China’s Economic Turn Around


China’sEconomic Turn Around

Introductionto Chinese Economic Policy

Chinais one of the economies with great influence in the global market.The country has had mixed fortunes in pursuit of economic growth andstability. Over the past few decades, the Chinese government has beenin the forefront in matters of developing competitive and sustainableeconomic policy (Naughton,1996).The journey to economic stability started in the early 1950’s whenthe country developed five phases of economic revolution. Thegovernment of China targeted key areas of the economy that respond tothe needs of local growth. Implementation of these five short-termeconomic plans aimed at creating internal stability and globalcompetitiveness.

Duringthe first five years, the state concentrated on rapid industrialdevelopment where the government invested heavily in establishingindustries across China. The second phase of economic plan dealt withthe agricultural sector with emphasis on enhancing production throughgreat leap forward policy. Cultural Revolution was the third stage ofeconomic development in China when the government aimed at creatingjob opportunities to the vast unemployed population. In late 1970’s,Chinese government embarked on rural economic reforms with an aim ofincreasing agricultural profitability. The last phase was urbaneconomic reforms which emphasized on integrating China with theglobal economy by participating in international economic activities(Heilmann,2008).Through all these stages, China has become an economic pillar ininternational market. This paper outlines five short-term economicplans that acted as China’s economic turnaround.

RapidIndustrial Development

Thefirst five year plan happened between 1953 and 1957 when thegovernment engaged its resources in industrial development.Industrial sector received a larger percentage of governmentinvestment. Rapid establishment of new industries and expansion ofexisting plants took place with an aim of increasing productioncapacity as well as utilizing available materials within the country.The government also anticipated that industrial sector would help theeconomy grow by creating employment opportunities, influencing urbandevelopment, and generating revenue for the government. In otherwords, the growth of industrial sector would become a pillar ofdevelopment in other sectors of the economy. Note that the demand forindustrial goods at that time was high both in local and globalmarket. Naughton,(1996) argues that Chinaintended to take advantage of the increasing demand for industrialproducts to benefit the entire economy.

Thegovernment identified various areas in the industrial sector thatrequired its support. These areas included establishment ofsteelworks plants, chemical industries, building materialsmanufacturing plants, and electrical and electronics manufacturing.These areas received a special allocation of the state’s resourceswith an aim of boosting production capacity and efficiency. Themarket for electrical and electronic goods was high in variousmarkets across the world. The relevance of infrastructuraldevelopment facilitated the allocation of huge capital to buildingmaterials’ manufacturing plants. From building materials, thecountry would develop infrastructure, hence support urban developmentas well as connecting rural areas to urban centers. The Chinesegovernment identified this as a key area that calls for seriousconsideration especially in capital allocation.

Industrialdevelopment calls for capital intensive plants where the governmentwould allocate a larger portion of public funds. The stateanticipated that these industrial plants would generate sufficientrevenue for other sectors of the economy. Besides, there wereexpectations that the plants would become reliable sources ofemployment for younger and energetic generation. By injectingfinancial and technical resources to industrial plants, it would bepossible to enhance production, which would later demand moreemployees to maintain output level. In such situation, the entireeconomy grows due to sustained production of highly demandedindustrial products. The government therefore provided first priorityto the development of these plants for the future benefit of theentire economy.

Torealize realistic and sustainable industrial development, Chinaestablished friendly ties with the Soviet Union. The friendlyrelations saw China forming a reliable partnership with Soviet toinitiate this development policy. The soviet government suppliedChina with technical expertise and financial resources in the form ofgrants (Heilmann,2008).Due to this assistance, China was able to build industries across thecountry. Note that Soviets had people with technical skills inindustrialization hence helped China initiate the program for fiveyears consecutively. It is through this assistance that Chinadeveloped steel industries and sophisticated manufacturing plants.Soviets also transferred technical knowledge to China on electricaland electronic goods. Chinese workers benefitted since they couldlearn various vital skills from the Soviets. Consequently, Brandt,&amp Rawski, (2008) observes that Chinawas able to get ahead of other Asian economies in the industrialsector.

AgriculturalSector Revolution

Afterdeveloping industries and equipping them with skilled and non-skilledworkers, China embarked on developing agriculture for the purpose ofcreating food security. The government realized that it could notachieve meaningful development in industrial sector withoutsufficient food in the economy. To realize this end, the governmentformulated great-leap-forward policy which recommended the formationof various communes. The policy also abolished private plots in favorof community farming. The community would cultivate large track ofland to enhance production as opposed to having many small pieces ofland. The aim of communes was to increase land output, hence providethe economy with sufficient food. The agriculture targeted localmarket, which was enough to make it profitable. Greater cooperationbetween China and Soviet and increased physical efforts for localcommunities were pillars that would contribute to success of thisparticular policy.

Aftersuccessful implementation of the policy, the government did notrealize positive results. At this time, the government heavily reliedon local communities to initiate a backyard production drive aimingat realizing the desired impact. Instead of achieving a profitableend, the government got high quantities of farm produce at expensiveinput, hence failing to meet the commercial threshold. In addition,large production was of a low standard, hence could not sell atdesired prices. At the end of 1960, the government of Chinaexperienced the first economic crisis. Withdrawal of soviet financialand technical assistance was the major factor that contributed tothese unfortunate results. The situation forced the government tomake quick deliberations and develop a policy to counter the event.

Inresponse to the unfortunate outcome, the government went back to thedrawing board with an aim of salvaging the economy from collapsing(Heilmann,2008).It decided to restore private land system where previous owners werefree to own land as an individual. The government also reduces thesizes of communes in order to boost cooperation and easy response tounfortunate events. In addition, the production communities gotindependence where the government could not dictate what they woulddo later. Such independence liberalized the agricultural sector andfacilitated innovation and creativity, hence boosting productioncapacity. To boost productivity, the government initiated a programthat saw unemployed industrial workers relocated to rural areas. Thismass transfer ensured that the lands had enough workers to carry outthe activity. There was also a drastic reduction of the industrialbudget to support agricultural activities in China.

Theabove changes had various outcomes that facilitated turnabout offarming activities and the entire economy. The new policy respondedimmediately where agriculture becomes affordable and productiveactivity. Rural population started producing wide varieties ofagricultural products. The production was sufficient for the wholepopulation and farmers experienced low input cost compared to theprevious system. Farmers’ independence also facilitated creativitywhere they would use local knowledge to respond to local challenges(Breznitz,&amp Murphree, 2011).Farmers applied their preferred farm inputs to control expenses aswere the previous case. The government only provided financialsupport and guidance, but left farmers to make other vital decisionsthat suit their activities hence encouraging hard work andproductivity. By the end of 1963, the government could redirect asignificant percentage of resources from agricultural activities toindustrialization. The agriculture turned to be the profitable sectorto the extent of supporting the industrial sector in terms offinancial capital.

Itis important to note that all these changes happened within threeyears. The first two years of the second phase of economicdevelopment experienced hindrances and challenges. The country wasalmost drifting back to the initial economic status. The last threeyears made the difference by delivering the expected results evenwithout technical support from foreign partners. By the end of 1963,industrial and agricultural sector contributed a greater percentageof the Chinese economy. There were signs of consistent improvement interms of quantity production (Naughton,2007).A government initiative to support agriculture through fundsinvestment in various activities accounted for the largest percentageof success. The government also opted to relinquish control overagricultural activities and facilitated farmers’ independence. Suchaspect was a key step towards revitalizing the sector and turning itto revenue generating activity.


In1966 after successful implementation of agricultural reforms, thegovernment of China decided to bring drastic changes to the economy.Cultural Revolution is a product of government policy to createemployment opportunities to the vast unemployed population. Thepolicy saw most industries and agricultural farms employing a highernumber of workers that required capacity. Managers had no authorityto discipline an employee by firing him or her once she enters thepayroll. Although the policy had good intentions, there were drasticchanges in most firms since workers could not respect their bosses.Managers and plant supervisors had no mandate to fireunder-performing workers and the situation created extensive laxityand hindered the hard work among industry and farm workers.

ThroughCultural Revolution policy, the government employed a high percentageof productive population in industries and farms. Although theinitiative never hindered output production growth, it had a negativeeffect on individual productivity. Output continued to grow, butcapital to output ratio declined drastically (Breznitz,&amp Murphree, 2011).An industry could spend a huge amount of revenue on salaries whilethe number of employees never added any advantage to the plant.Farming companies faced the similar challenge as well. The entireeconomy experienced unmanageable wage bill in the name of dealingwith unemployment issue in the country. However, the better aspect ofthe policy is that large number of productive young people wereengaged in meaningful activity. The policy brought about the elementof fair distribution of national resources through employment.

Despiteof creating massive employment opportunities, the Cultural Revolutionhad various negative effects on already flourishing economy. Therewas ever increasing strife between managements and high number ofworkers. Most workers could disrespect their managers since there wassurety of retaining the job regardless of individual productivity.The element of confusion was evident since one manager had anenormous mandate of controlling huge numbers of employees. In otherwords, number of employees exceeded management capacity to controland direct them (Naughton,2007).Consequently, the revolution affected the productivity of managersand lowered their morale. The government also eliminated incentivesthat encouraged workers to put more efforts. Instead, the managementused, the amount to pay the extra workers. Salaries also reducedsince maintaining large number of employees required extra resources.

RuralEconomic Reforms

Afterimplementing Cultural Revolution, Chinese government embarked on themission of reforming the rural economy. Note that the biggestpercentage of rural population consisted of farming communities. In1979, the government formulated a policy to facilitate reforms thatwould unlock rural potential and bring commercial viability ofagricultural activities (Huang,2008).Before this period, agriculture in China was vibrant in terms of massproduction of raw materials and food for the entire economy. However,there was great disparity between urban industrialization and ruralagriculture. The former generated high revenue since it wascommercially viable and attractive. Agriculture subjected farmingcommunities to poverty despite of engaging in active activitythroughout the year. Rural economic reform aimed at ending povertyand facilitating profitability of agricultural activities.

Throughrural economic reforms,Huang (2008) observes that pricesof agricultural products increased, hence encouraging farmers tocontinue producing food for the country. Lands that were in the handsof communities were contracted to private families. Privatization ofcommunity lands enhances productivity since the individual farmercould make better use of it compared to collective farming. Thegovernment lifted ban on selling farm products to free markets, henceallowing them to get good returns (Brandt,&amp Rawski, 2008).Farmers had the freedom to take goods to competitive markets and getthe most appropriate bargain. Lifting of the ban also allowed farmersto export the products to the market that can offer better prices.Such freedom liberalized agriculture and expanded its revenue base,hence empowering local farmers and making them competitive in termsof production capacity and quality farm products.

Before1979, the government restricted leasing to short-term period whichcould not give farmers adequate time to get the return on investment.To make leasing exercise more profitable and attractive, thegovernment encouraged farmers to engage in long term leasingcontracts of up to twenty years. Such a long period enables farmersto make use of land and develop it during the initial years expectingreturns in the future (Naughton,2007).The farmers would be in a position to make better use of the land andutilize it in a commercial way, unlike there before when they couldonly till the land for five years. Longer contracts also encouragedinput from farmers since they have adequate time with the land. Suchaspect makes leasing a viable option to farmers who do not own landor those who can manage a large track of land. In addition, thepolicy on rural economic reform legalized sub-leasing of smallparcels of land to third parties.

Ruraleconomic reforms benefitted larger percentage of the population.Agriculture became a competitive and attractive economic activity andkey contributor to economic growth. The high number of unemployedpeople in urban areas shifted to rural areas to take advantage of thereforms. In addition, those who cultivated large track of land couldemploy people and manage to pay them just like industries. Due tothese reforms, China started exporting agricultural products to othercountries after having sufficient for local consumption. Rural areasheld a considerable amount of capital to invest in other areas, hencefarmers became wealthy just like industrialists. According to Brandt,&amp Rawski, (2008), thegovernment used the strategy to decongest the cities and encouragefood production to compliment industrialization.

UrbanEconomic Reforms

By1980’s, China had emerged as the significant giant in Asia andupcoming global competitor. Industrialization flourished under thenew policies and consistent improvement of governing systems. Afterhaving a developed agriculture and productive industries, thegovernment saw the need to integrate China with the rest of theworld. The main purpose of urban economic reform therefore was tointroduce china in global market through international integration(Breznitz,&amp Murphree, 2011).During this period, China became an active player in the World TradeOrganization and started competing with other strong economies suchas the USA and United Kingdom. It started expanding its market forindustrial products such as heavy machinery, steel, and chemicalsamong others.

Duringthis period, firms started assuming responsibility over their ownprofits and losses. The government demanded accountability from themanagements of various enterprises operating in China. This periodmarked the beginning of competitive service delivery and adherence tothe highest ethical standards by companies. The bigger percentage ofcommercial firms reported huge profits since the country had vastpopulation that provided the market for goods and services. Anotheraspect that these reforms brought about is privatization of statefirms (Naughton,2007).Some companies that were owned by the state changed hands andtransferred to individuals. The government concentrated ininternational matters such as market for China’s products and theformation of trade agreements. The transition facilitated emergenceof middle-class in China who owned companies and engaged inmulti-million businesses with foreign firms.

Therewas also a revolution in industrialization where the focus shiftedfrom manufacturing of machines for high-technology industries. Thereforms also facilitated emergence of light industries in China. Hightechnology attracted innovators and skilled personnel with technicalknowhow concerning technology issues. The development brought the useof sophisticated technology which was efficient and effective thanformer machines (Naughton,2007).Production capacity increased drastically while reducing productionand operational cost, hence making China more competitive in theglobal market. Light industries attracted semi-skilled and innovativeinvestors with a wide variety of skills and special abilities.Currently, light industries employ over fifty percent of the workingpopulation in China and accounts for a significant percent of totalexports.

Urbanreforms encouraged specialization and division of labor in industriesand also in the government. The management placed employees on thejob that suits individual training, thus facilitating efficiency andeffectiveness. The government also encouraged competition betweenprivate firms and government corporations to enhance servicedelivery. The system encouraged the use of incentives to rewardpersonal efforts in companies. These reforms ushered in the era ofhard work and creativity (Brandt,&amp Rawski, 2008).It also encouraged use of high-tech mechanisms in production in orderto reduce costs and increase output capacity. Urban economic reformscontribute significantly towards developing China into its currentstatus in the global arena.


Consistenteconomic reforms play a great role in enhancing competitiveness andresilience in China. Formulation of short-term strategies andpolicies has seen China rising consistently from developing economiesinto a global giant. Over the past five decades, no one could imagineChina would occupy its current position in economic map. Thegovernment of China demonstrated its commitment in transformingChina’s economy and building a sustainable platform for Chinesepopulation to develop along with the economy. Using five yeareconomic plans, China adopted progressive process where thegovernment identified key areas that would boost its economy. At thattime, government control became a necessary practice to ensure fullimplementation of policies thus enhancing realization of goals. Thegovernment started by owning properties and taking full control ofthe resources where funding areas of its priority became easier. Thiselement of control was one of the factors that led to China’seconomic turnaround.

Inconclusion, China’s economic history presents a resilient communityand committed government in meeting the needs of the population.Utilization of local resources has been the key factor in China’sprogress to its current status. The government provides an openplatform for its people to compete and contribute towards economicdevelopment. Currently, the government provides guidance to localindustrialists and other traders while looking for opportunities inexternal markets. Through such a vigorous process, China has becomean economic powerhouse with significant global influence.


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