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The paper traces the evolution of the Chinese economic system in relation to the institutional changes that ushered in the transition. Democratic reforms are thought to be a precursor to economic prosperity. Economic and political changes implemented by the Chinese government have resulted in enormous economic development. While it started several decades ago, the consequences are still being felt today, and many regard it as the best decision ever taken by the Chinese government. Political changes have been seen as the foundation of economic reforms, creating a clear path to ensuring free trade within the Chinese economy. Without the call for political reforms by the opposition parties as well as the leaders, the economic reforms may have taken longer before being experience. The political reform called for the state to free its powers to let the market forces to operate. The implementers of the policies are surely to be thanked for the drastic transformation of the Chinese economy. the economic has grown into a world class beating all the potential economic power houses that experienced free economic operations long ago.
The Chinese economic reform is estimated to have begun in 1979 or thereabout and has since caused tremendous economic success. With only three decades since the inception of the reforms, the real GDP of the nation has been estimated at 10 percent annual growth. The World Bank records suggest that approximately 679 million of the Chinese have since been lifted in poverty particularly between 19 81 and 2010. The reforms have subsequently led to the China’s economic power with the highest purchasing power across the globe. Could there be any political explanation as to increased dominance of china within global phenomenon? To answer the question, it is critical to understand the Chinese economy before reforms. Prior to 1979, China’s economy was centrally planned ad this interfered with the free distribution of factors of production. The economic output was largely commanded by the state and thus implied that production goals were set by the government. The prices of factor input as well output was determined by the state. The allocation of resources then was the decision of the state ad this could only restrict the free operation of market forces of demand and supply. The state had collectivised individual household farms thus creating large communes in 1950s. The government again during this period 1960s-1970s invested in large scale o both human capital and physical capital and this ensured that three-quarters of the industrial production was under the state control by 1978. The foreign investment and private enterprises were not legalized to operate. The policy during this stage was to ensure self sufficiency with only importation of products that China could not make or obtain. The allocation of resources during this period was inefficient due to absence of market mechanisms. There was no incentive for farmers, firms and workers to improve their productivity and quality because the targets were set by the government.
Why then experience the tremendous economic growth during the reform period and not the pre-reform? Could this be due to favorable political temperature and government relaxation on the economic operations? Both economic reforms and the political reforms variables in this case appear to interact with each other and are viewed as necessary to each other. One thing is however clear that, the moment the government ceased to control the economy through appropriate policies and legislations, the economic growth began to emanate in China. At the same time, the call for economic reforms could have led to the creation of the favorable government policies within the country. In that connection therefore, to some extent, the China’s economic reform has been accompanied by political reform and vice versa.
To effectively handle the paper, it is critical to rely on a few research questions to guide the findings and these include:
What are the drivers of Chinese economic reforms since 1979?
How has political reform contributed to economic growth since 1979?
What are the implications of economic reforms since 1979?
Aims of the Research
The research questions above have been reiterated by use of the research aims to help understand the topic of the study. The aims thus include:
The aim of the paper is to outline the drivers to the Chinese economic reforms since 1979
To assess the political reforms’ contribution to the economic growth since
To ascertain the implications of economic reforms since 1979 to the economy of China
Critical Analysis of Past Research
The Drivers of Economic Reforms
The economic reforms were spearheaded by the desire to lift China’s global performance from the previously miserable performance witnessed across the global rank. During the third Plenum of the National Party, the political leaders in 1978 opted to embark on a program that would ensure gradual reforms within the economy. The leaders opposed the centrally controlled economy that had been advocated for by Mao. To them, the type of economy had failed to efficiently allocate the resources to ensure progressive growth. The system was particularly blamed for the drop in global rank that saw China rank below newly industrial powers as well as the developed nations such as Singapore, Taiwan, Japan, Hong Kong and the Republic of Korea.
Because of this economic embarrassment, the need for economic reforms was called for. So then, it is critical to understand that the reforms were not based on the economic situation within the country but rather a desire to protect the ego and image of China as one of the best performing nations. The reforms undertaken were not implemented to eliminate communism but rather make it perform better than before. The efficiency of the market thus became the central concern for China and it is in that connection that reforms were aimed at reducing government interference in the operation of the economy. The problems experienced by China during the period however may be deemed as normal and a precursor to development. Critical review of the most industrialized or developed nations reveal that all was not smooth throughout the quest for economic growth. In that connection therefore, it would not be in order to attribute the failure and subsequent low economic growth to the controlled government then. The question therefore that lingers in the mind is why then would the economic growth be coincidental with the reforms period. The economic growth is seen as a result of political and social reactions to the changes that a country experiences when it strives to maturity. The institutional changes are viewed as a method that a country adopts to cope up with problems. The Chinese economic stability thus is attributed to the institutional adjustment within the society that was aimed at solving the problems of hunger, and poverty in general that was experienced prior to the reforms.
The pressure from developed countries such as US is believed to have contributed towards the structural reforms. This pressure was in addition mounted by the stronger opposition party to open up the market for foreign and private enterprises. The restriction was blamed largely for the inability of the economy to operate freely. Absence of foreign investors reduced earnings through taxation and on the subsidies thus leading to slow economic growth. When a country applies restrictive policies such as the one that the Chinese government employed, it is possible to experience retaliatory from the external world thus leading to unfavorable terms of trade. To some extent therefore, it is in order to attribute the causes of the reform to the political factors as well as international pressure.
The Economic Reforms
The reforms were not just hearsay but rather actions that were implemented and have been attributed to the success of the Chinese economic prowess. The first reform that the central government implemented involved incentives that were offered to the farmers. The farmers were allowed to own land as well free to sell their produce in a free economy. This type of structural change indeed is critical for the success of any economy. When people are free to conduct business on their own terms, it becomes easy and efficient way to allocate resource in the production thus improving productivity. The second reform was the establishment of special economic zones along the coastal line. In an attempt to improve the economic prosperity, the government opted for four such zones that were aimed at attracting the foreign investment. The zones helped in boosting both imports and exports as they were used for clearing in and out of the country. The decentralization of economic policy making is yet another reform that has been attributed towards the success of the nation. The policies were specifically touching on trade and the ownership of enterprises that were transferred to provincial and local government. These enterprises were allowed to operate freely without the and direct control from state.
During this period, citizens were equally allowed to start up business. The citizens were encouraged to take advantage of the coastal regions that were regarded as development zones and open citizens. The coastal zones offered tax concessions and trade incentives and citizens could easily experiment and for foreign investment. The price control was eliminated gradually to ensure free market economy. Of important was trade liberalization that provided for the opening of the Chinese market to the international market. Trade barriers were eliminated this allowed for foreign trade investment. Competition was evidenced and this ensured sustained economic growth. It should be noted that even as these reforms were experienced, they never occurred at once but were rather gradual and they alternated with political reforms. It is thus possible to state that certain economic reforms may have pushed the country to creating political reforms that were necessary for the continued economic growth and development.
The transformation of the “Congress of the Communist Party of China” (CPC) is critical in understanding the political reforms. After 1978, the CPC transformed its ideology from revolutionary concerned to pragmatic competence. It did this through change of slogan that was aimed at transforming China. This allowed it to involve in the East Asian developments. In 2000, it came up with proposals to include three main aspect of Chinese development to include advanced culture, productive forces and fundamental interest. These transformations opened up China for both domestic and international. The interactions between the political reforms have been evidenced and more importantly, Chinese economic growth could only have been possible by eradicating the strenuous government interference with the free operations of the economy. Without the elimination of political reforms, the economic reforms would have been difficult and perhaps unachievable. It was necessary thus to politically create reforms so as to pave way for the economic reforms which subsequently created a higher economic growth.
Impact of Economic Reforms
The reforms created a good economic environment for both domestic and international businesses. People were and are able to do business freely without adverse government interference. The factors of production are efficiently distributed and this is critical for the development of the economy. Increased trade activities with countries such as USA have made China to be one of the most successful countries today. The level of export and imports has increased thus leading to accessibility of products. The restriction is no longer experienced and the government involvement in terms of control has reduced. Many businesses have since been established and are free to operate without the interference.
The economic reforms as well as the political reforms in the Chinese government have led to tremendous economic growth. Although it began many decades ago, the effects are still being felt and many can acknowledge it as the right decision ever to have been made by the Chinese government. The political reforms have been viewed as the backbone of the economic reforms and thus created a direct way to ensure free economy within the Chinese economy. Without the call for political reforms by the opposition parties as well as the leaders, the economic reforms may have taken longer before being experience. The political reform called for the state to free its powers to let the market forces to operate.
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