China’s Political Economy

Winston Smith

“Political work is the life-blood of all economic work.”

-Mao Zedong

The nation of China is growing to become one of the world’s leading economic and political powerhouses. While the People’s Republic of China has only existed in its current form  for just over the past 65 years, the government has taken actions that directly affect the economy of the China and its people. Through a costly revolution and years of strife, that were the result of state implemented programs, the Chinese economy has become the economic powerhouse of East Asia. This type of rapid economic growth is highly unusual and seldom seen in the modern world. So how did the Chinese government take a mainly agrarian country and rocket it onto the world stage in such a short amount of time?

China has had a tumultuous history in the modern era. In the last 65 years, the country experienced a dramatic change in regime type which changed the landscape of China for years. Post World War II, lead by Mao Zedong, the Chinese Communist Party established an autocratic socialist system. Authoritarian socialist systems have been used to describe many of the communistic governments that we have seen emerge, such as the Soviet Union. This style of government melds both the authoritarian decision making of the executive with the economic structure of socialism. What is also important to note is that these symptoms reject liberal democratic values.

Nevertheless, this type of regime structure leaves little the imagination for how the political economy of China functions. Simply, political economy analyzes the effect of politics on economy including how the political state affects gross domestic product (GDP), GDP growth, GDP per capita, inflation, unemployment, trade, and other various economic barometers.

In 2015, China had a GDP of 11.06 trillion dollars, larger than its 2014 GDP by over 500 billion dollars. Comparatively, China has the second highest GDP, being beat by the United States by nearly seven trillion dollars. China’s GDP growth rate has been unbelievably high for many years, with China having a growth rate of 6.9% in 2015, 7.29% in 2014, 7.75% in 2013, and 7.85% in 2012. There are some that believe China’s GDP growth is understated. In addition, China has experienced a relatively low inflation rate for the last four years. In 2016 China’s annual inflation rate was 1.99%, with inflation that inflation rate being lower in 2015 and 2014, 1.62% and 1.41% respectively.

However, while China has a large GDP, its GDP per capita leaves much to be desired. While GDP is a fair measure for the economic strength of a country, GDP per capita divides the GDP by the number of citizens, and measurers the overall well being of the people and the value of what they produce. In 2015, the Chinese GDP per capita was $8,069.21. This is very weak when compared to other economic leaders such as United States ($56,115.70), United Kingdom ($43,929.60), and Germany ($41,178.50). Compounding on a low GDP per capita, China’s unemployment is relatively high. Between 2002 and 2009, China’s unemployment rate was nearly 11 percent, which is nearly double the official reported number. The below chart further exemplifies the difference between the reported and actual unemployment rate:



In addition, there is growing economic disparity within China. While between 1978 and 2015 “[w]e find that the aggregate national wealth-income ratio has increased from 350% in 1978 to almost 700% in 2015,” which has been attributed to the “combination of high saving and investment rates and a gradual rise in relative asset prices,” the “top 10% income share rose from 27% to 41% of national income between 1978 and 2015, while the bottom 50% share dropped from 27% to 15%.”

In terms of trade, China has a comparative advantage in its trade relationship with the United States. From January 2017 through March 2017 the United States imported 108.34 billion dollars worth of goods from China while only exporting 29.49 billion dollars worth of goods to China, leaving China with a trade imbalance of 78.84 billion in their favor. In 2016 and 2015 the trade imbalance totalled 347 billion and 367.17 billion respectively. This is indicative of the historic trade imbalance with the United States wherein China has been exporting substantially more and importing much less. The trade imbalance between the US and China illustrates China’s trade practices. The Economist describes China’s protectionist trade policy:

Its tariffs may be low, but it lavishes subsidies on favoured domestic companies and discriminates against foreign ones, especially in sectors such as energy and transport, forcing them to surrender their technology and tolerating brazen intellectual-property theft.

The Chinese government’s role in its economy, as would be expected from an authoritarian socialist regime, is massive. China has been heralded as “the most successful case of economic reform among communist planned economy in the 20th century.” During 1978, the Chinese leadership was seeing a lack of economic results from their 1976 10-year plan. As a result of this, Deng Xiaoping, head of the Chinese Communist Party, presented a new economic plan in 1978 which would leave the state structure of control over the economy intact but also implement some “market forces” into the economy. This new plan had the state gradually recede control over the economy while “cautiously experimenting with new institutions and implementing them incrementally within existing institutional arrangements.”

The “Quiet Revolution” is the way in which the Chinese government has been moving towards a more capitalistic and free market economy. The Chinese government has even created areas within the country called special economic zones (SEZ) in which “in which foreign and domestic trade and investment are conducted without the authorization of the Chinese central government in Beijing.” These areas of commerce have allowed China to develop economically through an influx of foreign investment which has been an “instrumental role in the integration of China to the global economy and in its economic development.”

In addition to the SEZ’s, Deng Xiaoping created the constitutional principle of “One country, two systems” for unification of Chinese territories such as Macau and Hong Kong. This principle allowed Hong Kong and Macau, a resort city in Southern China, to develop into special administrative regions (SAR) within China. These SAR’s were allowed to retain their capitalistic economic systems, currency, legal system, legislative system, and human rights systems for fifty years after their merge with the People’s Republic. This means that Hong Kong will remain and SAR until 2047 and Macau until 2049.

The SAR’s are true economic pillars for the Chinese economy. For example, Hong Kong is the premier financial and business center of Asia and accounts for nearly 90% of China’s GDP. in 2015 Macau’s GDP per capita is the third highest in the world with an astronomical $78,481.80 while Hong Kong’s GDP per capita was a hearty $42,327.80.

In its short existence, the People’s Republic of China has burst its way onto the worldwide economic scene. Its economic growth and strength is impressive, but many see issues with its stability and sustainability. In addition to this, there are concerns over the veracity of economic data that leave China to percolate in the world’s economic system. What is certain, though, is that the economy of China has been subject to the hand of its political system and will be for the foreseeable future. What is clear is that while the Chinese regime began with tight control over all aspects of the economy, it has moved more towards a free-market based economy, with Chinese characteristics. This makes it difficult for this writer to conclude whether the Chinese government has overall had a positive impact on its economy. Certainly, in its move towards free-market principles, China has exploded in economic growth. Does this mean that China is losing out on potential economic benefit by only adopting these practices in their SEZ’s? Or is this the benefit of a merge of socialism and capitalism? Whichever the case may be, China’s political economy is unique and continues to be worthy of further study.

Image Source: AFP

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