How China became an economic powerhouse
Currently, China's economy boasts the world's highest GDP, above the USA. In fact, yes, the Chinese economy did overtake the States. That means it has a bigger economy than every Eurozone nation combined. Plus it's only likely to get bigger in the coming years. China's GDP Grows 6.7% currently.
So how did this happen? In this article, we present a timeline of the major events of the last 40 years that have seen China take over the financial world.
The Late 70s
Since October 1st 1949, China had been the world's largest communist state. Throughout this entire period, the economy had been strictly monitored and structured in accordance with government initiatives. 1978, however, was a year of huge economic reform, as the Central Committee increased the potential for market mechanics to affect the system, while planning a huge reduction in its control over the economy.
The first thing the rest of the world noticed was the sudden eagerness Chinese farmers had to trade with foreign food companies. For the first time, Chinese agricultural organisations were allowed to sell their surplus crops abroad.
Another key change came with the Duel Track System, also established that year. This created two prices for goods and services: one for State Owned Enterprises and a second for the private sector. So, while the SOEs would be offered lower prices, private companies would still be able to trade and grow.
The following year, the Law on Sino-Foreign Equity Joint Ventures was passed by the Committee, which officially allowed and encourage foreign companies to invest in the Chinese economy.
The People's Republic of China marked the new decade by becoming an official member of the International Monetary Fund and the World Bank. In order to support foreign investment, the Committee created four ‘economic zones' that would be specifically structured to attract capital from abroad. These zones were in Zhuhai, Xiamen, Shenzhen and Shantou.
Over the next decade, several huge reforms were brought in to inject life into the Chinese economy.
• Household Responsibility Reform: This allowed China's farmers to keep their can retain surpluses rather than give them back to the government.
• The 6th Five Year Plan: For the first time, a Five Year Plan had the growth of a market-based economy at its core.
• Open Areas: In 1984, the state began work on 14 cities and ‘open areas' for investment that would not be governed by the red tape of other areas of the country.
• General Principles of Civil Law: This provide providing the legal structure needed for a market economy.
China began the 90s by opening its first ever stock markets in Shanghai and Shenzhen. Though, midway through the decade, inflation rates threatened to derail the economy, the Committee acted swiftly, bringing in banking reforms that controlled lending, easing the state through the late 90s Asian economic downturn.
In fact China was in a position to help other nations in the continent during this period, including Thailand, offering over $4 billion worth of aid to its neighbours.
The new millennium saw China moving ever closer to becoming a free market state, with membership of the World Trade Organisation spurring a number of reforms such as the elimination of domestic price controls and agricultural subsidies. Also share markets opened to foreign investment and private property was protected by the constitution.
By the end of the 2000s, China had reached an important understanding with the United States, with a ten year co-operation deal on sustainability and increased market access.
Thank to these huge steps taken over the last four decades, China is now one of the world's most influential economic states.