China has risen to one of the biggest economic power within a few decades. Now, China is the fastest growing economy and is expected to surpass the US as the world’s largest economy by 2040. Because of its integration in the East Asian region, China has tremendous influence in regional activities of East Asia.
The rise of China as an economic power did not begin from the foundation of the People’s Republic of China in 1949. Rather during its inception, the Chinese economy was based on the Soviet model, with no links with the capitalist world. Thus China had to rely on its own resources and attempt to create a state-owned heavy industrial sector from the capital accumulated from agriculture. But soon China was faced with an economic crisis. Its industrial production was not expanding with meagre international trade and per capita income. This forced China to take economic reforms in the 1970s.
China broke the system of being a closed economy with the formation of association with the United States in 1972. A four modernisation policy focusing on agriculture, industry, science and technology and the military was developed in 1973. This was followed by the announcement of the open door policy and economic reforms in 1978. It focussed to generate higher productivity by capital and technological investments from abroad. Agriculture was privatised in 1982 and subsequently, the industrial sector was privatised in 1998. Trade barriers were eliminated and Special Economic Zones (SEZs) were established. This new economic policy benefitted China in the following ways:
• The new economic policies helped the Chinese economy to break from stagnation. The privatisation of agriculture resulted in a rise in agricultural production and rural incomes. This, in turn, contributed to the unfettered growth of the rural industry.
• With the reduction in trade barriers and the creation of SEZs, foreign trade depicted a rising trend. This led to higher inflows of foreign exchange to the economy that could be used to finance its imports.
• China became the hot-spot for Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). This increased the capital and investment base of the country and made it more globalised with the foreign capital market.
• The large foreign exchange reserves from the increased foreign trade enabled China to make a big and heavy investment in other countries.
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