United States, China, Japan, Germany and the United Kingdom - these are the five major pillars and players of the world economy. Amongst all those top world economies, China undoubtedly is the most intriguing and fascinating economic phenomenon in our time. A country of more than a billion people that managed in less than 70 years to go from a poor and isolated country to one of the world’s greatest and strongest economies. Many questions whether China’s high-growth economic miracle could continue its success or it is a bubble that is doomed to pop soon. That’s what I will try to find out in this essay.
First of all, the reforms introduced by Deng Xiaoping in 1979 certainly created an economic miracle. China rapidly improved living standards and eased food shortages. Shortly after, an annual growth rate of 9% had been achieved during 1979 -1990 and 10.4% in 1990-2010. This was a dramatic change and progress on a scale that could be seen in the performances of transitional economies in Eastern Europe and the former Soviet Union. [1]
Rapid economic growth was possible due to numerous structural transformations – in particular, urbanization and industrialization. Great role has played the re-establishment of diplomatic ties between China and US, as well as China’s membership in The World Trade Organization in 2001. As a result, trade barriers and tariffs with other countries were lowered, leading Chinese goods to spread around the world and providing the global market with Chinese cheap labor, thus enabling China to gain a huge amount of capital.
The phenomenon of the Chinese economy can also be seen in the country’s capacity to overcome world economic crises. When the Global Financial Crisis stroked in 2008, China's GDP fell to 6.2% in the fourth quarter. In 2009, the country's growth rate dropped to 5.9%.[2] According to Yu Yongding, a former member of the Monetary Policy Committee of the People's Bank of China, the government responded very quickly to address the situation, and its massive stimulus package helped to revive the country's economy and stabilize the global financial situation. Such actions prevented China from catastrophe and helped the Chinese economy to sail through almost unscratched, as well as empowered economic growth, leading to 10.6% of GDP in 2010. [3]
When talking about China’s economic achievements and failures, we cannot ignore the events that turned the whole world upside down and completely reshaped it. The outbreak of COVID-19, which was first identified in Wuhan, China in December 2019, has dealt a heavy blow to the world’s economy, as enterprises and factories got completely shut down and business activities stopped. Quick reaction of the Chinese government in the form of lockdown, various strict policies and programs aimed at the maintenance of economic activities, such as promoting China's exports and overcoming the crisis resulted in economic growth overall. “They were able to pull together all of the resources of the one-party state,” said Carl Minzner, a professor of Chinese law and politics at Fordham University. “This of course includes both the coercive tools — severe, mandatory mobility restrictions for millions of people — but also highly effective bureaucratic tools that are maybe unique to China.” [4] As of the beginning of 2021, China, with 8.1% GDP growth, held a leading and quite admirable position among major world’s economies – it successfully managed to get COVID-19 under control and become the only large economy that experienced a dramatic rebound. [5]
Still, despite numerous successes and achievements in the global economic field, not everything is as bright and colorful as it might seem, and it’s natural that China has its ups and downs. In recent month, due to Beijing’s zero-COVID policies aimed at preventing the spread of coronavirus in communities, major cities were placed on lockdown, resulting in production decline, various challenges for logistic firms, rise of unemployment rate and leading to decline in GDP growth by 2.6% in the second quarter of this year.[6]
For the past few years, China’s economic growth miracle is seen to lose its momentum in the face of headwinds. Inability to escape problems that have already existed and have only just appeared such as debt burden, corruption, aging population, rising youth unemployment and inequality, is what constantly causes the country’s economic slowdown. Declining efficiency of macroeconomic policy tools and financial system, and arising issues around global warming increasingly constrain China’s growth. [7]
China also faces the consequences of its current holding position in the geopolitical field. In response to the Russian invasion of Ukraine on February 24 in 2022, western countries imposed numerous amounts of severe sanctions on Russia. Yet, China still continues to provide economic support to the country-aggressor and conducts sudden military actions on the border with Taiwan, thus damaging its own reputation. Despite Beijing’s attempts to safeguard its political, commercial, and economic ties with the West, it still faces the risk of imposing sanctions and financial restrictions, what at the same time, causes unwillingness of many companies to invest and cooperate closely with China and becomes stimulus to reduce dependence on Chinese supply lines, and thus could greatly shake its position and functioning on the global market. [8]
As can be seen, China’s extraordinary economic growth in the last seven decades was not the result of a miracle, but rather of deliberate economic decentralization and the Chinese government’s capability and flexibility when facing challenges. Miracle is a perfect, flawless and unimprovable thing, what certainly cannot be said about Chinese economic policy, that is imperfect and always changes in the way of improvement or deterioration.
Yet, the way I see the state of things, it cannot be concluded that China is a bubble, as the following question arises: “How the bubble hasn’t already burst?” How is it that the country was able to experience such extended massive development and high levels of GDP growth during the previous years. Each bubble has its lifespan and is doomed to pop sooner or later. That’s definitely not the destiny of the Chinese economy, as it can still be successful even without attracting more foreign direct investments. Even if other countries raise tariffs or block trade with China, the world’s leading manufacturer and exporter, it would result in the country’s collapse. China has the largest population in the world, rich natural resources, plenty of land suitable for agriculture, and thus can stay a strong and self-sufficient nation for a long time, but still needs to reconsider its actions and policies in order to drive the country’s economy.
REFERENCES:
1. Justin Yifu Lin, China and the Global Economy https://www.frbsf.org/wp-content/uploads/sites/4/Lin.pdf
2. China GDP 1960-2022. MacroTrends. (n.d.). https://www.macrotrends.net/countries/CHN/china/gdp-gross-domestic-product
3. Vaswani, K. (2018, September 12). Why Asia turned to China during the global financial crisis. BBC News. https://www.bbc.com/news/business-45493147
4. Myers, S. L., Bradsher, K., Wee, S.-lee, & Buckley, C. (2021, February 5). Power, patriotism and 1.4 billion people: How China beat the virus and roared back. The New York Times. https://www.nytimes.com/2021/02/05/world/asia/china-covid-economy.html
5. Jiang, D., Wang, X., & Zhao, R. (1AD, January 1). Analysis on the economic recovery in the post-covid-19 era: Evidence from China. Frontiers. https://www.frontiersin.org/articles/10.3389/fpubh.2021.787190/full
6. Hsu, S. (2022, August 8). China's low-growth zero-COVID policy signals transition away from reform period. – The Diplomat. https://thediplomat.com/2022/08/chinas-low-growth-zero-covid-policy-signals-transition-away-from-reform-period/
7. Pettinger, T. (2022, August 4). Problems and strengths of the Chinese economy. Economics Help. https://www.economicshelp.org/blog/170431/economics/problems-and-strengths-of-the-chinese-economy/
8. Xi, J. (2022, March 9). How Russia's Ukraine invasion weighs on China's economy. VOA. https://www.voanews.com/a/how-russia-s-ukraine-invasion-weighs-on-china-s-economy-/6476439.html
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Supervisor: Khmil Oxana Oleksandrivna, teacher of the department of foreign philology and translation, State University of Trade and Economics, Kyiv, Ukraine
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