How China Make World's Largest(USD Five Trillion)Economy

               

Chinese Economy Before 1979:

                              

       

         

        The Communist Party Of China came to power in the year of 1949. The main objectives of the leader was meant industrialization, improvement of living standard, narrowing of income differences and production of military equipment.  As the years passed, the leadership continued to subscribe to these goals. But the economic policies formulated to achieve them were dramatically altered on several occasions in response to major changes in the economy, internal politics, and international political and economic developments. The chief goal of government for the 1949-52 was simply restore the economy after the war with Japan at the year of 1945.

The banking system was nationalized and centralized under the People's Bank Of China. To bring inflation under control by 1951, the government unified the monetary system, tightened credit, restricted government budgets at all levels and put them under central control, and guaranteed the value of the currency. The remaining privately owned enterprises were gradually brought under government control, but 17 percent of industrial units were still completely outside the state system in 1952.In agriculture a major change in landownership was carried out. Under a nationwide land reform program, titles to about 45 percent of the arable land were redistributed from landlords and more prosperous farmers to the 60 to 70 percent of farm families that previously owned little or no land.

In terms of economic growth the First Five-Year Plan was quite successful, especially in those areas emphasized by the Soviet-style development strategy. A solid foundation was created in heavy industry. Key industries, including iron and steel manufacturing, coal mining , cement, production, electricity generation, and machine building were greatly expanded and were put on a firm, modern technological footing. Thousands of industrial and mining enterprises were constructed, including 156 major facilities. Industrial production increased at an average annual rate of 19 percent between 1952 and 1957, and national income grew at a rate of 9 percent a year. Despite the lack of state investment in agriculture, agricultural output increased substantially, averaging increases of about 4 percent a year. This growth resulted primarily from gains in efficiency brought about by the reorganization and cooperation achieved through collectivization. 

Agricultural taxes were reduced, and the prices paid for agricultural products were raised relative to the prices of industrial supplies for agriculture. There were substantial increases in supplies of chemical fertilizer and  most of the modern supplies were concentrated in areas that were known to produce "high and stable yields" in order to ensure the best possible results. This decentralization had taken place in 1957 and 1958 and was reaffirmed and strengthened in the 1961-65 period. Planning rather than politics once again guided production decisions, and material rewards rather than revolutionary enthusiasm became the leading incentive for production. During the 1961–65 readjustment and recovery period, economic stability was restored, and by 1966 production in both agriculture and industry surpassed the peak levels of the Great Leap Forward period. Between 1961 and 1966, agricultural output grew at an average rate of 9.6 percent a year. Industrial output was increased in the same years at an average annual rate of 10.6 percent, largely by reviving plants that had operated below capacity after the economic collapse in 1961. 

During the early and mid-1970s, the radical group later known as the Gang of Four attempted to dominate the power center through their network of supporters and, most important, through their control of the media. Using official news organs, the Gang of Four advocated the primacy of nonmaterial, political incentives, radical reduction of income differences, elimination of private farm plots, and a shift of the basic accounting unit up to the brigade level in agriculture. They opposed the strengthening of central planning and denounced the use of foreign technology. Between 1976 and 1978, the economy quickly recovered from the stagnation of the Cultural Revolution. Agricultural production was sluggish in 1977 because of a third consecutive year of adverse weather conditions but rebounded with a record harvest in 1978. Industrial output jumped by 14 percent in 1977 and by 13 percent in 1978.

After 1979s: 

                   The first few years of the reform program were designated the "period of readjustment," during which key imbalances in the economy were to be corrected and a foundation was to be laid for a well-planned modernization drive. The major goals of the readjustment process were to expand exports rapidly; overcome key deficiencies in transportation, communications, coal, iron, steel, building materials, and electric power; and redress the imbalance between light and heavy industry by increasing the growth rate of light industry and reducing investment in heavy industry. Agricultural production was stimulated in 1979 by an increase of over 22 percent in the procurement prices paid for farm products.

Domestic commerce also was stimulated by the reform policies, which explicitly endeavored to enliven the economy by shifting the primary burden of the allocation of goods and services from the government plan to the market. Private entrepreneurship and free-market activities were legalized and encouraged in the 1980s, although the central authorities continuously had to fight the efforts of local government agencies to impose excessive taxes on independent merchants.

In 1985, industry employed about 17 percent of the labor force but produced more than 46 percent of gross national product (GNP). It was the fastest growing sector with an average annual growth of 11 percent from 1952 to 1985. There was a wide range of technological levels. In the same year, the agricultural sector employed about 63 percent of the labor force and its proportion of GNP was about 33 percent. There was low worker productivity because of scant supplies of agricultural machinery and other modern inputs. Most agricultural processes were still performed by hand. There was very small arable land area (just above 10 percent of total area, as compared with 22 percent in United States) in relation to the size of the country and population. 

Thermal power, mostly coal fired, produced approximately 68 percent of generating capacity in 1985, and was increased to 72 percent by 1990. Emphasis on thermal power in the late 1960s was seen by policy makers as a quick, short-term solution to energy needs, and hydroelectric and nuclear power was seen as a long-term solution.China's economy saw continuous real GDP growth of at least 5% since 1991.

In 1996, the Chinese economy continued to grow at a rapid pace, at about 9.5%, accompanied by low inflation. The economy slowed for the next 3 years, influenced in part by the Asian Financial Crisis, with official growth of 8.9% in 1997, 7.8% in 1998 and 7.1% for 1999. From 1995 to 1999, inflation dropped sharply, reflecting tighter monetary policies and stronger measures to control food prices. The year 2000 showed a modest reversal of this trend. Gross domestic product in 2000 grew officially at 8.0% that year, and had quadrupled since 1978. In 1999, with its 1.25 billion people but a GDP of just $3,800 per capita (PPP), China became the second largest economy in the world after the US. According to several sources, China did not become the second largest economy until 2010. However, according to Gallup polls many Americans rate China's economy as first. Considering GDP per capita, this is far from accurate. The United States remains the largest economy in the world. However, the trend of China Rising is clear.

China's economy grew at an average rate of 10% per year during the period 1990–2004, the highest growth rate in the world. China's GDP grew 10.0% in 2003, 10.1%, in 2004, and even faster 10.4% in 2005 despite attempts by the government to cool the economy. China's total trade in 2006 surpassed $1.76 trillion, making China the world's third-largest trading nation after the U.S. and Germany. Such high growth is necessary if China is to generate the 15 million jobs needed annually—roughly the size of Ecuador or Cambodia—to employ new entrants into the job market.

On January 14, 2009 as confirmed by the World Bank the NBS published the revised figures for 2007 financial year in which growth happened at 13 percent instead of 11.9 percent (provisional figures). China's gross domestic product stood at US$3.4 trillion while Germany's GDP was US$3.3 trillion for 2007. This made China the world's third largest economy by gross domestic product. Based on these figures, in 2007 China recorded its fastest growth since 1994 when the GDP grew by 13.1 percent. The Chinese economy is significantly affected by the 2008-9 global financial crisis due to the export oriented nature of the economy which depends heavily upon international trade. However, government economic-stimulus has been hugely successful by nearly all accounts.

 From 2008 to 2010, China's real GDP growth averaged 9.7%. However, the rate of GDP growth declined slowed for the next six consecutive years, falling from 10.6% in 2010 to 6.7% in 2016. Real GDP ticked up to 6.8% in 2017, but slowed to 6.6% in 2018, (although it rose to 6.8% in 2017). The IMF's April 2019 World Economic Outlook projects that China's real GDP growth will slow each year over the next six years, falling to 5.5% in 2024 (Figure 4).12 Many economists warn that China's economic growth could slow further if the United States and China continue to impose punitive economic measures against each other, such the tariff hikes that have resulted from U.S. action under Section 301 and Chinese retaliation. The Organization for Economic and Cooperation and Development (OECD) projects that increased tariffs on all trade between the United States and China could reduce China's real GDP in 2021-2022 by 1.1% relative to the OECD's baseline economic projections. The income tax for companies is set at 25%, although there are some exceptions. When companies invest in industries supported by the Chinese government tax rates are only 15%. Companies that are investing in these industries also get other advantages. 

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