Modern China changed in 1978. In order to overcome the state of economic underdevelopment, the Communist Party of China, under the leadership of Deng Xiaoping, launched a program of economic reform; the leadership decided it was time to open up to the world. As China emerged from a centrally planned economy to one governed by market forces, the country’s growth rates grew dramatically. With the largest export and import volume, China quickly became the second largest economy in the world and the world’s largest trading country. The transformative changes in China over the past 35 years also greatly impacted the social and cultural spheres.
“China Miracle” is what the period of rapid growth was named. In 1978, China’s Gross Domestic Product (GDP) was worth 216 billion U.S. dollars. Today, it reaches 8.3 trillion — almost half of the total GDP of the United States That extraordinary increase in output and income over the past 35 years allowed China to lift more than 500 million people out of poverty.1 Today, China holds a foreign exchange reserve of 3.3 trillion U.S. dollars, which is used mostly to purchase U.S. Treasury bonds and import resources such as iron, copper, and oil. China has also increased its export and import trade, now generating about 20 percent to 25 percent of the economic growth in the world for the past five years.
According to the British economic historian Angus Maddison, China’s was the largest economy for several centuries, and it produced 30 percent of the world’s GDP at its peak, around 1820. The decline of imperial China and intervening wars reduced Chinese output to a meager 5 percent of the world’s GDP in 1949 when the People’s Republic of China was established.
China may overtake the United States and regain its role as the largest economy in the world by the year 2030, since China targets an annual growth rate of 7.5 percent and the U.S. growth rate remains around 3 percent.
On the other hand, pessimists worry that China’s growth will stall; some worry about a total collapse of the country. China’s growth in the past two decades relied inordinately on export-oriented and labor-intensive industrial strategies. But China’s former Premier Wen Jiabao now admits that such growth strategies are “unstable, unbalanced, inharmonious and unsustainable.”2 China’s unequal income distribution, with its large urban-rural income gap, creates social inequalities. And the country’s current economic policy is unsustainable, because it relies heavily on using resources at the expense of a clean environment. A weakened global recovery means that China can no longer rely on export for its rapid growth, so it has no other choice but to slow down. Without continued rapid growth to appease the people, China will have to begin addressing social unrest and dissatisfaction about government corruption.
The current leaders of China have proposed deep-rooted institutional reforms. The most important task over the next five years will be to upgrade the economic structures — that is, to increase mobility of the peasants that will curtail the income inequality and increase the consumption ratio in GDP. China must also promote the development of green energy, reduce pollution, and address the corruption of officials (which caused the downfall of Bo Xilai, a rising Communist Party power broker who was recently sentenced to life in prison).
Today, China faces a juncture as crucial as the decisive moment in 1978. On the upside, it may continue its path of economic growth and care for the welfare of the largest population in the world. On the other hand, China risks collapse, with internal turmoil and disastrous spillovers to neighboring countries. Only in the first scenario will the world and China share a promising future. For that reason, we should all be concerned with China’s next move.
1 This is according to World Bank statistics.
2 This was first mentioned by Wen on March 17, 2007, as reported by the People’s Daily and again on January 1, 2011.