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Phasic Changes in the Chinese Economy, Remaining Problems and Prospects for Development
2002-09-11
Wang Mengkui, Lu Baipu and Lu Zhongyuan
Research Report No 045, 2002
I. Phasic Changes of Great Historical Significance
In terms of the three-step modernization strategy, China has completed the first two steps by doubling the 1980 GDP in 1990 and again the 1990 GDP in 2000. From the beginning of the new century, China entered a new stage of moving toward its third-step strategic goal -- basic realization of modernization by the middle of this century.
1. Remarkable enhancement of comprehensive national strength. During the 1978-2000 period, China’s annual economic growth was 9.52 percent, the fastest in the world. In 2000, China’s GDP reached 8.94 trillion yuan, or more than one trillion U.S. dollars at the current exchange rate, which ranked the sixth among the largest economies in the world. Compared with 1980, the GDP in 2000 was more than five times larger. While the population increased by 300 million, China’s per capita GDP was quadrupled. This is higher than the goal set at the beginning of reform and opening up to quadruple the total amount of the economy in 20 years. As a result, the national wealth increased and the outputs of main industrial and agricultural products rose dramatically, with those of some important products ranking among world leaders. Since the mid-1990s, commodity scarcity that had long associated with China’s economic development and its people’s livelihood has become something of the past. This is a result of the development of productive forces and also a result of the change of economic system.
In a worldwide view, China’s economic development has moved the country from the low-income ranks to the mid-lower income ranks. According to the classification standard of the World Bank, the per capita GNP of the mid-lower income countries worldwide in 1999 was more than 756 U.S. dollars and China’s per capita GNP reached 780 U.S. dollars in that year. In the year 2000, China’s per capita GDP, slightly higher than the average per capita GNP, was 848 U.S. dollars. There are two factors that need to be taken into account when one examines the Chinese economy: the total amount and the per capita amount. The total amount of the Chinese economy indicates the country already has a considerable economic strength, while the relatively low per capita level (China ranked 140th among the 206 economies in the world in terms of average per capita GNP in 1999) is an indication that China is still a developing country.
2. Two historical steps forward in people’s livelihood. A qualitative change has taken place in the livelihood of urban and rural residents. Both the structure of their consumption and the quality of their life have improved visibly. During the 1978-2000 period, the Engel coefficient for urban and rural residents dropped respectively from 57.5 percent and 67.7 to 39.2 percent and 49.1 percent. The number of people living in poverty in the urban and rural areas reduced drastically. In the rural areas in particular, the number of poverty-stricken people fell by a big margin from 250 million in 1978 to 30 million in 2000, with their proportion of the total rural population dropping from 30.7 percent to about 3 percent. In the urban areas, multiple forms of employment have sprung up. The establishment of a social security system, though still in the initial stage, has played an important part in alleviating urban poverty. In just 22 years since the beginning of reform and opening up, two historical strides have been made in the livelihood of urban and rural residents: from poverty to having enough food and clothing, and further to leading a relatively well-off life. The issue of feeding the Chinese people, which has plagued the country for centuries, has been fundamentally solved. The dream of many generations has become a reality under the leadership of the Chinese Communist Party.
3. Major economic restructuring and speedier industrialization. In terms of China’s industrial structure, manufacturing strength and export structure, we can conclude that China has moved to the medium stage of industrialization from the initial stage. We have the following facts to support our conclusion. First, while the total amount of agricultural products has increased rapidly, the proportion of the primary industry and agriculture has declined markedly. During the 1978-2000 period, the supply of agricultural products realized a historical change thanks to the swift development of agriculture from a prolonged shortage to an overall balance and further to a surplus in good years. In the meantime, the proportion of the added value of the primary industry fell from 28.1 percent to 15.9 percent, diversified operations replaced the unitary structure of agricultural production, and traditional agriculture began developing to modern agriculture. Second, while the total population increased by 300 million, the proportion of farm workers dropped from 70.5 percent to 50 percent. The proportion of the added value of the secondary industry rose from 48 percent to 50.9 percent, while that of the tertiary industry went up from 23.7 percent to 33.2 percent. The bottlenecks, such as raw materials, energy and transport, that had long restrained China’s economic development, were basically removed. At the same time, modern service industries began to prosper. Third, a relatively complete industrial system is already in place and in particular the manufacturing industry is able to provide a considerable proportion of technologic equipment for the national economy. Industrial restructuring and technological advance are making increasingly great contributions and the high- and new-tech industries have become an important driving force for the growth of industries and even the entire economy. Fourth, while the exports of agricultural and other primary products have increased rapidly, their percentage in the export mix is visibly lower. During the 1980-2000 period, the proportion of primary products to total export fell from 50.3 percent to 10.2 percent, while that of industrial manufactured products rose from 49.7 percent to 89.8 percent. With the process of industrialization, the industrial structure is obviously moving from the primary level to the advanced level, from a serious imbalance to a basic rationality, and from mainly meeting basic needs to gradually meeting consumption upgrading and demand diversification.
4. Breakthroughs in system reform with the planned economy preliminarily replaced by a socialist market economy. The rural reform that highlighted the household contract system has laid a foundation for the basic economic system and the operation system that conform to China’s rural productive forces. As a result, commercialization, industrialization and marketization of the rural economy have been stepped up gradually. The ownership structure is getting increasingly plural; the evolution is continuing in which the public ownership plays the leading role and the economies of diverse ownerships develop simultaneously; and the vitality of economic operation is becoming stronger. Along with the rapid growth of the commodity market, the market system for production factors is taking shape. The state’s macro-regulatory ability is visibly greater thanks to the establishment of a macro-regulatory system and the improvement of indirect regulatory tools. The mode of income distribution is gradually in conformity with the demand of the market economy, and the mode of distribution that integrates labor with other production factors has helped stimulate micro-economic efficiency. The separation of government functions from enterprise operations has also brought about a positive change in the government functions of managing the economy.
In the course of transforming the economic system, the basic role of the market in resource allocation has become stronger and the degree of the marketization of the national economy higher. Most estimates by Chinese scholars indicate that the degree of the marketization of the Chinese economy in the later 1990s was higher than 50 percent. According to the 2001 Report on World Economic Freedom published in Canada, the index of China’s economic freedom during 1980-1999 rose from 3.2 to 5.8, moving ahead from the 101st in 107 economies to the 81st in 123 economies. Economic reform was the powerful driving force for the rapid economic growth.
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