Domestic and external economic foundations in China

Domestic and external economic foundations in China

Introduction

The People 's Republic of China has one of the fastest growing economies in the world . China 's huge and consistent economic growth reflects the success of China 's economic reforms . Economic growth of China since the early 80s is remarkable . Real GDP per capita grew by 8 to 9 .5 annual growth in the 1978-1995 and 1989-98 periods respectively . Whereas the major economic reforms in the 1980s concentrated on the introduction of market mechanisms , key reforms since 1993 focussed on economic efficiency

and sustainable growth (Li , 2001 . However , China had experienced high inflation and external deficits in the late 1980s which raised questions about the viability of Chinese government 's ambitions to sustain strong growth . Growing inflation consequent upon economic expansion triggered political unrest in 1989 , which itself raised doubts about the political feasibility of sustained gradual reform . There was growing criticism about deteriorating trade-off between growth and stability through the 1980s , with given rate of growth being associated with higher inflation and external payments deficits later in the decade (Garnaut , 1990

After a quarter of a century of intermittent high growth with little inflation and more or less external balanced external current payments the relationship between growth and stability in China changed fundamentally in the reformed period . Growth has been consistently , but unevenly high and fluctuations in output growth have generated periods of high inflation and substantial deficits in current payments (Garnaut and Ma , 1993

Domestic foundation

Banking reforms introduced in China came earlier than reforms in other sectors . The reform consist of establishment of the central bank reformed of the specialised banks , reform and development of urban and rural cooperatives , reform of non-bank financial institutions and the financial market and reform of interest rate structures . By the end of 1988 , there are almost 100 foreign banks represented in China , of whom about 30 are Japanese . Foreign banks operate approximately 176 representative offices , of which 102 are in Beijing and 30 branches all of which are in the Special Economic Zones . The banking reforms have revitalised the monetarization process . The growth rate of domestic deposits for the period from 1979-89 is 572 .7 , while the growth rate of urban and rural savings are 1743 and 251 .7 respectively . The Central Bank oversees the overall developments and activities of the monetary sector , maintaining economic and currency stability (Lee , 1994

External economic foundation

Starting in 1978 , China has made a concerted effort to open and enlarge its economic and political relations with the outside world . Formal diplomatic relations with the United States was established at that time , with two way trade increasing from 2 .3 billion in 1979 to over 50 billion in 1995 (ASCE , 1998

Openness of the Chinese economy came about in gradual fashion . The initial step was devaluation of RMB and the second step was introduction of FDI . These two steps set solid foundation for rapid export growth which in turn enabled the economy to absorb more FDI and...