Chinese Economy Transition and Growth

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The Chinese Economy: Transitions and Growth

Spring 2016

Table of Contents

Report 1: China’s Economic Growth         2

Report 2: Technology and Innovation         5

References        8

Report 1

Report Topic

There is no dispute that China has succeeded remarkably in its economic growth and development in the past thirty-five years. In this report, you are asked to discuss the following question:

What is the most fundamental element behind the remarkable success of China’s economic growth and development? And why?

Please do not merely list all the familiar reasons here. What you are asked to do is to argue what you think as the most fundamental thing without which all the other reasons you might list, even in combined force, would not be able to result in the phenomenal success of China’s economic performance. The fundamental element that you argue should also be the one element from which if we deviate in the next thirty years, we will also deviate from a path to economic prosperity.

China’s economy has rocketed at an unprecedented speed over the past 35 years, its performance has been remarkable and impressive. Its GDP has increased by 10%/year as an average, and about half a million citizens were gotten out of poverty . Now country is the world’s largest exporter, manufacturer, and the second largest economy.  How did it happen? What was the right thing that people did to achieve such results?  

China started economic reforms in 1978 and since then the world was astonished with remarkable pace of its evolution. The economic boom is largely connected to country’s market reforms, which prioritize economic growth. There are several reasons which made this miracle come true such as speeding up urbanization process, redefining the role of government, changing the structure of SOE (state owned enterprises) and banks as well, stimulating private sector and develop preferential conditions for private enterprises, encouraging competition, and implementing reforms in the land, labor, and financial markets. In my opinion there is one reason which contributed the most - it is country’s increasing integration into the global economy, its openness to international investment and trade. If we could make a rough generalization - most of the actions taken by Chinese government were aimed at attracting foreign capital and technology to the country, of course along with acute and profound implementation of reforms inside China. And first step that was made on this path of switching from isolated economy to open was the creation of special economic zones (SEZs).  Starting from 1978 SEZs were gradually created throughout  the country providing unique conditions for foreign investors: rights protection, a favorable land policy and enjoyable preferential tax policy of corporate income tax. Such experiment has formed a basis for China in order to become one of the most attractive countries for foreign direct investment (FDI), largest exporter and holder of significant amount of foreign exchange reserve. The favorable climate for investments was created not only in those economic zones but in the whole country. By different estimations China has attracted enormous amount of FDI input which accounts for more than $700 billion USD, mostly in SEZs. Some of the important benefits of SEZs besides attracting foreign direct investment is it’s ability not to crowd domestic capital and enlarge local technological progress.