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The
Chinese Economy
By
October 1, 1999, the PRC had undergone a glorious yet
tortuous course of 50 years, amid great changes in
Chinese society.
Before
the founding of New China in 1949, China's highest yearly
outputs of major industrial and agricultural products were
445,000 tons of yarn, 22.79 billion meters of cloth,
61,880,000 tons of coal, 320,000 tons of crude oil, 6
billion kwh of electric energy production, 150 million tons
of grain, and 849,000 tons of cotton.
Since
the founding of New China, especially in the 20 years after
the start of reform and opening to the outside world in 1978
China has made great achievements in economic construction
and social development.
In
1998, the GDP was 7,955.3 billion yuan, an increase of 6.4
times over 1978, at constant prices; the outputs of some
major industrial and agricultural products, such as grain,
cotton, meat, edible oil, coal, steel, cement, cloth and TV
sets, leapt from a backward position to first place in the
world.
In
accordance with Den Xiaopeng's theory of building socialism
with Chinese characteristics, the 13th National Congress of
the CPC, held in 1987, adopted the strategy of three stages
for China's economic construction;
First,
doubling the GNP of 1980 to end shortages of food and
clothing, which was basically completed at the end of the
1980s; second, quadrupling the GNP of 1980 by the end of the
century, which was achieved in 1995, ahead of schedule.
Thus
the Chinese government worked out the Ninth Five-Year Plan
for National Economic and Social Development and Long-Term
Objectives for the Year 2010, which put forward new
objectives;
 Those
for the Ninth Five-year Plan (1996-2000) were as follows -
Complete the second phase of the strategic plan for the
modernization drive in an all-round way and quadruple the
per capita GNP of 1980 in 2000, when the population will
have increased by about 300 million over that of 1980; raise
the people's living standard to that of a fairly
comfortable life, with poverty practically eradicated; and
expedite the formulation of a modern enterprise system and
initially establish the basis of a socialist market economy.
The
objectives for the year 2010 are to double the GNP of 2000
so that the people will enjoy even more comfortable
lives, and bring a more or less complete socialist market
economy into being.
With
the fulfillment of these goals China's productive forces,
overall national strength and the people's living
standards will have gone a big step further, and the
country's social and economic aspects will have undergone
historic changes, laying a solid foundation for the realization
of modernization.
Overview
It
has been only in recent years that the economy of China has
improved. Early in history, it was an agricultural
controlled culture, manned by the peasants. Essentially, it
was an economy owned by a unitary public. It was a weak
economy in which there was an unbalance between industries.
At
first, China had a potentially progressive economy, however
it seemed to diminish during the 13th and 14th
centuries. One due to the massive amount of manpower
available, which in turn discouraged the development of time
saving methods.
The
other was the strict rule of the government, one that
didn’t encourage personal initiatives and creativity. It
lacked vitality and life. Because of its weak economy, it
fell easily to political powers stronger that itself. By
1949, China was ready to reconstruct the country.
Travel
Information on China
Unfortunately,
most of the industries were around the coastal regions,
where most of the foreign companies had set up business. It
was during this time that economic policies were set into
play. First, it was important to strengthen the role
agriculture played.
Second,
the imbalance with industry between the coastal regions and
the inner regions needed to be corrected. In order to do so,
a plant was built in towns without industry, closer to where
the raw materials could be obtained. To open up desert areas
for further expansion, they improved land drainage, river
control and dam construction. Also, they laid out improved
roads and further expanded the railway system.
By
1976, another five-year plan was set into motion. Reforms
were introduced in agriculture and industry. Mainly to
encourage private, profiteers to the economy.
It
was during the 7th five-year plan that the
economy began to improve. Prices, taxation, credit and wages
were regulated. Also, coastal regions and towns were given
economic privileges, including better working conditions.
These led to a larger increase in the gross national
product. It also led to higher levels of inflation and
helped to decrease the budget deficit.
The
8th five-year plan was a continuation of
improving raw material production.
By
1992, state controlled industry declined, given precedence
to the private industries. Since reformation, many outside
foreign companies have been interested in China. However,
most of the interest has been relegated to the coastal
areas. Those on the interior of China have had the least
growth.
This
is one of the problems faced with economic growth. Another
is the loss incurred by the state run industries. In turn,
many workers are leaving the inland industries and head to
the coastal provinces for better work.
The
ninth five-year plan put together new objectives. One of
which was to continue with the plan for modernization in an
all-round way. Also, to raise people’s standard of living
and have poverty almost erased. Basically, establish the
basis of a socialist market economy. By 2010, China hopes to
double the gross national product of the year 2000, to bring
people to an even more comfortable standard of living.
China
has maintained favorable trade relations with other
countries since the 1990’s. Unfortunately imports from
South Korea, Japan, Taiwan and Hong Kong are higher than
exported goods. These countries generally are importing
machinery, transport equipment, and chemical products into
China. The three top trade partners are Hong Kong, Japan and
the USA.
Another
source for the upkeep of the economy is the reliability on
tourism. The riots and trouble in Tiananmen Square abruptly
stopped all tourism in the area. With "Visit China
Year" designated in 1992, tourism increased to about 4
million. Unfortunately, problems with not enough hotels, bad
accommodations and not many flights into the area, are
slowly pulling down the potentially high tourism trade.
Airports can usually be found in the Special Economic zones
and around the coastal areas.
Establishment
of the Diversified-Ownership Economy
Before
the introduction of policies of reform and opening to the
outside world, China had a unitary public ownership economy,
which lacked vitality. But since the putting into
practice of the reform and opening to the outside world, the
Chinese government has encouraged the development of
diversified economic elements while insisting on the primacy
of public ownership.
As
a result, both the individual and private economies have
developed rapidly. By the end of 1997, the registered
industrial and commercial enterprises of individual and
private ownership amounted to 29.47 million, and they had
65.87 million employees; Chinese-foreign joint ventures,
Chinese-foreign cooperative enterprises and foreign ventures
numbered 236.000, absorbing 303 billion yuan in foreign
capital; registered joint-stock and joint-stock cooperative
enterprises numbered 680,000, with 1,730.2 billion yuan in
capital. The development and expansion of these
enterprises have played important roles in many aspects,
such as bringing convenience to people's everyday lives,
making up for the deficiency of construction funds, and
introducing advanced technologies and management from
abroad.
At
the same time the control of the public-ownership economy
has been further strengthened. In 1997, the gross
domestic product turned out by the public-ownership economy
amounted to 75.8 percent of the total GDP. Now the
mutual development pattern for diversified ownership with
the public ownership economy as the mainstay has been
basically formed.
THE
TREND TOWARD A COORDINATED ECONOMIC STRUCTURE
Before1978,
China's economy had a weak foundation in agriculture, and
the ratio between light and heavy industries was unbalanced.
Since 1978, China has adopted a series of policies and
measures giving priority to the development of light
industry, expanding the import of top-quality consumer
goods, strengthening the construction of basic industry and
facilities, and devoting major efforts to developing
tertiary industry, so as to make China's economic structure
more coordinated, optimized and balanced.
The relations
between different industries and within industries in terms
of proportion have clearly been improved; the proportion of
primary industry has declined, while that of the secondary
and tertiary industries has grown; the growth of the overall
national economy was driven formerly by the primary and
secondary industries, but now it is being driven by the
secondary and tertiary industries. Actually the growth
of secondary industry becomes the main engine of rapid
development for China's economy.
While
the whole industrial structure is changing, the internal
structure of every industry has also changed greatly.
In the total output value of agriculture, forestry, animal
husbandry and fisheries, the proportion of pure-agricultural
output value has declined, while that of forestry, animal
husbandry and fisheries has grown; the structure of light
and heavy industries has escalated from the light pattern
structure stressing "consumption compensation" to
the heavy-pattern structure of "investment
guidance"; within the tertiary industry the proportion
of the traditional industries, such as communications,
transportation and commerce, has declined, while real
estate, banking and insurance, and telecommunications, have
developed rapidly.
ECONOMIC
RESTRUCTURING
The
Third Plenary Session of the CPC 11th Central Committee,
held in 1978, made the decision to shift the policy stress
to socialist modernization, and implement the strategic
decision on reform and opening to the outside world.
The reform began in the countryside: The contracted
household responsibility system linking remuneration to
output and the two-layer management system featuring the
integration of centralization and decentralization began to
be implemented; centralized and assigned purchases of
agricultural and sideline products were gradually
eliminated, and controls on the prices of most agricultural
and sideline products were relaxed; the adjustment of the
industrial structure in rural areas, the development of
diversified operations and township enterprises mobilized
the peasants' socialist enthusiasm for production.
The
Third Plenary Session of the CPC 12th Central Committee,
held in 1984, adopted the Decision on Restructuring the
Economic System, which signaled the elevation of the reform
of China's economic system to an urban-centered stage.
The
14th National Congress of the CPC held in 1992 established
Deng Xiaoping's theory of building socialism with Chinese
characteristics as the guiding policy in China and put
forward the goal of China's economic reform as establishing
a socialist market economy system.
Its principal contents may be summarized as follows:
Adopting a series of macro-adjustment and control measures
to carry out the reform in depth and in all aspects, public
ownership will continue to be the main form of ownership as
various types of ownership are jointly developed; the
operation mechanism of state-owned enterprises will be
further transformed to meet the requirements of the market
economy; the property rights and responsibilities of
enterprises will be clearly defined, the functions of the
government separated from those of enterprises, and
enterprises scientifically managed; an open an unified
national market system will be established, closely
integrating urban and rural markets, providing for
reciprocal flows between domestic and international markets,
and promoting the optimization of resource allocation;
changing the government's function in economic management
and establishing an optimal macro-regulatory system chiefly
employing indirect means; an income distribution system
based on distribution according to work will be established
in which efficiency is given precedence and fairness in
distribution is taken into account' a multi-tier social
security system will be set up to accelerate the development
of China's economy.
The 15th National Congress of the CPC, held in 1997, put
forward the viewpoint that the non-public-ownership sector
is an important component part of China's socialist economy.
Encouraging essential production factors, such as capital
and technology, to participate in the distribution of gains
enables the reform of China's economic system to take bigger
steps. By 1998, the reform had gone smoothly in every
aspect, and important progress had been made in solving some
difficult problems.
For instance, much work had been done to deepen the reform
of the grain circulation system, the reform of state-owned
enterprises and the reform of the banking system, and new
achievements had been made. Reforms had been proposed
for the housing and medical insurance systems; and plans for
the reform of the investment, banking, financial and
taxation systems were being formulated. The
institutional restructuring of the State Council has been
going smoothly and has achieved important results.
Now, China's socialist market economy system is being set
up, the basic functions of the market in resource allocation
have been obviously strengthened, and the initial framework
of the macro-adjustment and control system has taken shape.
Moreover, the form of economic growth is changing from the
extensive to the intensive type. By 2010, China will
have established a comparatively sound socialist market
economy, which will be comparatively mature by 2020.
THE
SOCIALIST MARKET ECONOMY
Since
1978, along with the dismantling of the planned economy
system and the deepening of the reform of the economic
system, commodity, capital, labor service and technology
markets have appeared one after the other in China.
Now China has transformed its planned economy system into an
initial socialist market economy system. As a result
the regulatory function of the market has been strengthened
considerably.
Commodity
Market: In order to extend the regulatory function
of the market, the state has gradually reduced the
categories of products for planned production, eliminated
the restriction that enterprises were only allowed tn engage
in production but not in business operation, and abolished
the practice of the state fixing the commodity prices.
As a result, the rights of the enterprises to purchase,
produce and sell have been extended.
Enterprises may organize and establish wholesale markets and
trading centers; the wholesale and retail commercial systems
are being restructured; and the non-public economy is
allowed to take part in commercial activities. Through
the reform, the unitary pattern in which the public economy
monopolized commercial activities has been broken up step by
step, and the commodity market pattern of diversified
economic elements and operation forms with the public
ownership of commerce as the main body has been established.
Before 1978, there were 791 products belonging to means of
production allocated according to state plans, but now only
five of them remain, and the rest have entered the market.
Now, thousands of department stores, supermarkets and chain
stores are scattered everywhere in both rural and urban
areas.
A great variety of food, clothing and other commodities
satisfies the needs of consumers. The total market
sales grow with each passing year. in 1998, the rural
market achieved 1,132.7 billion yuan-worth of sales of
consumer goods, 12.9 times the figure in 1978; the urban
market achieved 1,782.5 billion yuan-worth of sales of
consumer goods, 23.8 times the figure in 1978. At the
same time a buyer's market has appeared in the commodities
sector in which the supply and demand of most commodities
are kept in balance, the supply of some gods exceeds the
demand, price trends are steady and the guiding function of
the market for producers has been strengthened.
Price
Reform: Before the reform and opening was
introduced, most commodities on the Chinese market were
priced by the state. But since the start of the reform
and opening, along with the expansion of the commodity
market scale and the change of the relations between
commodity supply and demand, the state has carried out price
reform step by step and according to plan.
The fixing of prices by the state follows three forms: the
fixing of price by the state, state guiding prices and
market regulatory prices. The market regulatory price
has been gradually relaxed - by 1998 the pricing of 95
percent of consumer goods and 80 percent of investment goods
had been relaxed. These prices were regulated mainly
through the relations between market supply and demand.
A socialist market pricing mechanism is gradually taking
shape.
In
the pricing system the irrational state of basic product
prices being too low has been improved, and the pricing
structure is becoming more rational, step by step.
Comparing 1997 with 1978, the prices of minerals, raw
materials and manufactured products increased 8.2, 5.2 and
3.3 times respectively, and their price ratio was 1.7:1:0.6.
Besides, the price scissors in the exchange of industrial
products for agricultural products were alleviated.
In 1997, the prices of agricultural products increased by
5.25 times, compared with those of 1978, and the prices of
industrial products by 2.95 times, and their price ratio was
0.6:1. In accordance with the requirements of the
socialist market economy, China has been establishing a
pricing mechanism macro-regulated and controlled by the
government, and fixing prices through the market.
Capital
Market: Since the reform and opening began, China
has continuously expanded the capital market by improving
the credit and loan mechanism, and developing stock and
state debt markets. At the beginning of the 1980s, the
reform of the credit and loan mechanism, beginning with
"unified plan, multi-level control, connection of
deposits with loans, and being responsible for making up
differences" developed in accordance with the ratio
between assets and debts, and eliminating the limits for the
sizes of loans, re-discounting, reserve fund rates and
making market business public, thus standardizing and
strengthening the control and adjustment of the credit and
loan market.
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