Causes of Chinas Economic Growth

0
832

In 1978, Deng Xiaoping introduced began a series of reforms known as gaige kaifang, or “reform and opening up.” These were intended to jumpstart China’s economy and caused rapid economic growth in China. Major causes of China’s economy growth included the end of the commune system in farming, expansion of private business ownership and increased foreign investment in China.

End of the Commune System in China

The late 70s and early 80s saw the break up of the Mao-era communal farming system; this was one of the major causes of China’s economic growth in the reform era. During the Mao era, farms were organized into communes of workers that were obligated to give excess production to the state.

When Deng Xiaoping’s reforms hit, communes were reverted into traditional family style farms. This was a major step forward for China’s economic growth because it created incentive for farmers to produce more. This excess created higher incomes and allowed rural residents to engage in small-scale rural enterprise.

Private Business Ownership in China

One of the primary causes of China’s economic growth was the loosening of restrictions on private businesses. Private enterprises began to sprout up, especially in the 1990s. These private enterprises quickly outperformed China’s state-owned enterprises (SOEs). SOEs were not immediately dismantled, but they performed poorly compared to new private enterprises. Private companies were driven by a profit motive, rather than a political one, and were highly efficient compared to the aging SOEs.

Foreign Investment During the Deng Xiaoping-era

The end of the commune system in the 1980s and expansion of private business ownership in China were important causes of China’s economic growth since 1978. However these were greatly aided by a huge influx of foreign investment during the Deng Xiaoping-era. Deng Xiaoping opened the door to foreign investment starting in the late 70s.

Foreign investment created badly needed infrastructure in the form of facilities like factories and other production centers. This also meant jobs and rising incomes for huge numbers of Chinese people. Furthermore, foreign investment created opportunities for transfers of technology as well as increased exports. From 1981 to 1994, for example, exports rose 19 percent per year.

From 1978, China embarked on a plan of economically liberal reforms. Deng Xiaoping’s reforms included the end of the commune system, expansion of private business ownership and increased foreign investment. These all proved to be important causes of China’s economic growth. This created the huge growth rates and rise in GDP in China that continue today.