China's Economic Growth

What are the main reasons for China’s fast development in economy?

China has come a long way, from being a poor agrarian country in the 20th century to a major industrialised power in the new millennium. The economy of China is the 3rd largest in the world, trailing the USA as well as Japan and it measures up to a Gross Domestic Product (GDP) of US$4.91 trillion. It is also no surprise that the world’s 3rd largest economy has had the fastest growing economy for the past 30 years with an average annual GDP growth rate of over 10%. China has risen to become the second largest trading nation in the world; it is the largest exporter in the world, and the second largest importer in the world. Many wonder how China has managed to develop at such an unbelievable speed to catch up with major western economies in a span of 30 years.

In 1978, sweeping changes were made to the economy of China and these changes will have a long and lasting impact. Firstly, state control over prices of certain goods were relaxed, and in an abrupt turn of rules, the government encouraged the formation of rural enterprises and private businesses. The above steps were taken to guide China gently onto the capitalist route. The central government also started investing heavily in industrial production and the education of its workforce.

The reforms which were introduced in 1978 increased the economic efficiency of the country by introducing profit driven incentives to the rural collective enterprises, family farms, small private businesses and also foreign investors and traders. The relaxation of stat control over most industries also help ‘free’ many enterprise from government intervention and this allows these enterprises to pursue their own agenda, set their own production targets and also allocate resources to where they deem fit. As a result of the reforms, , between 1978 and 1992, the output of state-owned enterprises declined from 56 percent of national output to 40 percent, while the...