After 40 years of reform and opening up, China has established a successful socialist market economic system. Through comprehensive reforms, China’s economy has developed at a rapid pace. China’s economic structure has gradually become efficient and entered a "new normal" stage of development.
By 2020, China will have established a more mature market economic system. Since its founding, China has become one of the most potent economic powers in the world through planned large-scale construction. Because of this, Chinese peoples’ living standards have improved greatly.
From 1953 to 2015, China completed 12 successive “five-year plans” achieving significant results while laying down a good foundation for the national economy. The reform and opening-up since 1978 has made China’s economy grow at an unprecedented rate. In the 21st century, China’s economy has continued to grow steadily and rapidly. With the market I economy initially established, China’s economy features a macro-control system in which the market plays a decisive role in allocating resources; over time, it has become more efficient. With the predominance of the public sector in China’s economy, self-employed, private and foreign capital businesses have contributed to the economic growth together that has changed gradually from an extensive growth model to an intensive growth model.
1. Historical Changes of the Chinese Economy
The historical changes of the Chinese economy generally include three major periods and four important turning points. The first major period was the period of the Chinese empire. It began when Emperor Qin Shihuang unified China under his reign in 221 BC and ended with the overthrow of the Qing Dynasty in 1911. Within this period, the 14th century was the first major turning point. The second turning point happened before and after the Opium War in the 19th century. The second major period was the Republic of China. It goes from the establishment of the Republic of China government in 1911 to the founding of the People’s Republic of China in 1949, with the founding of the PRC as the important turning point. The third and final period is that of the People’s Republic of China, with the reform and opening-up in the late 1970s as an important turning point.
Ancient Economic Achievements
Due to the invention and application of agricultural technology, by the 13th century, Chinese agriculture had become the most refined and productive in the world. In the centuries after the Song Dynasty, China’s food supply was better than that of Europe. The long-term trend of China’s population growth began in the 11th century (the Northern Song Dynasty), while Europe did not really begin significant population growth until the 18th century. Highly developed agriculture provided the necessary products and basic elements for the development of industry and commerce. Chinese industry developed greatly in the Han and Tang dynasties, and reached its peak in the Song Dynasty. Farmers were connected through regular markets. These scattered markets were connected by canals, rivers and roads to form a national commercial network. Major agricultural products and many local specialties became well-known and sold throughout the country.
Modern Economic Stagnation
After the 14th century, despite continued economic development and the emergence of local technological inventions, China’s leading position in science, technology and institutions began to fade. The economic development of this period was more extensive, that is, the total amount increased but the per capita quantity no longer grew. Especially since the Opium War of 1840 until the founding of the Peopled Republic of China in 1949, China experienced various wars and a stagnant economy. At the same time, since the rise of the Western world beginning in the 17th century, the pace of progress and development continued to accelerate worldwide, and the development of the Chinese economy gradually fell behind.
The Period of the People’s Republic of China
The first stage was the period of economic recovery (1949–1952). Most of the output of China’s industrial and agricultural products had exceeded the highest level before 1949, inflation came under control, and people’s living standards began to improve.The second stage was the implementation of the first five-year plan and the realization of the socialist transformation of industry and commerce (1953–1958). During this period, the national economy developed steadily, and the proportion between industries was appropriate. The average growth rate of national income reached 8.9% while the consumption level of urban and rural residents grew at an average annual rate of 4.2%.
The third stage was from 1958 to 1965. As the growth targets of this period were set too high, the normal order of economic growth was undermined, causing serious economic imbalances. After some adjustment, the scale of capital construction was reduced, and the development of heavy industry was controlled.The industrial structure was adjusted, the economy was restored, and the development of agriculture, light industry and heavy industry became stabilized.The fourth stage was from 1966 to 1976, during which economic growth suffered huge losses. As economic, social and political life was in a state of chaos, the order of industrial and agricultural production was destroyed, workers’ enthusiasm was suppressed, and living standards of urban and rural residents essentially stagnated.
The fifth stage was the period of development after the economic reform and opening-up since 1978. The reform and opening-up increased worker enthusiasm, improved production efficiency, adjusted the industry, expanded international trade, and introduced foreign capital. From 1978 to 2001, China’s GDP grew at an average annual rate of 9.3%, the fastest since the founding of the People’s Republic of China. In recent years, China’s economy has continued to grow, making China the fastest growing economy in the world.
2. The Current State of China's Economy
After forty years of reform and opening-up, China’s economy has become the second largest in the world, while China’s economic development has made tremendous contributions to global poverty alleviation. According to the UN Millennium Development Goals 2015 Report, from 1990 to 2015, the global population of those living in poverty decreased from 1.9 billion to 836 million, with China’s contribution exceeding 70%. In the process of economic development, China’s links with the world economic and trade system are becoming stronger, international trade is increasing, and capital flows are growing. By 2015, China’s total merchandise trade ranked first in the world for three consecutive years, and its total service trade ranked second. “Made in China” has come to represent the stability of the world economy and is also a key pillar of a stable world economy. China has also played a huge role in global economic order, financial stability, and peaceful development.
3. The Natural Conditions of China's Economic Development
China’s geography has some distinctive features that cannot be overlooked. Its vast territory, which is the largest land mass in the eastern half of the northern hemisphere, covers a lot of different climate zones. Additionally, China has a long coastline as well as long land boundaries with many countries. China possesses a multitude of natural resources, though many are difficult to access and are concentrated unevenly. In addition, China lacks reserves of key resources, which with its size make its overall condition unfavorable.
4. Basic Policies and Systems of the Chinese economy
The Reform and Opening-up Policy
In December 1978, the Third Plenary Session of the Eleventh Central Committee of the Communist Party of China put forward the policy of “reform and opening-up”. China began to implement internal reforms and to open up to the outside world. China’s internal reforms began in the countryside. In November 1978, Xiaogang Village of Fengyang County, Anhui Province implemented the household contract responsibility system of “dividing the land to the household and paying profits and losses”, and gradually established a two-tier management system. Major reforms of state-owned enterprises included expanding the right to self-management of enterprises, separating the administrative duties from enterprises, and properly separating the ownership and management rights. It also established that state-owned enterprises are economic organizations that operate autonomously and are responsible for their own profits and losses.
Opening up to the outside world is based on adhering to independence and self-reliance, using domestic and international resources, opening up domestic and international markets, introducing advanced foreign technology and capital, and drawing on advanced foreign management experience and methods to enable domestic and international economies to achieve mutual complementarity and accelerate the process of China’s socialist modernization.
The process of forming a new pattern of China’s opening up to the outside world can be divided into four steps: the establishment of special economic zones, the opening of coastal port cities; the establishment of coastal economic open zones, and the opening of riverside, inland and border cities. After years of opening-up, China has made some astonishing advances that have established a broad, multi-level, focused, and point-and-line combination pattern of opening up to the outside world.
The essence of the reform and opening-up is to liberate and develop social productive forces, improve overall national strength, further emancipate the mind, and build socialism with Chinese characteristics. The reform and opening-up has established a socialist market economic system that has brought about tremendous changes in China. The Chinese government in 1992 announced that the most striking feature of the new era was the reform and opening-up, thus leading to a new period of reform. In 2013, China entered a new era of comprehensive and deepening reform.
The Five-Year Plans
The five-year plan, dubbed the ‘‘Outline of the Five-Year Plan for National Economic and Social Development of the People’s Republic of China”, is an important part of building China’s economy. It provides a plan for major national construction projects, distribution of production, and important proportions of the national economy and sets goals and provides directions for national economic development.
China began to formulate the first “five-year plan” in 1953. China’s history with five-year plans can be roughly divided into three periods. The first period began with the first five-year plan (1953–1957) and ended with the fourth five- year plan (1971–1975), with the main emphasis being development of industry. The second period spanning the fifth live-year plan (1976–1980) to the eighth five-year plan (1991–1995) focused on all-round economic development. The third period begins with the ninth five-year plan (1996–2000) and ends with the eleventh five-year plan (2006–2010). This period saw a change from a simple focus on material development to a focus on people’s comprehensive and sustainable development.
Except for the period from October 1949 to the end of 1952, when the Chinese national economy was being restored, and the period from 1963 to 1965, when the economy underwent major adjustments, the Chinese government has consistently released five-year plans.
Looking back at the history of the five-year plans, we can not only see the economic development of the PRC since its founding, but also explore the laws of China’s economic development and gain valuable experience to guide the future.
The Socialist Market Economy with Chinese Characteristics
In 1978, the Communist Party of China announced that the country would implement the policies of reform and opening-up and shifted its focus to economic construction.In October 1992, the government proposed establishing a socialist market economic system. The socialist market economy is an economic system and concept that has never been seen either in China or anywhere in the world. The practice of long-term development of the market economy shows that the normal operation of the market economy should be regulated by two mechanisms: “the invisible hand” and “the visible hand”. The first refers to the regulation of market mechanism on resource allocation, “the invisible hand”, and the second refers to the role of the national government’s macro-control, “the visible hand”. The socialist market economic system has completed two giant leaps: First, the economic leap from egalitarian economy to priority of efficiency with fairness in mind, in a gradual progress toward common prosperity, and the second was an economic leap from regional protectionism, administrative monopolies, and a closed-door economy to opening to the outside world and equal competition.