Secrets of the Chinese Economic Miracle , What India Can Learn ?

In 1979, China (on the initiative of Deng Xiaoping in 1978 was headed for modernization) began to move towards reform.

And at the Fifteenth Party Congress, the country (under the leadership of Jiang Zemin) firmly embarked on the path of building a market economy, and over the course of 20 years, China turned from a highly closed Asian country into a powerful industrial power with developed market relations.

Shanghai city. Photo tk open source.
Shanghai city. Photo tk open source.

However, these are all well-known facts, so what is the secret of the Chinese economic miracle?

The basis of the new economic strategy of China was based on the correct idea of _ convergence .

Convergence (mutual rapprochement) is a market model with strong state planning. This was once said by a well-known Canadian-born economist J. Gelbraith, who wrote that the market element is better for small enterprises, and strong government regulation is better for the largest corporations.

The Chinese leadership, showing wisdom and ignoring the advice of experts to follow the recipes of the neoliberal strategy, developed its own state-driven strategy, a hybrid model with Chinese national characteristics , so to speak.

Instead of following the recipes of the “monetarists” in economic policy, namely following liberalization, which is the removal of state restrictions on free pricing, stabilization, which is controlling inflation, by reducing the money supply, privatization, which is transferring state property into privately, China took completely different measures.

Instead of just liberalizing prices, the PRC Government has introduced a dual pricing system, which is the existence of a low planned price and a high market price .

State-owned enterprises sold a certain volume of products at planned prices, and those produced in excess of a certain volume – at market prices.

Prices for most consumer goods have been maintained unchanged by the government for a long time.

Instead of tight monetary policy, credit expansion was encouraged.

Instead of cutting government spending, the state made significant investments in infrastructure to ensure economic growth.

Instead of “generalized” privatization, the state pursued a policy of stimulating the creation of new non-state enterprises at the local level, as well as joint ventures.

The state invested in state enterprises.

Central planning was maintained only for the public sector of the economy.

While encouraging foreign investment, the PRC government nevertheless defended the country’s domestic market through a protectionist policy.

Hong Kong Photo by the author of the article.
Hong Kong Photo by the author of the article.

The concept of Deng Xiaoping – “one country – two systems” was also reflected in economic policy – “one country – two sectors of the economy” . Hong Kong Special Administrative Region, has successfully developed on the basis of this concept and has become not only the largest textile and electronic center of China, but also the largest financial and export center of the region, with the modern largest port in China.

It should be noted that the principle of gradual transformation turned out to be very successful.

Instead of abruptly turning the planned economy into a market economy, the Chinese leadership preferred, while preserving the public sector, constantly improving it, simultaneously developing the market sector.

From 1979 to 1996 the average annual GDP growth reached 9.9%, while the standard of living of the population of China increased significantly, and the power of the state intensified.

To a large extent, these achievements are due to the large role of the preserved state regulation for large enterprises.

The Chinese government proceeded from the fact that only the state can correct many flaws in the market system, for example, solve environmental problems, education, and others that the state can solve exclusively.

In addition, relying solely on the market mechanism, it is impossible to achieve a fair distribution of income, since although market exchange is conducted on the principle of equivalence, but the possibilities of business entities are different and their incomes vary accordingly.

The unregulated development of market relations leads to strong property stratification and strong social tension.

There is also a need to regulate relations between macro- and microeconomics, between the center and regions, between regions.

The economic activity of a single enterprise, industry or region was based on the principles of self-management and dispersal of responsibility.

Each economic entity pursues its selfish goals, often neglecting the interests of society as a whole. Here a contradiction appears between the whole (the interests of the state as a whole) and the private (selfish interest of an economic entity).

A feature of the Chinese reforms was that the Chinese leadership regarded state regulation as a single system.

And despite the fact that at the beginning of the reforms the main goal was to achieve high growth rates, the Chinese government understood that it was necessary to take care of economic justice and economic stability.

“Economic justice” refers to the equitable distribution of social wealth, the equitable redistribution of income, and fair competition.

“Economic stability” was understood as maintaining price stability, preventing hyperinflation, maintaining high employment, balancing budget revenues and expenditures, and achieving a balance between gross demand and supply.

Therefore, in the late 80s, the government did not consider the main goal to be a constant increase in growth rates, but economic stability.

Excessively high growth rates can upset the balance in the economic mechanism and lead to a drop in efficiency and a rise in prices.

The pursuit of high growth rates led to curtailment of business activity and to a drop in production.

In 1984, growth amounted to 15.2%, in 1985 – 13.5%, 1992 – 14.2%, 1993 – 13.5%, which led to high inflation and the economy “overheated” .

The Chinese leadership decided that the optimal GDP growth in the IX five-year period (1996-2000) should be maintained at the level of 8-9%, which for Russia, which has an increase in the size of the statistical error, is a real miracle.

The fiscal policy was aimed at the excess of revenues over expenditures (and in 1996, revenues exceeded expenditures by 2%).

The world's largest trading port of Shanghai.
The world’s largest trading port of Shanghai.

In the field of foreign trade, the policy was aimed at increasing the export of Chinese goods.

Xi Jinping , who became President of the PRC on March 14, 2013, continued the previously adopted modernization strategy, adding some new elements.

The 3rd plenary session of the Central Committee of the Communist Party of China of the 18th convocation, held in Beijing on November 9-12, 2013, made new economic decisions, in particular:

  • The creation of the Shanghai Free Trade Zone and a number of other similar zones,
  • Creation of private banks of small and medium scale,
  • Creation of a bank deposit insurance system,
  • Sale of rights for long-term lease of land owned by peasants at market prices is allowed,
  • Foreign capital is allowed to enter the previously closed spheres of finance, education, culture, medicine, services, construction, etc.

One of the most significant projects under the leadership of Xi Jinping was the idea of ​​creating a trans-Eurasian bridge called the Silk Road, which involved the intensification of cooperation with neighboring states.

This thesis includes the further development of ideas: improving the transport infrastructure of the Great Silk Road and creating free trade zones with neighboring states, including Russia.

Of course, you should not take this statement literally, some members of the Indian government are not idiots at all, they are simply not interested, for various reasons, in developing our own country. corruption is the another obstacle for our country as well as willing power .

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