China would eventually displace Japan in 2010, thus enacting itself as the second biggest economy in the world. Judging from China’s unprecedented steady rise within the last thirty years, it also becomes inevitable not to entertain the possibility of China overtaking the US, the current economic power since 1900. This projection is even further strengthened considering the recent decline in America’s GDP from 3% to 2.2% in the aftermath of the 2007 global economic recession from which the world power could not be said to have fully recovered.
Currently China practices a unique economy system which, while easily defying a clear categorization, one might also likely describe as ‘quasi-socialist’ – an unorthodox mix which integrates socialist, capitalist, and communist ideas. While China’s economy has been largely decentralized since 1979 paving way for rural enterprises and private businesses, and opening up to foreign investors willing to ride on the strength of China’s robust workforce and relatively cheap labour couple with relaxation of state control over prices, yet China does not fully abide by all the tenets of either capitalism or communism system of economy. Rather, far too many cornerstone ideas inherent within either of the economic systems are simply ignored.
The economic growth seen in China today is built on the framework of a shift from being largely an agrarian economy to being an industrial one, a position which has been strengthened by conscientious government investment in the education of its workforce, and the government’s grip of financial institutions which are compelled to provide financial back-up for the Chinese industries i.e. the Industrial and Commercial Bank of China and China Construction Bank. The reward of this is the apparent boost in China’s exports base that has in turn continued to fuel the productivity and growth of the domestic industries.
Strategic to China’s rise is also the factor of foreign investment. As at 1979, there were only 100 foreign-owned enterprises in China but by 2010, this figure had grown to 300,000, the attraction for such influx being China’s fast rate of return on invested capital which easily outstrips that of most developed nations. This is indeed explainable considering the growing size of the Chinese middle class citizenry and the increasing disposable income at their disposal. Aside this, the right mix of cheap labour, stable prices and the stable political landscape of China also holds a good appeal for foreign investors who are naturally scouting for security on their investment.
The burgeoning foreign investment base in China continues to build factories, create jobs, link China to international markets and lead to important transfers of technology into China, all of which are having a direct positive bearing on the country’s gallant GDP.
The ranking released by Forbes magazine this year is quite significant for China whose four banks were placed among the 25 biggest and most profitable companies in the world. In fact, the Industrial and Commercial Bank of China (ICBC) which ranks fifth on that list was also declared as the world’s most profitable lender, yet the operations of ICBC have been largely confined to its China home-front.
With just a cursory look, the impression one gets is that with 136 Chinese companies represented on the Forbes’ list, China is still a no match for the duo of Japan and the US with 258 and 524 companies represented respectively. However, tracking back on Forbes’ annual ranking, it would be discovered that since 2004, the numerical presence of China on the list has been on an increasing trend while the reverse is the case for the duo of Japan and US which are annually losing places to emerging companies. The inference from this is that it is only a matter of time before China’s aim of becoming the ruling economy is achieved if only this trend would be maintained.
In the current economic year, the hope of the world economy is vested in China to uphold the global GDP size, while the economic giants of the world are still grappling with the vestiges of the last economic recession and the fear of an impending one. It has been categorically affirmed that Europe is headed for a recession this year; how far the sinking will go is the only thing that remains unknown. The forecast is equally suggestive that the US will either be pulled along the fate of Europe or it would just continue to hang on its present slow growth. In the face of this economic imbroglio, the buoyancy of global economy is pivoted on the activities of China’s economy.
This assertion is based on a number of facts, the least of which by no means is the structural position that China occupies in the changing pattern of the world economy. The current picture is that 78% of the world growth is generated from imports to the developing economies and with China’s new poise, the country is well ahead of competitions in playing the role of major exporter. This trade situation is directly linked to the new technological position China occupies in the world economy. This capacity of China to export across a wider range of the technology spectrum than any other country creates its increasingly key position in world trade this economic year.
China is no doubt an impressive example of a nation which has taken advantage of its large population at a time when the world believes that large population is a disadvantage, but for China to leap ahead of the US as many economist have predicted, the country would need to increase its per capital income to more than one-fourth of the US’s. How long that would take to happen experts have pegged at between 2020 and 2050. Presently the population of China is four times larger than that of the US, and its per capital income, when compared to that of the world economic giant, is still one-eleventh. The truth is that in spite of the impressive economic growth outlook, the standard of living of Chinese citizens still ranks hundredth in the world. In 2010, following the declaration of China as the second largest world economy, Chinese citizens came out with strong rebuffs while critics lamented the massive rural poverty, wide social disparities and meager level of investment in education, medical care and social security.
Nevertheless, the estimation that the global economic base is shifting to China is not at all wistful or spurious. There are well substantiated indicators that this will sooner than later happen. But whether or not China’s economy would catch up with that of the US also depends on the further sustenance of the economic principles adopted some thirty-one years ago, couple with China’s ability to tackle emerging challenges.