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China's Economy

China's Economy

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Published by: JZShah12 on Jul 10, 2012
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China’s Economy
Global and Political Economic Environment  
Global and Political Economic Environment
China’s Economy
 Assignment No: 1Page|
China has been one of the world’s most dynamic economies in recent decades,
but theindustrial revolution occurred in Europe rather than China because European entrepreneurs were eagerto adopt machines to cut down on high labor costs.One of the big debates in economics is about the causes of the arguably most dramatic change indevelopment trajectory in (recent) world history, the industrial revolution.
Before about 1800, growth did occur, but it was mainly “extensive”, leading to more people but
almost no growth in income per capita.
After about 1800 this changed, and growth beca
me (increasingly) “intensive”, focused on an
almost continuous growth of GDP per head.There is consensus about the fact that this change in growth pattern started in northwestern Europe,and gradually spread to large parts of the western and, after a lag, eastern and southern world.
The Great Divergence debate
Recent literature, most famously Kenneth Pomeranz’s The Great Divergence (2000), has suggested thatChina’s level of economic performance was more or less at par with that of Western Europe.
Moreover,the lower Yangzi delta formed a core of economic prosperity comparable with the North Sea area, themost developed part of Western Europe.Pomerantz argues that even in the eighteenth century, China was not inferior to Europe in terms of technology, social structures that could support technological innovation, large pools of accumulated
capital, etc. According to him, the reason that Europe “succeeded” and China did not was largely
determined by pure chance
a lack of large deposits of coal and iron ore close to each other and theabsence of large outward migration (after Zheng He, the greatest world traveler before Columbus,discovered Madagascar, the African Horn, and Saudi Arabia in the early fifteenth century, the emperorsof the Ming Dynasty prohibited the construction of big ships and the Middle Kingdom experienced self-
imposed isolation for four centuries). Pomeranz’s argument is that mass emigration from Europe played
a crucial role in the transition to the modern growth regime from a Malthusian regime.2 Whentechnological progress accelerated in the nineteenth century but the population growth rates stillremained high and growing (0.6 percent in 1820-70) because the demographic transition had not yetoccurred, mass migration to North America helped to alleviate pressure on a scarce resource, land, andto avoid diminishing returns.In a similar vein, land scarcity is seen as a factor that stimulates urbanization and industrialization. It is
argued that “during the Song Dynasty, despite the
fact that China lost a significant amount of arableland to invading nomads as its population peaked, China witnessed a higher urbanization level, moreprosperous commerce and international trade, and an explosion of technical inventions and institutionalinnovations. However, after China significantly improved its man-to-land ratio in the period after theSong only to find itself induced deeper into the agrarian trap, resulting in reduced urbanization,withering foreign trade, a declining division of labor
, and stagnation in technology”
Global and Political Economic Environment
China’s Economy
 Assignment No: 1Page|
Li’s The Early Industrialization in Jiangnan is particularly noteworthy for its systematic narrative of the
growth of industries in cotton textile, food processing, apparel, tobacco, papermaking, printing, toolmaking, construction and shipbuilding in the Lower Yangzi during 1550-1850. His depiction of the rise of a dynamic, diverse and commercialized printing industry reveals the existence of a mass reading publicin the Lower Yangzi.4 Overall his work attests to industrial progress throughout these three centuries,not only in the scale and technology of production, but also in its organization and the extent of thedivision of labor.
Rea Wages
Asian living standards, at least in the Lower Yangzi, were on par with that of Northwestern Europe isbuilt on rather fragile evidential base. They relied on indirect comparison based on scattered output,consumption or demographic data. This on relatively rigorous comparison of the purchasing power of real wages of unskilled laborers in Asia and Europe reconstructed based on the systematic price andwage data. The Yangzi Delta is reputed to have the most advanced economy of any Chinese province,but the real wage there was not noticeably higher than the real wage in Beijing or Canton. Overall, theChinese cities were in a tie for last place with the Italian cities, which had the lowest standard of living inEurope. And they were far behind that in London or Amsterdam
about 30-40% of that of earning levelsthere in terms of purchasing power measured by our reconstructed subsistence basket during the 18-
19th centuries. This makes any optimistic assessment of China’s performance is difficult.
Trade, Market Efficiency and Legal Regime
Institutions have figured relatively little in revisionist literature on Chinese economic history. In fact,Pomeranz views the property rights or the freedom to contract in traditional China as no less secure orflexible than in Western Europe. This naturally leads the revisionist school to an explanation of the GreatDivergence based on resource endowments. The efficiency of market institution seems to find somestrong empirical confirmation from market integration studies based on statistical correlation of regional grain prices.
Measures of Integration
Although foreign trade in the 18th century was not significant, China
s expansive empire meant thateven domestic trade involved large distances. Trade between the fertile agricultural areas in the upperreaches of the Yangzi River of Sichuan Province and the urban regions of Shanghai at the Yangzi Deltainvolved covering distances of at least 1700 kilometers. This is approximately the distance of the traderoute between Antwerp and Lisbon. There are also comparable historical accounts of how grain waspaid and transported along routes that connected the Yangzi Delta with Sichuan and Hunan, or,Amsterdam with Spain and France.We may know about large specific transactions of grain, but trade volume statistics are spotty at best. InEurope, rough calculations suggest that 1 % of total consumption of the Mediterranean area was tradedin the 16th century, and the situation may have remained much the same in the 17th century.11 Muchdepends on whether one includes only the urban area importing the grain, or the entire population of 

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