Determine Policies and Strategies of Growth - Essay Example

Name Class Unit Title: It is the context and circumstance prevalent in any nation that should determine its policies and strategies of growth Introduction The context and circumstances that are prevalent in a given country should determine its policies and strategies for growth. China is a good example of the countries whose context and strategies have determined polices and strategies for growth. In 1978, China was among the poorest countries in the world (Petras 2000, p.112 ). At that time, China has a GDP that was about one fortieth of the US level. Two years after the death of Mao Zedong, china was able to attain tenth of the largest economy globally. This was about 6% of the USA GDP. China started their economic reforms in 1979 and has been able to maintain a growth rate of 9% over the years. Before the economic reforms, china’s industries were highly nationalised. The country land was collectivized through communal ownership (Zhang 2007, p.21). This essay will look at the context and circumstances that were prevalent in China which has determined the policies and strategies for growth. Before the economic reforms, China was a pure socialist state. The country had its industries nationalised and communal ownership. The country had no private investments during the time. This was a major hindrance to economic growth. The country required growth strategies that would reduce government control on the industries. By 1978, the country had three quarters of their industrial output from the state run firms. The government started to work in making the country economy self-sufficient (Peerenboom 2007, p.197). This was done through limiting the imports to include goods which could not be gained domestically. This move made the country economy stagnant and led to poor efficiency. There was low incentive for the private investors. The country also had price and manufacturing controls which acted as barriers to private investors. Coupled with political and social disruptions, the country had low net growth for many years. The standards of living were low behind other developing countries (Peerenboom 2007, p.197). The socialist planned economy was the context of China. This is a market system that lacked market institutions and incentives hence required reforms. The country required change after undergoing 30 years of planned economy. China required increasing its exports through its reforms. This is due to fact that a developing country can enhance its economic growth through specialising on human capital and goods. China had to come up with strategies aimed at increasing their exports. The strategies aimed at increasing exports led to high productivity, efficient use of resources and technological innovation (Peerenboom 2007, p.197). To achieve growth, the country had to make major reforms which would support economic growth. The reformist leader was Deng Xiaoping who came to power in 1978. China had to undertake a gradual economic reform that would make them achieve significant growth. The country could not come up with strategies and policies that were rushed due to the context. Economic reforms were carried out in a gradual manner to avoid crisis in the initial steps of the reforms (Peerenboom 2007, p.197). The country changed over time based on the context of a socialist market. This is through looking at what was achievable without specifying the final destination. China took an incremental approach in their economic transition. The farm economic reform carried out by the country was allowing farmers to sell their produce to private sector industries. There was also establishment of special economic zones along the country coastline for any firm that wanted to take advantage of the country cheap labour. This was a major step in attaining technology and encouraging exports (Zhang 2007, p.21). As the country grew, it became easier to integrate into the international market. China had to create favourable conditions for economic growth. This is due to high centralisation and quality of human capital among other factors in the socialist planned market (Zhao 2008, p.813). China had to carry out a lot of decentralisation and improve the quality of human capital. The country had a difficult past and required to grow in a short span. The growing globalization worldwide helped a lot in the country economic growth. The country encouraged large scale investments which were financed by both domestic savings and foreign investments. There was also a large growth in the country productivity. Through carrying out economic reforms, China was able to increase the efficiency of their economy (Allen, Qian & Qian 2005, p.67). It is also important to note that china lagged in world trade since they were not members of World Trade organisation (WTO). This is another context that China economic growth should be looked at. The country had to join WTO in order to open its market. It took 15 years of prolonged negotiations for the country to join WTO. The country became a member of WTO in 2001. Since accession to WTO, China has been able to become the gain remarkable. The country has been able to make their market more transparent hence attracting more investors (Peerenboom, 2007 p.197). While taking a route to globalisation, the government looked at the context of China as a developing country which had to endure the challenges of the new economy. China growth has been driven by investments led by foreign direct investments and domestic savings (Yao, 2006 p.343). The country lacked adequate infrastructure before the reforms. This implied that for China to attain investment, they had to improve on their infrastructure. The infrastructure was about 14 % of the country GDP by 2006. The country massive economic growth has thus been highly supported by high investments in infrastructure (Allen, Qian & Qian 2005, p.76). Due to the context, China had to set their sources of infrastructure based on three broad channels. The channels are; market based investment, borrowing and investment from fiscal resources. These sources determined the policies and strategies for growth that china had to use. Due to fact that the country urban infrastructure is under the local responsibility, most of the infrastructure spending was done by the local governments. The country started reducing funding of infrastructure from the state and central budgets as the subnational governments gained more autonomy in decision making process (Peerenboom 2007, p.197). The country state owned enterprises encouraged risk taking unlike in countries such as India which are more bureaucratic. Through setting up policies that would encourage infrastructural investments, china was able to improve the competitiveness of its economy. This is especially the manufacturing sector which was capable of attaining great flow of foreign direct investment (Bosworth & Collins 2007, p.7). The growth policies and strategies in China were gradual. The country adopted an approach where one process led to another until the process became cumulative. The country worked to move from a planned economy to market based economy. The country was initially labour surplus with high unemployment (Zhao, 2008 p.810-13). The government preferred to disguise unemployment rather than seeing it as threatening. The government needed to reduce the level of unemployment in the country. The first reforms looked at the rural areas. Being a socialist republic, the communes had to be disbanded and all individual incentives restored (Allen, Qian & Qian 2005, p.79). Due to massive unemployment that had been disguised earlier by the government, the country came up with rural industrialisation policy. The establishment of the household responsibility system proofed that a lot of people in the farm labour force could leave it without affecting the output (Lin, Cai & Li 2003, p.23). The country policy on rural industrialization became a vital source of employment in the rural sector. In china, it is important to note that before reforms, the government did not give the households a right to sell their produce under an open market. Through making reforms in the rural areas, it became possible for them to save. The production in the rural areas increased and became more efficient. This led to entrepreneurship and more savings (Bosworth & Collins 2007, p.7). Before the reforms, China had a high level of poverty. The country had failed in attaining minimal level of living. The country was forced to come up with macroeconomic policies that would alleviate poverty and enhance incomes for the poor. After the reforms, the number of people living below the poverty line decreased. Before the economic reforms, most of the people in the rural areas lived below the poverty line. The country was able to reduce poverty from 30.7 in 1978 to 8.8 by 1992 (Peerenboom 2007, p.197). This is through enhancing the food security and production. Compared to other developing countries, China was able to reduce the poverty levels and attain an outstanding performance. The commune institutions had contributed to an increase in poverty. Despite this, the disappearance of the commune system acted as a disadvantage for the elderly and poor people who did not have to pay for some of the basic services such as health and education. The elimination of the commune system was substituted with rural industrialisation policy which led to labour intensive industries where employment in rural areas was increased. China has already established a lot of anti-poverty policies in the countries targeting particular groups and regions (Allen, Qian & Qian 2005, p.63). The second strategy for economic growth was an incremental process of reforming the country urban economy. China, unlike most countries had a lot of state owned enterprises with managerial autonomy. The state owned enterprises were inefficient due to principal agent problems. Liberating the state owned enterprises was a move that would increase competition in the market and increase efficiency. This context was unique to china since the communist government owned a lot of state enterprises (Blanchard & Giavazzi 2006, p.13). China lacked a vibrant private sector prior to economic reforms. There was need for more radical reforms that could help to make the private sector more vibrant in the country economy. For the first time, the country acknowledged and accepted the private sector. The country also enhanced rural to urban migration to cater for the labour needs. This led to an increase in growth of urban economy (Bosworth & Collins 2007, p.3). After China had decentralised most of the state institutions, the social institutions played a major role in the development of economy and social affairs. Social institutions played a major role in human development in cases where the state institutions could not provide social services. Through the use of social institutions, the country set up welfare systems. These were systems designed to cater for the interest of the inhabitants of the areas in which they belonged. State provided education was not sufficient and non-governmental organisations started becoming involved in opening schools (Chen & Feng 2000, p.7). As China growth reached its peak, the country was forced to make changes in policy and structure. The changes were necessary to ensure that the value of economic growth was increased among the Chinese community. There was also need for policy changes that could ensure that the country sustains its growth into the future. There were pressures coming from the economic development, scarcity of labour and increase in real wages. The old patterns of growth were having an impact leading to these changes. Thus, China was made to adopt a modern model of economic growth. Through the social institutions, the country was able to provide human development where the state was unable (Blanchard & Giavazzi 2006, p.12-13). The old model of growth came to its limits at the end of the first decade of 21st century. The inequality in incomes among the rural and urban population was high. Purchase of peasant land for industrial development was becoming controversial. The country was also contributing highly to greenhouse gases. All these reasons led China to move to a new growth model. The transition to the modern economy in China is characterized by reducing GDP, high investment in education, legal reforms, structural changes to technology industries, advanced market economy and enhanced quality of education (Chen & Feng 2000, p.8). China investment in human capital through education has been aimed at ensuring that there is sustainable development. The country realized that it cannot grow rapidly without a literate labour force (Peerenboom 2007, p.197). The country has realized that education has been one of the biggest failures during the reform period. Before the reform, the Marxist and Mao Zedong thoughts had discouraged attaining education. The education system in the country had been crushed and most of the employees were not well trained. Thus, the reform period had to work hard in ensuring that the workforce is modernized through education (Chen & Feng 2000, p.9). China economy was highly centralised before reforms. This implied that all strategies that the country undertook had to decentralise the economy. The country had to make sure that economic control by the central government was reduced (Zhang 2007, p.21). The country economy reforms were the major contributor to the growth. The country had a large population which was willing to work for lower wages in the private sector. China context and circumstances determined its policies and strategies for growth. The country was emerging from a socialist controlled market to a market economy (Chen & Yao 2006, p.23). This implies that there was a need for adequate modernization and infrastructure for the country. There was a need for incentives and motivation for private investors. The country required to ensure that its strategies and polices were aimed at liberating the market. Polices and strategies ensured that the country moved from socialist controlled market to a free market economy. The country has been able to attain large growth making it a leader in international trade. China transition led to benefits which have seen the economy continue to grow to this day (Blanchard & Giavazzi 2006, p.15). Conclusion As explained in the essay, China context and circumstances determined its policies and strategies for growth. The country was initially having a highly controlled market where the state had control of resources. There were no private enterprises and the level of poverty and unemployment was high. The country had to reform their market from the socialist controlled market to free market economy. The number of state owned enterprises had to be reduced through privitisation. China had to increase their level of infrastructure and reduce the level of unemployment. This was catered for through the rural industrialization policy and allowing farmers to sell produce to private investors. The country also increased their infrastructure spending. Accession to WTO makes China a favourable trade partner globally. As the country growth reached its peak, the circumstances brought by the impacts of economic growth led to need for a new growth model. From the essay, it is evident that the growth strategies and policies that china adopted were based on the context and circumstances that were present. References Allen, F., Qian, J., & Qian, M. (2005). Law, finance, and economic growth in China. Journal of financial economics, 77(1), 57-116. Blanchard, O., & Giavazzi, F. (2006). Rebalancing Growth in China: A Three‐Handed Approach. China & World Economy, 14(4), 1-20. Bosworth, B., & Collins, S. M. (2007). Accounting for growth: comparing China and India (No. w12943). 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