An Economic History of Modern China
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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.
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Chapter 6: Why China Failed to Industrialize

Joseph C.H. Chai


There are several reasons why industrialization is an absolute necessity for modern economic growth. First, there is a specialization limit to growth in the traditional agricultural economy since, as mentioned earlier, Smithian growth is based on the division of labour. Unlike modern industry, there is a limit to vertical disintegration of the production process and hence division of labour in agriculture, as discussed before. Second, there is a biological limitation to growth in an agrarian economy which uses land as its main production factor. According to Wrigley (1988) and Landes (1969), agrarian economies are organic because they largely rely on plants for their raw materials and main sources of energy. And human and animal power, the traditional sources of their energy, rely on the supply of food which in the long run is constrained by the fixed production factor of land. Thus growth and productivity are limited, and once the land cannot be expanded diminishing returns set in and the traditional economy stagnates. In contrast, an industrial economy relies on stored energy in the form of fossil fuels. Through the development of the engine which converts heat into work, fossil fuels provide a not entirely unlimited but nevertheless huge supply of energy which largely replaces the need for human and animal sources of power. Furthermore, the fossil fuels also provide an unlimited supply of mineral raw materials. Thus land as a fixed factor of production no longer restricts growth. In view of the importance of industry to sustained economic growth,...

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