China Economic Performance

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Economics: Chinese growth versus Soviet Growth. The Rise of China’s Economy. China-Economic-Performance

China-Economic-Performance

Economic performance

After the reform began, china’s growth rate rapidly climbed to a 10% annual rate. The growth has produced transformations of Chinese society that are visible and proportionate to the statistics.

From 1980 to 1992 the GNP growth in China has been as follows:

7,9 – 4,4 – 8,8 – 10,4 – 14,7 – 12,8 – 8,1 – 10,9 – 11,0 – 4,0 – 5,2 – 7,0 – 12,8

In 1992 Beijing set the 8-9% annual growth as the goal for the next five years.

The success has not been confined to raw economic growth.

China exports climbed from $14,8 billion of 1979 to $85 billion in 1992.

Not only did exports rise, but they also became more sophisticated. In 1985 manufactured goods comprised only half of the Chinese exports, whereas by 1991 they comprised more than three quarters of all exports.

At the end of 1991 it had 37. 215 foreign founded enterprises which were producing 17% of the nation total exports.

Such numbers are well beyond anything that sober economist would have believe possible before they became reality.

The basis of success: China versus the Soviet Union.

China’s strategy of development has been following a model more similar to South Korea (and the analysis of Taiwan, Hong Kong and Singapore) than to its formerly communist bedfellows.

For the western shoppers, there is a straightforward evidence.

In major department stores the shoes, shirts, sweaters and toys that once carried labels saying “Made in Korea” or Made in Taiwan” now mostly say Made in China, virtually none say Made in Russia

Deng Xiaoping and his colleagues derived superior strategies in four areas:

economics

politics

administration

and financial market.

Economics:

China gave priority to industries and sectors where limited government investments would produce rapid growth.

First, they gave the farms back to the farmers (generating a huge increase in productivity with negligible state investment)

Second, China was very encouraging to foreign investment.

This produced enormous gains in both output and exports at negligible cost to the government.

Finally, China gave priority to light and medium industry, where limited initial investment quickly yields a surge of output.

Just as Taiwan and Hong Kong, had flooded world markets with

textiles,

garments,

shoes,

toys and

consumer electronics

in the 1960s to 1970s, China quickly became a global force for the same products in the 1980s and 1990s.

This policies caused an

explosion of growth,

consumer goods production,

personal income,

exports and foreign exchange earnings.

In contrast, the Soviet Union

neglected agriculture,

was ambivalent with foreign investment and it attracted very little,

devoted excessive attention to the heavy industry.

Gorbachev’s early programmes emphasized massive equipment imports, building more machines, intensified use of machine tools,

Improvement of petroleum industry and organization of automobile and high technology sectors - all of which where capital intesnsive industries.

Privatizations were focused on industries with huge capital requirements and long lead times rather than the sectors of low costs and quick payoffs

This policy reflect the obsolete view of development based on Marx’s analysis of eighteen century Britain.

Premature privatisations of giant state enterprises was encouraged by west European and especially American professors

Result of this Soviet strategy, for East European countries was a collapse of production, unbearable inflation and depression caused by lack of supply rather than inadequate demand.

I am not inclined to emphasize cultural differences. The stereotype of the hard working Chinese and the culturally lazy Russian is inaccurate. In state enterprises, Chinese proved to be world class at laziness.

Chinese strategy generated millions of jobs for the people who need them most. The growth and income are focused on ordinary farmers and ordinary workers. Large number of workers produce cheap shirts and they generate the income to buy some of those shirts for themselves. Soviet and Latin America focused on heavy industry and this created a smaller number of higher paid jobs, while leaving a large fraction of the labour force unemployed. Moreover, products such as steel have less immediate impact on people’s lives.

China’s strategy has created a vast class of new consumers who wear modern clothing and use modern amenities.

Market research commissioned by Procter and Gamble indicates that

Guangdong province has become second only to the USA as a market for P&G shampoos

Avon has more than 18 000 ladies successfully selling cosmetics door to door in Guangdong Province.

Motorola which rates China the best place in the world to manufacture electronic equipments expect China to become the second largest market in the world.

Chinese and Soviet Growth

Chinese and Soviet Growth the first 6 years of reform

Chinese GNP 1980/85 (State Statistical Bureau)

Soviet NMP 1986/91 (Net Material Product is the best Soviet Approximation of GNP)

China Soviet Union

80/86 7,8 2,6

81/87 4,5 1,7

82/88 8,7 4,1

83/89 10,3 - 2

84/90 14,6 - 6

85/91 12,7 - 18

Chinese and Soviet Growth

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