China’s Economic Development

China’s Economic Development

Institutions, Growth and Imbalances

Lu Ming, Zhao Chen, Yongqin Wang, Yan Zhang, Yuan Zhang and Changyuan Luo

The authors identify three major factors in the growth of the Chinese economy: economic decentralization and political centralization; the urban–rural divide; and relational society. These are explored in depth via analyses of factors including urban and rural economic development and their political and social foundations, industrial agglomeration, transitions of public services and governmental responsibilities towards them and developmental imbalances and mechanisms. It is illustrated that whilst contemporary China has obviously made great economic strides, a wide variety of problems are accumulating over time. The book concludes that following three decades of high economic growth, China now faces great challenges for sustainable growth, and the institutions of China’s economy have reached a critical point. Strategies for dealing with these challenges and requirements for the successful future development of China are thus prescribed.

Chapter 6: Developmental imbalances and mechanisms for improving the market system

Lu Ming, Zhao Chen, Yongqin Wang, Yan Zhang, Yuan Zhang and Changyuan Luo

Subjects: asian studies, asian development, asian economics, development studies, asian development, development economics, economics and finance, asian economics, development economics

Extract

In previous chapters, we discussed China’s economy as part of its status as a large, developing country. In this chapter, we shall examine the challenges faced by its particular model of economic development. China’s strategy involves unbalanced development. The current stage of the plan involves the shift from a centralized, planned economy to a market economy. The construction of the market system has made great progress, particularly after 1994. After 1996, market competition intensified further, triggered by structural adjustments in the labor market. Waves of marketization reform were carried out by China’s strong government. The low prices and quality work of the labor force and the low RMB exchange rate established after 1995 have increased the international competitiveness of China’s products. While they have caused growth, market-oriented reforms and Chinese style federalism have also created both internal and external imbalances in the economy. Internal imbalances have widened the gaps in both income and access to public services between urban and rural areas and between social groups. These domestic imbalances have caused insufficient demand for domestic goods and services and high savings and investment rates. This creates a growth pattern dependent on investment and export. Overspeculation first became a problem in the mid-1990s.

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