Why is the Chinese Economy Growing?

The Chinese economy is growing and it seems inevitable that it will soon overtake the United States as the world’s biggest. There are many reasons for China’s rise, from economic reform to changes in society and more integration with the rest of the world. So what are the main reasons for the vast growth in China’s economy?

The start of the rising trend can be traced back to over thirty years ago and economic reform in 1978. This was two years after the death of Mao Zedong and China was the world’s tenth biggest economy at the time. Most assets had been state controlled prior to this when the government decided to encourage more individual enterprise and private business. Growth immediately increased by 50%, from 6% to 9%, and this increased further in future years. This growth has continued ever since.

China’s population has something to do with its economic growth. With a population higher than any other country on earth it means a ready-made workforce is available. With so many people there is the opportunity for vast economic growth that countries with a small population would be unable to achieve. All things being equal China should have the biggest economy.

So, what is the main contributor to China’s growth? The most obvious is the rise in the stocks of capital assets. The increase in the productivity of workers is just as important though. According to IMF research, more than 42% of the country’s growth between 1979 and 1994 was purely due to the increase in the productivity of workers. Technological development has also played an important role. As with other Asian countries, China has a strong technology industry which has boomed in recent times. Improved technology has also played a part in making business more productive.

Society as a whole has been changing in China. It has been gradually moving away from traditional farming towards more people working in large cities over the past three decades. Many have moved to work in the country’s two largest cities Beijing and Shanghai, with the latter becoming a real business hub. Many new cities have also sprung up, though. This has all meant a less rural and more urban culture throughout much of China. This has encouraged more commercial business with more people available to work in the cities meaning continued growth in business. There has been a change in the attitudes of the Chinese people, especially young Chinese. They have become more business focussed and the aspirations of people have generally shifted.

Over recent times China has opened itself up more to the rest of the world. This has led to more foreign investment in China and Chinese companies have benefitted from working with businesses from the rest of the world.

There are many reasons for China’s economic growth. At the time of the economic reform in 1978, China had the world’s tenth biggest economy. Today it has the second largest and it seems almost certain that it will overtake the United State soon.

Andrew Marshall ©