Forty years ago, after a long period of economic stagnation, China was not in the world’s top eight economies. Today, thanks to a breathtaking social and economic transformation that began in the late 1970s, China is on track to overtake the United States as the world’s number one economy within a few decades, if not sooner. By some measures, it has already done so. We are living in what many are now calling ‘The Chinese Century’.
China has what economists call a socialist market economy – one in which a dominant state-owned enterprises sector exists in parallel with market capitalism and private ownership. It was the active encouragement of private enterprise from 1978 that enabled China to kick-start the long expansionary boom that continues today. Private businesses now produce more than half of China’s GDP and most of its exports. They also create most new jobs.
China’s economy is the second-largest in the world, behind only the United States. But after three decades of spectacular growth, China is now moving into a slower growth phase – an inevitable result of its transition from a developing economy to a more mature, developed economy.
Under the socialist-market model, the Chinese Government plays a direct role in managing the economy through its five-year plans that set goals, strategies and targets. The five-year plans in the 1980s and 1990s focused on market-oriented reforms, while the past two five-year plans have focused on promoting more balanced growth, better wealth distribution and improved environmental protection.
But it was only after 1978 – when Deng Xiaoping began market-based reforms –that growth began to take off, averaging 10 per cent annually for some 30 years. During that period, the size of the Chinese economy grew by roughly 48 times, from USD 168.367 billion (current prices) in 1981 to USD 11.01 trillion in 2015.
The perception of China since the 1980s as a predominantly low-cost manufacturing hub, where it effectively served as an inexpensive producer for global brands, is changing as the economy grows. Increasing labour costs and an ageing workforce have caused manufacturers’ pro t margins to decline steadily.
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