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 10: The Soviet Model

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

Extract

THE FELDMAN GROWTH MODEL The theory underlying the Soviet model of rapid industrialization adopted by China in the 1950s was the Feldman model which had been formulated in the1920s during the Great Industrialization debate by Feldman (Jones 1976). It is essentially an unbalanced growth strategy of industrialization which emphasizes the investment in the heavy industrial sector. Contrary to the conventional view it is not primarily aimed at ‘production for production’s sake’ or at maximizing the speed of growth of capital goods at the expense of the growth of consumer good production, but aims at maximum speed of growth of consumer good production under the assumption of a closed economy. The development of heavy industries is only the vehicle for the accelerated growth of the downstream consumer goods industry. Thus it is supposed not only to maximize the long-run growth rate of the economy but also to generate quickly a maximum push for the growth of consumption for the entire population. Specifically, the model assumes that there are two sectors in a closed economy, that is, sector I producing investment goods, Yi, and sector II producing consumer goods, Yc. A further assumption is that there are two production factors, capital, K, and labour, L, with capital as the only limiting factor for growth as labour is assumed to be unlimited in supply. The model assumes that capital stock does not depreciate and hence its rate of change (dK/dt), in turn, equals to total investment, which, in turn, equals the output of...

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