Comparative Analysis: China's Economy vs British Industrial Revolution

Executive Summary:

China’s economic growth since 1979 economic reforms is highly appreciable as it was a poverty-stricken and under-developed nation pre-1979. Researchers have been arguing about the factors that contributed to the economic growth of China in the past forty years and the following paper aims to highlight crucial contributing factors. Secondary data from journals, magazines, newspapers, and online resources have been used.

The analysis indicated that China adopted western style economic policies of liberalization and free market reforms but focused on structural change alongside and shifted from an agrarian society to an industrial society. It reduced food shortages via strengthening the agriculture sector and enhanced employment opportunities to bring people out of the poverty trap from 1979 to 1988. The growth from 1988 to 1998 is categorized as labor intensive and 1998 onwards as capital intensive. It adopted privatization and liberalization strategies to improve technology, innovation, and competition which led to dramatic economic growth.

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However, continuous growth has adversely affected the environment, pollution, and natural resources. Moreover, western-style policies enhanced corruption, fraud, and crime rate so there is a need to regulate the environment and curb pollution along with devising strategies to control corruption and crime to ensure long-term sustainable economic growth.

Contents

1. Executive Summary: 2
2. Introduction: 4
3. Analysis: 4
4. Conclusion: 9
5. References: 11

Introduction:

China’s industrial revolution startled economists as within 40 years, an agrarian nation with a nearly 1.4 billion population transformed into an industrial powerhouse when many nations with favorable economic conditions failed to do so. Before economic reforms and trade liberalization in 1980, China’s economic policies kept the nation poor, inefficient and centrally controlled which adversely affected its economic growth. Free market reforms were initiated in 1979 to open trade and investment which led to China’s remarkable growth and real annual GDP growth average of 9.5% in 2017. World Bank described its growth rate pace as the fastest and most sustained expansion of an economy. China has developed the ability to double its growth rate every eight years and improve the lives of nearly 800 million people living below the poverty line. It has become the world’s largest economy, trading center, and manufacturer and remained unaffected by the Global Financial Crises 2008-09 (Morrison, 2018).

Hirst (2015) discussed that China’s dramatic growth in the past 40 years is the result of opening an economy and embracing globalization. It has undergone a major structural shift from an agrarian society to an industrial society and experienced productivity and wage increases which allowed it to become the second largest economy of the world. The following paper will determine factors that led to China’s growth post-1980 and propose structural and policy changes to sustain and improve economic growth.

Analysis:

Wen (2018) described the conflicting views about China’s growth in the past forty years. The first view sees its enormous growth as a government-engineered bubble that is not sustainable and eventually growth will decline. China lacks democracy, rule of law, freedom of expression, private banking sector, protection of property rights, innovation, and a well-defined legal system based on the western style, in short, it lacks all the western style properties which a nation requires for prosperity so the bubble will burst and China’s growth will reduce. The second view argues that China’s growth is out of luck and destiny. From 200 B.C to 1800, it was one of the richest and most well-established civilizations but at the start of the industrial revolution, its growth and strength in the international arena declined. So, it was in the fate of China to grow and dominate internationally to regain its lost position and heritage. Napoleon's quote is quite famous in this regard “Let China sleep because when it is awake it will shake the whole world once again”.

Huang (2012) also provided two explanations for China’s growth since 1980. The first view glorifies globalization because its economy flourished when Deng Xiaoping adopted liberalization policies and opened the economy for free trade and foreign investments. Its export-oriented growth policies triggered manufacturing and foreign-funded organizations to provide employment opportunities to poor people and reduced poverty and raised the overall standard of living. The second explanation resides on internal reforms in agriculture, land, and rural businesses which led to dramatic growth within the country. Prasad (2009) also discussed that macroeconomic and structural policies contributed to the economic growth of China. Before the growth reforms of 1979, China’s per capita income was one-third of sub-Sahara Africa and the annual average GDP growth rate was 5.3% from 1960 to 1978. However, in 2007, the annual growth rate was 14.2% which declined to 6.9% in 2017 and is expected to fall to 5.8% by 2022. The economy flourished dramatically due to the growth policies but to stabilize economic growth, China has adopted a “new normal” growth policy (The Guardian, 2012 & Morrison, 2018).

China is the largest manufacturer across the globe and produces nearly 50% of industrial goods such as coal, steel, cement, and vehicles. It has developed expertise in manufacturing technological products such as trains, cars, highways mobiles, and computers and provides better and technologically advanced products at cheaper rates. China is the number one manufacturer in terms of output across the globe and followed by the US, Japan, Germany, and South Korea as shown in the table below (West and Lansang, 2018).

Table 1: Countries on manufacturing output, 2015

In 1980, the US was the number one manufacturer across the globe and China was ranked 5th position whereas, by 2015, it replaced the US due to economic growth and structural change policies. China’s growth can be attributed to its industrial growth policies. British Industrial Revolution was among the most renowned socioeconomic events which changed the course of economic development in the United Kingdom and European countries. China’s growth is the result of the fourth attempt of industrialization in the past 120 years and the first three attempts did not fail due to a lack of free market, democracy, and private property rights. China was in the Malthusian poverty trap in 1978 with low per capita income and Deng Xiaoping's economic reforms initiated remarkable growth. It refused to adopt western policies and adopted a gradualist and experimental approach to ensure economic growth. It maintained its political stability, adopted bottom-up reforms in agriculture, and promoted rural industries to provide employment to a massive population. It built infrastructure and ensured private-public ownership rather than complete privatization. Furthermore, to move up the ladder, it promoted heavy industries, capital-intensive production, and consumerism (Bosworth and Collins, 2007).

China’s fourth attempt of industrialization adopted the same policies as the British Industrial Revolution apart form political aspects. China’s industrialization has undergone three phases: from 1978 to 1988, the number of village enterprises increased across the country, especially in rural areas which acted as an engine of growth in the first ten years of reforms. Rural industrial output increased from 14% to 46% of GDP and agriculture employees increased by 100 million till 1988 with an increase in income by 12-fold. Due to the increase in the supply of consumer goods, it solved its food shortage issue and provided people with security about food items. The farmers benefitted from the reform during the first ten years (Huang, 2012). The period 1988 to 1998 can be categorized as the first industrial revolution as labor-intensive products were produced across urban and rural areas of the country but relied on imported machines. The textile industry flourished during this era and it became the largest exporter of textiles. Furthermore, it also became the largest exporter of toys and furniture and an importer of cotton. Rural enterprises flourished during this era and employees contributed to 30% of total rural labor force. Due to the improvement in labor force, village industrial output increased 66-fold since the inception of reforms till 2000. The second industrial revolution is categorized as the period between 1998 till today whereby mass production in the domestic market flourished. The machinery and transportation sector flourished along with increase in consumption of steel, cement, bridges, ships, tunnels, and chemicals. Infrastructure improved remarkably and now 28 out of 30 provinces have high-speed trains (Wen, 2016).

Researchers have argued that China’s growth is the result of consumerism. Marketism enhances competition within an economy and allows businesses to attain a competitive advantage by adopting technology. It is difficult to create a market at the domestic and international levels and prevent fraudulent activities. However, China successfully ensured growth due to its mercantile government despite low democracy and private property rights. It created markets at domestic and international levels to enhance consumerism by nurturing the merchant class and the government played a huge role as mutual trade benefits nations. The market can be created when the state has power and adopt effective developmental and industrial economic policies. It is difficult to create free market as it is costly but the industrial market is key to success as created by China. It shifted from agrarian to industrial market and repeated earlier stages of development to succeed. Rather than adopting western system of growth by building capital-intensive industries, setting up contemporary financial systems, and privatization, China adopted its own bottom-up strategy and structural transformation to grow. Markets were liberalized after 1998 and farmers were given incentives to adopt technology and privatization also flourished which improved the overall productivity and growth of China (Zhu, 2012).

China’s industrialized growth is the result of some strategies of western development but the associated drawbacks such as corruption, crime, pollution, fraud, scams, and environmental degradation cannot be ignored. Low-quality goods are being produced in the country which are difficult to sustain in the economy. Class distinction, income equality, and favoritism are being promoted in the country which will eventually reduce the overall growth of the country. Furthermore, health and education stats must be improved to sustain growth. Industrial development has enhanced carbon emissions and is destroying the ecosystem.

Fang and Xiaojing (2017) discussed that key reforms must be initiated in China to sustain economic growth. It must devise strategies to improve education and provide technical and vocational training to boost employee productivity and enhance innovation. To improve labor productivity, it should explore new areas to allow labor to migrate to urban areas. The structural transformation from an agrarian to an industrial society was the result of mass migration but it needs to find new areas to attract labor. Population growth policies must be relaxed but must be aligned with public services to reduce the burden of upbringing.

Moreover, to reduce pollution and environmental degradation reforms must be established and implemented. Tianjie and Hao (2018) discussed that China is improved its environmental management but hidden pollution still needs o be regulated. 45000 chemicals are being circulated in the Chinese market and only 3000 are regulated. There is a need to devise environmental strategies to control pollution and reduce threats to sustainable growth.

Conclusion:

In compendium, China’s growth trajectory after the 1978 reforms has been remarkable and is not influenced by western style development. It adopted a structural transformation policy to improve its economic growth. It improved its agriculture sector and eventually transformed into an industrial country and now is the largest manufacturer of the world. 1979 economic reforms helped the country to come out of poverty and village enterprises were promoted to enhance the income levels. The growth pattern in the last forty years is similar to the British Industrial Revolution. During the first ten years, the number of agriculture employees increased and village enterprises were introduced. From 1988 to 1998, labor-intensive growth flourished and from 1998 onwards, capital-intensive growth took over the economy. It is the relevant privatization and liberalization policies that aided the growth and brought the economy out of poverty and development crises. The government contributed to the growth via ensuring the appropriate implementation of reforms, however, corruption, nepotism, and scams increased over time. Income inequality and discrimination enhanced over time. Moreover, China’s growth came at the expense of high pollution and environmental degradation and the resources are being depleted at a faster rate. To ensure sustainable growth, it must identify the loopholes in policies that are promoting adversities in the economy and must devise strategies to ensure long-term growth via environmentally sustainable policies.

References:

1. Bosworth, B. and Collins, S.M., 2008. Accounting for growth: comparing China and India. Journal of Economic Perspectives, 22(1), pp.45-66.
2. Zhu, X., 2012. Understanding China's growth: Past, present, and future. Journal of Economic Perspectives, 26(4), pp.103-24.
3. Huang, Y., 2012. How did China take off? Journal of Economic Perspectives, 26(4), pp.147-70.
4. Prasad, E.S., 2009. Is the Chinese growth miracle built to last? China Economic Review, 20(1), pp.103-123.
5. The Guardian, 2012. China GDP: how it has changed since 1980. [Online] Available at: https://www.theguardian.com/news/datablog/2012/mar/23/china-gdp-since-1980 (Accessed on 4 January 2019)
6. Hirst, 2015. A brief history of China’s economic growth. World Economic Forum, 30 July. [Online] https://www.weforum.org/agenda/2015/07/brief-history-of-china-economic-growth/ (Accessed on 4 January 2019)
7. Morrison, W.M., 2018, February. China's economic rise: history, trends, challenges, and implications for the United States. Library of Congress, Congressional Research Service.
8. Wen, Y. 2016. China’s Rapid Rise. The Regional Economist, April. [Online] https://www.stlouisfed.org/~/media/publications/regional-economist/2016/april/lead.pdf (Accessed on 4 January 2019)
9. West D. M. and Lansang, C. 2018. Global manufacturing scorecard: How the US compares to 18 other nations. Brookings, 10 July. [Online] https://www.brookings.edu/research/global-manufacturing-scorecard-how-the-us-compares-to-18-other-nations/ (Accessed on 4 January 2019)
10. Tianjie, M. and Hao, F. 2018. China’s next environmental challenge is hard to see. China Dialogue, 13 November. [Online] https://www.chinadialogue.net/article/show/single/en/10905-China-s-next-environmental-challenge-is-hard-to-see (Accessed on 4 January 2019)
11. Fang, C. and Xiaojing, Z. 2017. How can China sustain growth? East Asia Forum, 23 October. [Online] http://www.eastasiaforum.org/2017/10/23/how-can-china-sustain-growth/ (Accessed on 4 January 2019) Global Business Environment: Culture, Management, and the Economy Page No: 1