Economic Development in China

Economic Development in China

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 .1 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 .2

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 .3 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 maintain a stable and fair (less distorted ) foreign exchange market . Export push , FDI , and a stable exchange market are three important elements of openness , which created a favourable external environment for rapid and sustainable economic growth .4

As a result of open door policy , China 's exports grew at a hefty annual rate of 18 from US 13 .7 billion in 1979 to US 249 billion in 2000 China 's success in attracting FDI has been even more impressive . From 1988 to 2000 , making China the second largest recipient of international capital in the world after the United States . Till the year 2000 , more than 200 of world 's largest multinationals have invested in China . A substantial part of China 's exports (48 in 2000 ) came from foreign invested enterprises , particularly those from Taiwan and Hong Kong . The success of export oriented market economy in China lies in the fact that China apart from having large pool of skilled and non-skilled labour , also has a large domestic market for all sorts of products , both high tech and low tech to enjoy the advantage of economies of scale . With lower cost generated as a result of high volume of production , China is able to enjoy its natural cost advantage .4 Banking reforms introduced in China came earlier than reforms in other sectors . The reform consists 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...