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China is one of the world’s oldest continuous civilizations. The history of China as recorded in traditional historical records extends back as far as 5,000 years. Recorded history is supplemented by archaeological records dating back to the 16th century b.c. Turtle shells with markings reminiscent of ancient Chinese writing from the Shang Dynasty have been carbon dated to around 1500 b.c. Chinese civilization originated with city-states in the Yellow River (Huang He) valley; 221 b.c. is commonly accepted to be the year in which China became unified under a large kingdom or empire. In that year, Qin Shi Huang first united China. Successive dynasties in Chinese history developed bureaucratic systems that enabled the emperor of China to control the large territory.

The entire Chinese landmass tilts from west to east. The Himalayas are a young mountain range, still rising by several feet per century because of the collision of the Indian subcontinent with the Asian landmass. This mountain-building process shapes the entire topography of China, creating a series of mountain ranges that are high and rugged in the west and taper off to low hills in the east. Broadly speaking, the land of China forms three great steps in elevation. The top step is made up of the frigid Tibetan Plateau, which averages more than 4,000 m. above sea level and contains the world’s highest mountains. The second step consists of a series of plateaus and basins with an elevation of between 1,000 and 2,000 m. These include the basins in arid northwestern China, the Inner Mongolian Plateau and Loess Plateau in northern China, and the Yunnan-Guizhou Plateau in southwestern China. The third step consists of the plains and low hills of eastern China, where the elevation is generally below 500 m. Even in the east, ranges of relatively low mountains create barriers to north-south transport. The three most important rivers in China, the Yangtze (Changjiang), Yellow (Huang), and Pearl (Zhujiang) rivers, all flow from west to east in accord with the basic topography.

China is the world’s most populous nation. About 20 percent of world population is Chinese, down from 30 percent in the 1950s. It is also one of the largest countries, with the third-largest landmass after Russia and Canada. Its land area is 2 percent greater than that of the United States. The western half of China is high and arid, and the population is sparse—only 6 percent of the population lives in the dry, mountainous west; 94 percent of the population lives in the eastern half of the country. China’s hilly and complex terrain means that relatively little of the land is suitable for cultivation. The good agricultural land lies in the fertile plains and valleys of the major river systems, separated from one another by hills and mountains. Only 15 percent of China is arable, and there is very little land potentially suited for cultivation that is not already exploited. Over the centuries China has adapted to land scarcity with a labor-intensive agriculture that wrests more total food grain from the soil than any other country.

China has substantial mineral reserves and is the world’s largest producer of antimony, natural graphite, tungsten, and zinc. With its vast mountain ranges, China’s hydropower potential is also the largest in the world. However, the distribution of mineral and energy resources in China is extremely uneven. The rapidly growing southern coastal regions have virtually no energy resources. Geographic constraints dictate that China must develop in a labor-intensive and, ultimately, knowledge-intensive path. Moreover, unrelenting environmental problems will make economic trade-offs more difficult and complex for the foreseeable future.

The Chinese Economy

The year 1949 appears at first to be a great divide in Chinese history. The government is radically different after 1949, and even more dramatic is the growth performance. Before 1949, China never launched into rapid, modern economic growth. Since 1949, China’s economy has grown rapidly, despite sometimes disastrous policies imposed during Maoist times. For more than a century—from the early 19th to the middle of the 20th century—China’s economic performance was mediocre at best.

Chinese traditional society was overwhelmingly rural, with over 90 percent of the population living in the countryside. After the People’s Republic of China (PRC) was established in October 1949, the Chinese economy was wrenched out of its traditional framework and completely reoriented. China’s new leaders turned their backs on China’s traditional household based economy, and set out to develop a massive socialist industrial complex through direct government control. Planners neglected labor-intensive sectors suitable to China’s vast population, and instead poured resources into capital-intensive factories producing metals, machinery, and chemicals. The early achievements of coastal enclave industrialization oriented to the Pacific were discarded, and a new inward-directed strategy was adopted. China turned to the Soviet Union as its primary model, as well as its chief trading partner and source of technology. For 30 years, China pursued this vision of socialism and this development strategy shaped virtually every aspect of the Chinese economy.

There were major shortcomings associated with the socialist development strategy. First, the single-minded pursuit of industrial development meant that consumption was neglected. Second, employment creation was relatively slow. Because most industry was capital-intensive and services were neglected, new labor requirements were modest. Third, much of the industrial investment was not only capital-intensive, but also relatively demanding technologically.

Beginning in late 1978, China’s leaders viewed China, quite correctly, as a low-income developing country, and the imperative of economic development was constantly on their minds. It was never conceivable to Chinese policy makers that their economy would postpone economic development until after an interlude of system transformation. Since China launched economic reforms at the end of 1978, market transition has extended over almost 30 years. The Chinese leadership has been moving the economy from a sluggish Soviet-style centrally planned economy to a more market-oriented economy but still within a rigid political framework of Communist Party control. Indeed, today China has already spent as long a period building a market economy as under Maoist socialism. China’s economy has been transformed by successive waves of economic reform.

China grew fast between 1949 and 1978, but growth really took off after the beginning of reform in 1978. Moreover, the acceleration of economic growth coincided with the slowing of population growth, so per capita growth accelerated even more dramatically. According to official data, the average annual gross domestic product (GDP) growth accelerated from 6 percent in the pre-1978 period to 9.6 percent in the 1978–2006 period. At the same time, population growth decelerated from 1.9 percent per year before 1978 to only 1.1 percent after 1978. As a result, per capita GDP growth more than doubled, jumping from 4.1 percent to 8.5 percent annually. China’s post-1978 growth experience has been extraordinary by any standard. The comparison of GDP between Chinese and other major economies in Asia and the rest of the world shows that China has maintained its GDP growth at the average of 8 percent since 2000, which is higher than Asia and much higher than the United Kingdom and the United States.

Pattern Of Chinese Development

Economic growth has been intertwined with structural changes throughout China’s economic development process. The command economy included policies restricting labor mobility and controlling prices, as well as neglecting agriculture and services. These policies all had ramifications for China’s growth and structural changes that caused a divergence from the development-process benchmark. Despite these divergences, China has followed general patterns of development found throughout the world.

The one-child policy has shaped China in many important ways and has had important impacts on its economic development. Since the late 1970s, especially since its introduction of the reform and opening program, China has formulated a basic state policy to promote family planning in an all-around way in order to slow population growth and improve its quality in terms of health and education. The government encourages late marriage and late childbearing, and advocates the practice of “one couple, one child” and of “having a second child with proper spacing in accordance with the lay regulations.” The Chinese government pays great attention to the issue of population and development and has placed it on the agenda as an important part of the overall plan of its national economic and social development. The government consistently emphasizes that population growth should be compatible with socioeconomic development and be concerted with resource utilization and environmental protection. After nearly 30 years of effort, China has successfully found its own way to have an integrated approach to the population issue with its own national characteristics.

Under the command economy there were no labor markets in China. Each worker was a lifetime member of one of the two vast systems of public employment, urban and rural. This system was slow to change, especially in the cities: employment in state-owned enterprises continued to grow well into the 1990s, nearly 20 years after the beginning of reform. But then, beginning in the mid-1990s, China laid off almost 50 million workers, 40 percent of the public-enterprise workforce. Today the entire system of government-controlled employment has dissolved, and active labor markets have developed nationwide, which create the foundation for a skilled and prosperous economy.

When the old system broke down, unemployment surged, and remains a serious chronic problem. The Chinese government recognized the importance of the issue of employment. It has explored and drawn on international experiences and adapted them for use in the domestic situation, formulating and implementing a number of proactive employment policies. For instance, new forms of employment mushroomed, such as jobs in foreign-invested firms and economic entities of diverse forms, part-time jobs, temporary jobs, seasonal jobs and work on an hourly basis, and jobs with flexible working hours, and became important avenues for the expansion of employment. In recent years, as the employment pressure has been continuously increasing, the Chinese government has adopted many measures to curb the sharp rise of urban unemployment. By the end of 2006, the registered unemployment rate in the urban areas was 4.3 percent, and the number of registered jobless urbanites was eight million.

China And Global Business

China has transformed into a global trade power. In 2005, China was the third-largest trading nation in the world (after the United States and Germany), and its trade is growing far more rapidly than that of any other large economy. China has now achieved a degree of openness that is exceptional for a large, continental economy. In 2005 China’s total goods trade (exports plus imports) amounted to 64 percent of GDP, far more than other large, continental economies—such as the United States, Japan, India, and Brazil—which have trade/GDP ratios around 20 percent, the highest being Brazil’s 25 percent. Trade liberalization has been an integral part of China’s economic reform process since its beginning. The most recent phase of trade policy reform began with China’s formal entry into the World Trade Organization (WTO), on December 11, 2001, which started the clock running on a series of liberalization commitments kicking in between 2001 and 2007. Besides marking a new phase of policy reform, WTO membership symbolizes China’s coming of age as a participant in the global economic community.

Investment and trade are closely linked in China and the global economy. For more than a decade China has been one of the world’s most important destinations for foreign direct investment (FDI). Investment began to pour into China after 1992, and annual inflows have been over $40 billion since 1996. Trending steadily upward, FDI inflows were at $63 billion in both 2004 and 2005. These inflows are by far the highest of any developing country and have remained remarkably stable and robust despite substantial fluctuations in the Asian and global economies. China has accounted for about one-third of total developing-country FDI inflows in recent years. There is no doubt that the global manufacturing networks created by FDI in China will continue to play a critical role in the world economy.

Future Challenges

For centuries the pressure of population on China’s limited natural resources has led to severe environmental degradation. A hundred years ago most of China had already been stripped of forests. Modern economic growth has created another set of challenges, creating massive pollution and apparently unsustainable demands on natural resources. Air and water pollution are damaging to human health, worker productivity, and agricultural output. The growth of industry and the growth of automobile transport are causing an increase in pollutants.

Since 1980 the quality of China’s surface water and ground water has deteriorated significantly under the pressure of rapid industrial development, brisk population and urban growth, and increased use of chemical fertilizers and pesticides. As a result, water pollution is now a serious problem for urban and rural drinking water. Moreover, critical environmental problems in China relate to the coordination of enormous demands on China’s natural resources. These problems are more difficult to quantify because a large but unknown share of costs is deferred to the future.

Environmental degradation has imposed serious costs on the Chinese economy and reduced the wellbeing of the Chinese population. Moreover, there is increasing public concern about environmental issues, and that concern has increasingly been publicly articulated. The government’s responsiveness to these protests will be a bellwether of its willingness to let public opinion serve as an input into economic decision making. In its most recent planning exercise, the five-year plan for 2006–11, the Chinese government called for a reorientation of the economic growth model toward sustainable growth with a lighter environmental impact. This shift in viewpoint suggests that government policy has begun to become one positive element in the complex mix of factors that determine China’s environmental trajectory. In combination with many other social, technological, and economic factors, that could turn China in the direction of gradual environmental improvement.

Bibliography:

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Lardy, “The First Five Year Plan, 1953–1957;
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Peng, “Is It Time to Change China’s Population Policy?” China: An International Journal (v.2/1, 2005);
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World Bank, China 2020: Development Challenges in the New Century (World Bank, 1997);
World Bank, China: Air, Land and Water (World Bank, 2001);
Wu, Understanding and Interpreting Chinese Economic Reform (Thomson, 2005).

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