China’s economy is currently the second-largest in the world, having risen from comparative obscurity in 1979 with a series of free-market reforms. Before then China had a command economy with government-set production goals, price controls and resource allocations. The reforms of 1979 relaxed pricing and ownership rules, established coastal trade zones to attract foreign investment, decentralized governmental economic authority and lowered protective trade barriers. Those reforms had their intended effect.
China's and other major economies' GDP, 1960-2015.
The basic strategy behind promoting maximal economic growth has not changed: to create a stable society for a massive population, which in 1979 numbered 986 million and today 1.413 billion (an increase of more than 40% in less than two generations, despite the One Child Policy). China aggressively pursued an export economy based on manufacturing, focusing first on low-end, inexpensive products.
China per-capita GDP, 1950-2018.
However, due to a number of factors that has changed over the decades. Other nearby countries such as Thailand and Vietnam have also moved into the low-end manufacturing market, providing real competition for labor. Secondly, China has been somewhat the victim of its own success, with domestic economic growth leading to an increase in living standards and necessary increases in pay, so China has steadily priced itself out of its prior labor markets.
Since 2010 China has been the world’s manufacturing leader, taking over from the United States. Manufacturing comprises 40% of its GDP, and includes mining and processing of iron, steel and aluminum; weapons; textiles and apparel; petroleum; cement; chemicals and fertilizers; food processing, automobiles and consumer goods (including electronics). Services have grown to be an even larger share, however, including telecommunications, transportation and internet-based sales.
China GDP by sector.
The increasing price of labor has not proven any kind of fatal problem, however, as the country has moved into higher-end and heavier manufacturing. And despite is economic rise, China’s per-capita GDP is still 60th globally, well behind the most industrialized nations. But this has led to a conscious shift in policy from 2015 on in the Chinese government away from an export-dominated economy toward one which more emphasizes domestic consumption.
Chinese GDP change by percentage of previous year, 1980-2021.
Tomorrow: China and coal.
Be brave, and be well.
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