An Economic History of Modern China

An Economic History of Modern China

Joseph C.H. Chai

As a country’s current development is path dependent, the rise of China and its strategic implications can only be understood in a historical context. Hence, the key to understanding contemporary China is the understanding of its past. So far there has been an absence of a comprehensive text dealing with Chinese economic history in the English language. An Economic History of Modern China fills this important gap, focusing on modern Chinese economic growth and comprehensively surveying the patterns of China’s growth experience over the past 200 years, from the Opium wars to the present day. Key events are traced back to their foundations in history to explain their impact on China’s modern economic growth.

Chapter 3: Urbanization and Traditional Industry

Joseph C.H. Chai

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


URBANIZATION Urbanization in feudal Europe was due to two major factors, namely agricultural surplus and, equally important, trade by craftsmen and merchants. Cities often developed along trade routes and functioned as shelter for escapees from nearby manors. In contrast, urbanization in traditional China was directly correlated to the growth of agricultural productivity and it can be shown that there were two distinct phases of urbanization, an earlier one and a later one. Thus cities in China had a pattern different from that of Europe in two ways. Firstly, they were multifunctional, for in addition to being marketing centres for handicraft industries they served as the nation’s administrative centres and garrison posts. And secondly, while cities in Europe were fairly evenly distributed, the majority of China’s cities were concentrated around the Yangzi River and in the Southeast coast with Beijing being the only important city of more than 100 000 people in the North. The unique features and trends in urbanization in China are best explained by a model developed by Chao in 1986. According to this, the growth of cities is constrained by three factors on the supply side, namely: (1) peasants’ productivity; (2) peasants’ consumption standards; and (3) the cost of transport of agricultural goods to the city. The growth of cities is limited by the share of the urban population in agricultural output, Q. Assume that farming population is Pa, urban population is Pu, the share of urban population is defined by the following relation:1 Pu/P 5...

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