The Chinese Model of Economic Development

Table of Contents

Introduction......................................................................................................................................2

Natural Resources and Investment in Capital..................................................................................4

Trade and foreign investment.................................................................................................5

Agriculture model and reforms....................................................................................................6

Structural Reforms.......................................................................................................................7

The state and non-state sector......................................................................................................8

The rise of non-state sector..........................................................................................................9

Labor Force and Economic Development.....................................................................................10

Employment Statistics...............................................................................................................10

Employment Policies.................................................................................................................12

Increasing Employment Opportunities......................................................................................12

Taxation and Financial Policy...................................................................................................13

Developing non-profit Public Post............................................................................................13

Flexible Employment Policy.....................................................................................................13

MOLSS & ILO Collaboration...................................................................................................14

Hukou Reform...........................................................................................................................14

Unemployment Monitoring Policy............................................................................................15

Skill Development and Education.............................................................................................15

Technological Changes..................................................................................................................18

Institutional framework.................................................................................................................20

Conclusion.....................................................................................................................................21

References......................................................................................................................................21

Introduction

China is known as the world’s largest exporter in today’s time frame and at the same

time it is the fastest growing economy since the introduction of market based economic

reforms in 1978. According to IMF report, China is the ranked 90th by nominal GDP and

91st by GDP (PPP) on per capita terms in 2011. China is also known as the world’s

second largest economy after USA. There are two time frames of China which are

important; one is before 1979 and other being after 1979. Chinese economy before

1979 was known to have many problems, like problems of low productivity growth,

lesser incentives for investment on human capital. Its economy emphasis was on

production, capital construction, and high accumulation but ignored agriculture and

small industry, people’s livelihood, efficiency and consumption. Due to these reasons

China had high urban unemployment and low productivity growth.

According to the data, its GNP grew at a slower pace of 6.2 per cent before 1979 and

from 1980 to 1993 the GNP was known to be at 9.6 per cent. GNP per capita grew 4.3

per cent and 8.2 per cent in corresponding periods; GNP per capita has rapidly

increased from $280 in 1980 to $530 in 1994. Although the growth rate declined to 4 or

5 per cent in 1989 and 1990 due to the efforts to deal with unacceptably high inflation

and turmoil, the rates re-accelerated to 7 per cent in 1991 to 14 per cent in 1992, 14 per

cent in 1993, 11 per cent in 1994, 4 and 10 per cent in 1995.

Natural Resources and Investment in Capital

Chinese economy main fuel engine is its industry and manufacturing sector as it has the

highest share in the Gross Domestic Product. The industry was not growing at good

pace before the reforms period which is considered to change the outlook of the country

and has paved the way for the success of the country’s economy and the social and

political system. Previously the system of government was socialist system with

government having the control of almost everything. There was very little incentive for

the people to work hard and improve the quality and the output.

After the reforms in the 1979, greater autonomy was given to the enterprises and dual

price system productivity enhanced in that period. The enterprises began competing

with each other and state owned enterprises.

Before the reform period, Chinese economy was mostly controlled and owned by the

state. But after the reforms the government decided to give up some control and give

way for private firms to invest and own the firms to improve the quality and increase the

capital and investment in the country. With increase in private firm, the large size

privatization increased its sectors market share and the share of state owned sector

reduced relatively. It dropped from 81 percent in the 1980 to 15 percent in the year

2005. The contribution of foreign capital also plays a crucial role and controls the

industry of china.

From being nowhere in the world three or four decades ago in industry, China has

gained the status of biggest producer of concrete, steel, ships and textiles, and it

contains the largest automobile market in the world. The Chinese output of steel has

grown manifold within 20 years from 1980 and 2000. And from 2000 to 2006 it has risen

from 128.5 mn tons to 418.8 mn tons, which is equivalent to the one third of the world’s

productivity. Similarly the Chinese automobile production has rose significantly for

example the production of automobile rose from 139,800 to 1.1 mn and then rising to

the 9.35 mn in 2008.

The impact on the light industries for example textiles has increased even more

significantly, because of the reduced government interference the exports of textile

which were 4.6% of the world exports in the year 1980 has increased to 2401% in 2005.

And the output has increased manifold as well.

The reasons which are attributed for this level of industrial development are contributed

to removal of barriers to entry in the industry by new firms and the sense and increased

competition among the firms in the organizations. The competition has positively

impacted the organizations and the overall quality and output of the Chinese firms and

economy. In bid to be the competitive the firms continually upgrade their technology and

invest in improving ways to do work to create edge over their competitors. This is not

only within the china but Chinese firms are competing worldwide for their share. The

Chinese industry is producing surplus and that is the reason the exports of the country

are very high.

Due to the reforms e.g. removal of barriers to entry the number of industrial firms

increased from 377,300 in 1980 to nearly 8mn in 1990. According to the economic census which does include the enterprises whose annuals sales are below RMB 5mn,

there are 1.33 mn manufacturing firms. Due to these the industrial performance of china

which was nothing sometime back has now exceeded the industrial performance of

japan.

Trade and foreign investment

The government of China decided to open Chinese economy for trade with other

countries and organizations and also to allow foreign investment in the country. Before

the reforms, it was not done. The Chinese economy was mostly closed to international

trade and the foreign investment was minimal.

The government decision to allow foreign investment has greatly helped the economy of

china and the quality and quantity of output. Again with the increased competition this

time specially from the foreign goods and firms which were the best in the class in

almost all the sector of the business and economy it has helped to increase the output,

the quality of the products and the production units, the knowledge which the foreign

skilled people brought to China was also a contributor towards the increase in the

industries and the quality and standard. In short, due to globalization and opening up,

China has boosted its economy and the quality and standard of the industry.

The reforms in the trade which were brought by the Chinese government include the

reduction in the tariff. The tariffs were reduced for example the overall tariff rate fell from

56% in 1980 to 15%. By the year 2001, there were less than 40% of imports which were

subject to the tariff and just 9 % of imports which were subject to licensing and import

quotas. The example of it is that China’s average tariff on the product of industry was

around 8.9% by 2005. Whereas other BRIC nations such as India has the average tariff

on the industrial product of 27 % and Brazil has the average tariff of around 30.9%

The foreign investment in China was also liberalized on the Dengs ascension, Special

Economic Zones (SEZs) were made in the starting 1980s to attract foreign investment

and capital. Special incentives were provided to them for this purpose such as giving

them exemption from taxes and the regulations. Later these Special Economic Zones

were expanded due to their success. By the year 2004 FDI has increased to 160bn.

Agriculture model and reforms

In the year 1978, China experienced the food shortage. Being the most populated

country of the world, the availability of adequate food supply was very important. The

agriculture at that time was not working efficiently which had led to the food shortage.

When the reforms were taken, the agriculture sector was one of the first sectors where

the reforms were made due to the significance of agriculture in the economy and also

due to the importance of food for the survival of the world most populated nation. The

government set a fixed amount of grains and agriculture produce that every agriculture

producing household must sold to government at a specific official rate so that the rate

of the agricultural produce can be set and must be in control for the most of the

population. And any amount of surplus produce can be sold at market rate.

This increase in the incentive for households increased the effort and productivity to

produce more. The reforms were completed in the year 1984. The positive effect of this

reform can be seen as between 1978 and 1984. The total factor productivity in the

agricultural sector grew by 5.6% annually. Due to the productivity growth in the same

time period, the Chinese agricultural output increased by 47 percent. This increase in

the availability of food alleviates the Chinese subsistence food constraint and formed a

structural transformation in which the agriculture labor reallocated to industry and work

in the industries.

Structural Reforms

In the same time period, from 1978 to 1984, the employment in agriculture fell from 69

percent to 50 percent. The 19% of the labor force of China went out of the agriculture to

work in the industry. But they did not go to the cities and urban areas. Instead most of

them were employed in the rural industries which were set up by the village and

township level governments that are called Township and Village Enterprises.

After sometime by the early 1990s, the industry has exhausted the growth in output

which was mainly efficiency gain with same technology due to increased incentive to

work. After this there was more liberalization of the output and input. The government

reduced their intervention further and as a result the growth occur due to increased use

of technology in the agricultural sector and Rozelle (2008) documents that the

liberalization were so extensive that with the exception of restriction ownership of land

the other policies were among the most liberal policies in the world and is among the

least intervened and distorted agriculture sector and economy of the world. This

liberalization provides the agriculture more incentive to increase their efforts, acquire

new technologies. The results of it were consistent increase in the productivity which

remain at 5.1% during 1988 to 1998 and around 4.13% from 1998 to 2007. After the

period of 1990s according to the researchers and economists this growth in productivity

is contributed by technological advances. The employment in agriculture further

reduced from 46% in 1991 to 26 percent in 26% in 2007.

The reforms and growth in agriculture sector has positive impact on the overall

economic growth in India. The arguments by the economist have explained the role of

agriculture in developing economy. It says that the productivity growth in agriculture

directly improves and enhances the productivity but also indirectly due to structural

changes.

These structural changes has led to growth when the productivity increase in agriculture

sector the demand of food can be fulfilled with lesser number of workers employed in

agriculture. With less workers employed in this sector the labor which is free from it can

go somewhere else and work in other sectors of the economy and work for the

development of other sectors.

Another fact is that the non-agriculture sector was more productive as the average labor

productivity of non-agricultural sector was six times higher in 1978 than agriculture. So

when this labor was reallocated from agriculture to non-agriculture sector the increase

in total productivity was obvious.

The state and non-state sector

Pre economic reforms of 1978 the state sector control almost all of the resources and

was responsible for most of the resource allocation. The contribution of non- agriculture

state owned urban employment was about 80%. And three quarters of the total

industrial output at that time. The contribution of non-state sector was quite low and it

was mainly responsible for producing small number of consumer goods and relatively

small services. They mostly consist of collective firms. In the rural areas they were

producing the product necessary for agriculture production.

The rise of non-state sector

After the reforms, the sector which contributed most to the development of economy

and which is considered one of the most vital elements of Chinese Economic

Development model is the rise of non-state sector.

This sector got success due to the government introduction of Dual track system. The

government of China introduces this dual track according to which the industry of China

first will have to use input and produce output according to the government quota at the

official rates given by government. And then they were independent with regards to their

decision to input and output which they can sell at market rates. It increased the

incentives for the industries as well. And the non-state sector grab this opportunities by

working extra effort.

Another reform was that the Chinese government allows the entry in special economic

zones into previously banned industries for non-state owned firms, foreign firms and

collectives. In these special zones several facilities were provided to facilitate the

investor such as for foreign firms’ tax exemptions and several administrative procedures

were relaxed which prompt them to invest in those special economic zones.

The Central Government of China delegated economic decision making power to local

government and gave them fiscal incentives. Provincial, Local and country government

controls state owned enterprises and township and village level government controlled

the rural collective firms.

After the reforms, TVEs which were based on old collective began to rise both in

numbers and also in the quality and performance. It increased from 1,52,0000 to

1,88,0000 from 1978 to 1988 according to the National Bureau of China Statistics of

1999. The factor that contributed toward the success and increase in the TVEs was

reduction in the agriculture labor due to increase in agriculture productivity. The

increased labor went on to work in TVEs and hence, helped to expand the TVEs. And

during the same time period from 1978 to 1988. The private sector employment

increased from mere 15% to 39%.

Labor Force and Economic Development

Being the second largest nation, China constitutes a tremendous amount of labor force.

Since its inception in early 1970’s Chinese economy experienced a sound and stable

growth. Nonetheless, employment issues resulting from these economic reforms

became an audacious task for China. However matters related to employment have

always been an ongoing concern for the government. In the near future, main task for

China is the creation of enough quality jobs for its ever demanding labor force.

In every era, Chinese government showed a great amount of concern to employment

issue and have been devised a set of strategies and regulations to ensure the surety

and safety of its labor force. Over the past years, its government has adopted policies

and procedures to increase employment rate especially among urban areas, improve

the working environment, increase floor work facilities and decrease the unemployment

rate to minimal level.

Employment Statistics

As of 2005, Chinese population was soaring to 1.30576 billion. The total rural and urban

employed population became 758.25 million of which rural population consists of 484.94

million and 273.31 was urban population. Annually 10 million new labor forces were

entering into it. In search of work approximately 150 million labor forces were migrating

from rural to urban areas. Due to persistent urbanization, patterns of employment in

urban areas changes radically. From 1990-2005, percentage of employed work force

increased from 18.5 to 31.4 for tertiary industry, for those in secondary industry rose

from 21.4 to 23.8 but for primary industry it reduced from 60.1 to 44.8. With the

perpetual growth in urban population, Chinese government has formulated many

guidelines to control the escalation in urban unemployment.

Despite of the fact that more than 60% of the population resides in rural China, job

opportunities was mainly in urban areas. Although state owned enterprises terminated a

huge number of labor force as compare to private region where 17.5 million new jobs

have been created even then it was not sufficient enough to offset the prevalent

increase. Due to lay off by SOEs almost 40 million workers lose their jobs; opportunity in

private sector has increased more than ever before with 75 million jobs have been

created during the same years. Most of the jobs were seen in the services division and

among tertiary sector. In collective urban unemployment rises which varies from region

to region almost high among coastal areas of the country. By the end of 2005 registered

unemployed population in urban areas constitutes about 8.39 million with the

percentage rate of 4.2. In contrast to this, jobs in rural areas became abundant as it

gave privately owned and SMEs a chance to perform their role in creation of jobs. As

collective decrease in employment gave chance to rural and village enterprises to

quickly meet the demand of consumers because abundant labor was available at cheap

level. But in the late 1990s because of fierce competition with private firms and lack of

proper training at the top management level of TVEs led to poor financial performance

which results in decline of employment level. Huge throngs of working population

switched their jobs towards farms and cause a farm industry to saturate. Afterwards

huge amount of migration took place from rural to urban areas which caused further

more difficulty for them to find a better job.

Moreover, keeping in view that most of the population in rural areas is uneducated and

unskilled as most of the workers haven’t got basic secondary education. It has been

observed that only 1 out of 5 people have completed primary level education. Because

of that underprivileged education mostly people are underemployed and this rate is

relatively higher than the other Asian countries rose to about 3-6% which show these

figures are similar to those found in urban registered rate ate 4%. Productivity rate of

Chinese farmers are also lower than those in other Asian countries. To reduce that

underemployment rate government needs to take measures on immediate basis.

Employment Policies

Chinese government sanctioned a proactive set of policies to protect the rights of its

labor force and help them in finding those jobs which best suits them. Labor market

underwent substantial changes by the mid-1970s. Allocation of jobs and administrative

control of wages had been taken over by the government. Employers became less

authoritarian in control over people jobs. These reforms led foreign-funded

organizations to increase quota for unemployed people. As a part of these reforms,

Chinese government allows private and foreign investors to operate in the country. In

light of these policies SOEs sustained employed people and provide a many social

benefits like medical, transportation, education and pensions. SOE also started

employment under which people who are unemployed can stay in temporary

employment centers where they can stay for at least 3 years and can get minimum

monthly benefits and during this time period they will consider to be employed by SOEs.

From 1980 to onwards number of employment policies established which are as follows:

Increasing Employment Opportunities

Chinese government ensured employment opportunities as their top most priority. China

is of a view point that socio–economic development can only be takes place if people

have quality jobs and doing so they must feel satisfied as it will lead the country towards

prosperous nation and wealthy economy. With a technically skilled people firms would

become more productive and better able to meet the demand of consumers. Chinese

government also promoted informal kind of jobs like house service, catering and

tourism. It also encouraged people to actively start their own business and become self-

employed. A more flexible labor policy was adopted which allow job-seekers to find

better jobs in different regions, were allowed to join newly developed or private firms.

New laws introduced to prevent wage discrimination among employees. A share of

bonuses rose from 2 to 16% for all enterprises. Employers have little or no control over

wage rate. Through these reforms employees got more rights in contract being signed

by SOEs. Although SOEs can terminate permanent workers but these workers can stay

in ‘re-employment centers’ (RECs) and can get assistance in finding new job and

minimum social benefits.

Taxation and Financial Policy

Government issued special funds to help rural people to educate are receive proper

training. SMEs encourage hiring new people, short term loan provided to those who are

interested in making their own business. Administration takes initiative to realize

unemployed to start their own businesses and they can have access to financial support

being provided by government. Small scale firms will be backed by loans on easy terms

if they meet certain criteria.

Loan availability to maximum 1 million Yuan is available for those firms which hire urban

vulnerable people (men of age 50 and women of age 40) also social security benefits

are being given to them. SMEs are encouraged to hire more labor and if they do so

government would grant a small scale loans with little or no interest on short term basis.

Developing non-profit Public Post

Men over 50 and women over 40 who laid off by SOEs but have a desire to work should

be regarded as an employees and offer public posts. For this purpose government

developed new public post for those vulnerable people who in in previous case

terminated by SOEs and other government owned enterprises.

Flexible Employment Policy

To facilitate unemployed people government introduced more flexible reemployment

programs like: part time job, temporary job and flexible work times. Government

approved social subsidies to encourage SOEs to absorb labor. Chinese government

develops a skilled pool of labor market and started a public employment service system.

These employment systems at all levels provide free assistance and employment

guidance to rural and urban unemployed people. Those who left work or unemployed

will get ‘one-stop’ service including registration, job consultancy, vocational skill training

and insurance benefits. By providing more information for job seekers, Chinese

government creates more opportunities for unemployed people and effectively

increased the pool of its skilled labor.

MOLSS & ILO Collaboration

In 2001, Ministry of Labor and Social Security and International Labor Organization

agreed upon to support labor reforms in China in light to ILO’s descent work. This work

includes: improve labor standards in China, emphasizing training skills, guidance for job

selection, work safety knowledge and to create a sense of care among government,

employers and employee. This program is design to promote training in rural areas of

China and develop a range of retaining and job creation schemes.

Hukou Reform

The household registration system was developed in 1950s to regulate the movement

of population among cities and to grow a labor market. People from rural side were

needed to stay in urban areas to gain access to city services like education, health and

social security. In 1990 government provide allowance to stay in urban areas and

started to build their own business and raise a family. Also in early 2000s government

removed charges for those who wanted to stay in urban areas, small towns and cities

such child birth charges, temporary residence fees for migrants. However, certain

barriers remain like people in rural areas can have two children whereas urban hukou is

allowed to have only one child. Despite of their low incomes rural hukou have to own a

house in urban areas which is difficult for them. Hukou in small towns and cities are not

attractive to rural migrants as compare to those in larger cities because of better

facilities being provided by the government.

Unemployment Monitoring Policy

By employing legal, administrative and economic policies, the government tried to

reduce unemployment rate, stressing of unemployment is specific areas and tried to

decrease unemployment proportion in total population. Proper guidelines are being

delivered to SOEs to avoid lay-offs and rushing into the labor market, directions are

provided to enterprises and trade unions displacing the workers. Through its

regulations, the government is tried to enhance relations between management and

labor unions. Government organized seminars to create awareness among enterprises

regarding the abrupt lay-off of its workers.

Skill Development and Education

Education has helped China to overcome the increasing unemployment rate. In recent

year, there are much more new graduates in the country and out of these almost 3.8

million graduates were included in workforce which is known to be four and half times of

the total of 1998. These graduates are the reason that the labor force is of more

knowledgeable personnel’s. Education has increased the productivity growth and it has

also increased the labor skills. Around the world there is much evidence that explains

the increase in productivity due to education. Highly-skilled and talented individual

increase productivity directly and indirectly, through the allocation of resources and the

adoption of new technology.

One other factor that plays its part in the productivity is the training programs. These

graduates keep acquiring new skills by company paid training programs. Education and

training programs are the major source of increased level productivity and this is known

as the investment in Human Capital. China’s unemployment level is at 4.2 per cent in

recent past. As the productivity levels are increasing in China, land area for universities

is also increasing because the land area has doubled from 2002 to 2006.

Economic theory has emphasized the important role of human capital on economic

growth (Denison, 1962; Lucas, 1988; Romer, 1986; Schultz, 1961). As education is one

of the primary components of human capital, many growth literatures have provided a

conceptual framework that links education and growth (Mankiw, Romer, & Weil, 1992;

Mulligan & Sala-I-Martin, 1992). An abundance of empirical studies have found a

positive relationship between growth and education (Barro, 1991; Levine & Renelt,

1992; Mankiw et al., 1992), there are several recent papers which investigated the

relationship between different educational levels and growth in China. Chi (2008)

concluded that tertiary education has a positive and larger impact on GDP growth than

primary and secondary education. Fleisher, Li, and Zhao (2010) found that workers with

more than elementary school education have a much higher marginal product than

labor with no higher than elementary schooling. The gross enrollment ratio in tertiary

education reached 20 percent in 2005 from 6 percent in 1999.

According to the empirical results in the articles, tertiary education plays a vital role in

the economic growth rather than primary and secondary education. In China more

developed provinces benefit more from tertiary educational levels. In one article

(Demurger, 2001), used a panel data of 24 provinces in the time period of 1984 to 1998,

to estimate the relationship between the proportion of population with a secondary or

higher education and per-capita growth, and the empirical analysis showed that

secondary or higher education has more impact on per-capita growth. Another research

(Chen and Feng, 2000) estimated an equation of cross-sectional growth for 29

provinces in China from 1978 to 1989 and results were positive for education and

economic growth. (Wang and Yao, 2002) found out that human capital contributed

considerably to economic growth in China over the period from 1952 to 1999. So the

significance of investment in human capital is known by much empirical evidence given

by different authors in various articles.

For the Chinese students, there are actually two choices for the education that they

acquire. First, being that they study in their own country and second, being that they

study in foreign country. Traditionally the Chinese people use to prefer the domestic

education but as the time has changed and now there are very less barriers to acquire

the best quality of education, people from the republic of China have started to take

admissions in foreign countries. Other reasons for this new trend were of global

integration of information and globalization in the world. Families with good enough

resources have started to send their children abroad for better education and this has

turned out even better for the Chinese development program. As China opened its

borders for larger firms in the world to cultivate in their soil, students who graduate from

foreign countries have helped these firms to invest in China and establish their firms

inside the atmosphere of China. These students tend to make the firms owner

understand the culture of China and if these students were not available the foreign

investment in China would have been with a slow pace.

Overseas education has its own importance and significance in today’s era; it is as

much important as foreign investment and open trade. Education does end the barriers

of language and culture and this in return helps the firm to trade more freely and

comfortably. However, no country can achieve sustainable economic development

without substantial investment in human capital (Ozturk, 2001).

Education not only enhances people’s knowledge of the world and helps them to find

out their potential abilities and interests, but also enriches people’s living standards by

equipping them to work in a skilled position. Moreover, the benefits that people gain

from an overseas education can influence the general society by improving productivity

through the acquisition of advanced management methods and technological skills for

example. China's progress in higher education enrollment places it in the mid-range of

the enrollment status of major developing and industrialized nations.

Technological Changes

Before 1979, China was at the heart of political actions, economic stagnation, treachery,

fractional combats, and human destruction. In early 1970s, when the effects of Cultural

Revolution started to fade, China continued to modernize in the four main sectors i.e.

agriculture, industry, science, and military by investing in foreign modern equipment and

resources.

This created a completely new wave of technological importation. Inside period of 1972-

1976, 5.15 billion US dollars ended up spent in order to equip completely new factories

all with brought in equipment. The emphasis in this particular period was heavy

mechanical industry. In 1978, the total investment was 50. 1 million yuan RMB, a new

31% raise over 1977; also, many technical import agreements were signed hastily, as

an end result, foreign reserve had a deficit 10 million US Dollars for that year.

After the economic reforms, scientific imports in addition to technological development

within China also have been through simple adjustments. Domestically, advanced

schooling ended up being restored in addition to widened, numerous government

businesses were being often restored or perhaps freshly set up, scientific R&D through

research facilities establishments to help organizations in addition to inter-firm

technological sharing were done. The most significant achievement from the 1980s

could possibly be the actual breakthrough in the rural skilled labor. The rural

professional sector will be seen as an important factor in addition to be developed into

important milestone for China's monetary expansion. Going into the actual 1990s, 2

activities usually are worthy of bringing up. An example may be the actual breakthrough

regarding private organizations in addition to their own investments regarding

engineering through the sector. Additional will be the maturity in the home-based home

technology marketplace.

China’s technological innovation imports following 1978 altered considerably.

Equipment and machinery imports were curtailed, as an alternative, technological

innovation licenses had grown to be the major factor to help import overseas

engineering. 302 scientific import legal agreements from the period of 1979-1990 were

done because of the Express Organizing Payment, 41. 4% were technological

innovation licenses, 9. 3% were technological discussion, 5. 3% were joint ventures and

the rest of 44% were being equipment imports (Chen, 1997). Although equipment

imports were being nonetheless substantive, but the situation has much improved than

pre reform period. Alternatively, technological innovation licensing offers various

strengths. The idea will allow any region a choice of blending overseas engineering with

existent engineering. Thus, China's shift through equipment imports to help

technological innovation licensing ended up being a proper decision.

The 1990s in addition witnessed any increase regarding China's increase in creating

innovative products. With 1990, the actual several major conveying merchandise within

China were being clothing, crude oil, natural cotton textile, refined oil, in addition to

man-made fiber merchandise; within 1995, they will grew to be clothing, household

electronic devices, telecommunication products, gadgets, in addition to steel (Chen,

1998). This speedy improvement has increased and created a global market for China’s

products with international standards.

Institutional framework

Agriculture was widely state owned in 1979. After 1979, locals were allowed to

produced their own products and de-collectivism was implemented. This caused them

to produce substantial amounts for themselves and after that government used to

purchase the surplus on market rates. This promoted the growth in the agriculture

sector of China as it caused motivation for creating a living and profit for themselves

which was forcefully taken away previously.

Ahead of 1978, it turned out rare to locate marketplaces in the towns. Outlying

marketplaces had been intermittent. They were restricted to designated locations,

normally in the market areas. By 1985, many towns increased their particular day-to-day

market places, usually setting up shops on the main roadway providing the village.

Market places continued to grow easily, giving a larger array of everything in addition to

produced merchandise. These marketplaces were usually wide open each day of the

full week. This improvement in day-to-day marketplaces is surely a significant indicator

of commercialization. It encourages this stream of merchandise and the growth of

product manufacturing. The tertiary level of marketplaces, in nation cities, features

equally large detailed marketplaces in addition to specialized at wholesale prices market

places. As with the traditional market areas, marketplaces in the nation area have

cultivated easily since 1978 in addition to participate in a significant function with linking

non-urban in addition to downtown marketplaces.

The rural people were allowed to set up their own facilities and state owned interference

reduced substantially. These people used industrial facilities and used cheap resources

and adequate employment force available in the rural areas. By subcontracting work,

industrial facilities were able to lower production costs: this not only created monetary

profits for the firms but it also created fringe benefits for the local population such as

property, bonus deals, family vacation leaves and medical care. Moreover,

subcontracting arrangements gave a wider advertising and marketing outreach intended

for urban industrial facilities in situations where business owners obtained parts from

manufacturing plant after which it assembled and also marketplace the actual complete

products. Most of these arrangements provide the opportunity to escape agriculture and

also manufacture products with reduced amounts of danger considering that credit

rating, stuff, and also technological innovation are supplied with the manufacturing

plant.

Conclusion

Chinese Model of Economic development involves various factors that led to rapid

economic growth after 1979. The widespread reforms after 1979 which included

industrial, agriculture, institutional, technological, education and labor reforms, ensured

the growth of the stagnated Chinese economy in 1979. These reforms helped China to

maintain an impressive growth rate of approximately 9%. These figures speak for the

success of their policies and reforms. Moreover, if closely observed, Chinese

government are closely watching their economy and are steering it dynamically towards

maintain continuous growth in Chinese economy.

References

http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.4.103

http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.26.4.103

http://europe.chinadaily.com.cn/business/2013-09/24/content_16989874.htm

http://www.globalpost.com/dispatch/news/regions/asia-pacific/china/130819/china-

model-superman-economy-mortal-BRICS-slow-growth

http://www.businessweek.com/stories/2005-08-21/online-extra-china-is-a-private-sector-

economy

http://www.fas.org/sgp/crs/row/RL33534.pdf

http://placeduluxembourg.wordpress.com/2013/07/23/the-chinese-economy-a-short-

guide-to-its-past-present-and-future/

http://www.fas.org/sgp/crs/row/RL33534.pdf

https://webspace.utexas.edu/hl4958/contemporary-chinese-history/Nee%20and%20Su

%20-%20Institutional%20Change%20and%20Economic%20Growth%20in%20China

%20The%20View%20from%20the%20Villages.pdf