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China As An Emerging Economic Super Power

China As An Emerging Economic Super Power

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In the Name Allah, the Most Beneficent, the Most Merciful.


(A Case Study)

Name: Roll no: Session:

Hira Arshad 61603 2006-2010

The report is being submitted in partial fulfillment of the requirements for the degree of

B.S (Hons) In Political science


Mrs. Humaira Shakeel SUPERVISOR


By The Research Supervisor

I certify that the contents and form of report submitted by Hira Arshad, Roll no. 61630 have had been found satisfactory and according to the prescribed format. I recommended that it be processed for evaluation by the external examiner for the award of degree of B.S (Hons) in political science.

Signature___________ Name_______________ Designation___________ Stamp _______________


DEDICATION I dedicate my report to my parents and all those whom I love. Hira Arshad


First of all, I bow my head before almighty allah, with humble thanks who enable me to do this hard job and the holy prophet Hazrat Muhammad (PBUH) who flourished my thoughts. I heartily acknowledge my gratitude to my respected and honorable teachers especially Mrs. Humaira Shakeel, lecturer political science department, whose kind treatment and worthy suggestions proved very helpful to complete this project. I am greatly thankful to my parents and siblings for their encouragement, love and prayers. Further more it would be great mistake if I forget admiring my sincere well wishers, Nouman, Zaima, Amna, Sana, Zainab and Tahseen for their cooperation and care. I also thank to the librarians and staff of the library of LCWU, Punjab Public Library and Quaid-e-Azam library, Lahore

Hira Arshad




i. ii. iii. iv. v. INTRODUCTION



vi. vii.



24- 56

v. vi. vii. viii. ix. x. xi. xii. xiii. xiv. xv. xvi. xvii.




i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii. xiv.






104-108 109-115


In the era of globalization, it is widely recognized that economic development has become the major driving force in the economic growth and social development. The world’s main concern today remains economic development. The sustained economic growth and expansion of national economies can make a developing country as a developed country. China is one of the largest economies of the world. I selected the topic of economic development of china after its independence for my report while seeing the gradual economic growth of china. In my report, it is explained that how this country’s economy emerged as a developed economy emerged as developed economy and it is still in the process of further development. China’s economic recovery after 1949, events of great leap forward and Cultural Revolution, and opening up policies after 1979 played significant role in china’s economic development. It is also mentioned that what were the policies and plans which were adopted by china during its journey of development. This thesis report consists of four chapters. In the first chapter, those measurement tools and factors of economic development are mentioned which are very essential for a country to become a developed country. In the second chapter, I have discussed the historical background of china’s economy, its first five year plan and the transitional period of china in which it adopted some policies which were based on norms of capitalism. In the third chapter, those events, policies, and plans are debated by which the Chinese economy entered in to a period of high growth. Fourth chapter consists on concluding remarks containing comprehensive debate on the topic. While doing any research I have used analytical, historical and descriptive methods of research.


Hira Arshad



: : : : :






Table No. Table 2.1 China’s first five year plans (1953-1980) Table 2 .2 Targets for growth in gross total Output (1952-1957) Table 3.1 China’s import and export After opening up Table 3.2 Table of China’s Exports to the World Table 3.3 Table of China’s Imports from the World

Pg No.








Figure No. Figure 1.1 Circle of economic activity Figure 2.1 Gross national product and Industrial production (1949-1980) Figure 3.1 Growth of foreign trade export since 1978 Figure 3.2 Voting power of countries At the World Bank Figure 3.3 World economies in 2030

Pg No.










here are a large number of books

on economic

development because more and more people are taking interest in this topic. The study of economic development is

one of the most exciting and most challenging branches of the broader disciplines of economics and political economy. Economic development can be defined as efforts that seek to improve the economic well being and quality of life for a community by creating or retaining jobs and supporting or growing incomes and the tax base.1 In its broadcast sense, encompasses three major areas. a. Policies that Governments undertake to meet broad economic objectives such as price stability, High employment and sustainable growth. Such efforts include monetary and fiscal policies, regulations of financial institutions, Trade and Tax policies. b. Policies and programs provide infrastructure and services such as Highways, Parks, affordable housing, crime prevention, and K-12 education. c. Policies and programs explicitly directed at job creation and retention through specific efforts in business development, third category business is a retention primary and of expansion, economic Technology transfer and real estate development, The focus development professionals. 2 Economic development concerned with the economic, cultural and political requirements for effecting fast structural and institutional transformation of whole society in such a way that bring fruitful economic progress to their population. It works on a system that put the people in poverty traps and more specifically to cut off these traps.


This is because, the main goal of economic development is improving the well being of a community through efforts that entail job creation, job retention, Tax base enhancement and quality of life. The term “economic development” is used in a regional sense means to develop and prosper the regional economy. In the sense, economic development focuses on the recruitment of business operation to a region, assisting in the expansion or retention of business operations with in a region or assisting in the start up of new businesses with in a region. 3 The term “economic development” “economic growth” and “economic progress” are mostly consider one and the same thing but if we analyze deeply, then we come to know that a difference is there between above terms. The term “economic growth” refers to an increase in real national income. National income itself is commonly expressed in terms of a measure of the aggregate output of the economy called gross national progress (GNP). When the GNP of a nation raises, what ever the means of achieving the outcome, economists refer it as economic growth. 4 On the other hand, the term “economic progress” used to judge the process of economic change. 5 While the term “economic development” implies much more when we use in relation to a country or an entire economy. It typically refers to improvements in a verity of indicators, such as literacy rate and life expectancy, and it implies a reduction in poverty.6 In short we can say that term is reserve for the change in national income. The differences seen to be purely arbitrary, as growth and development usually go side by side. We can use the terms “growth”,


“Progress”, and “development” to refer the economic change in a society. The ultimate function of “economic development” is to provide comforts, luxurious and satisfied life. In short, to raise the living standard of the people by increasing the income per head. If the increase in the National income is counterbalanced by a corresponding increase in the population of the country, per capita income would remain unchanged and living standards stagnant. Generally, economic development is defined in terms of growth of national income in a total rather than in per capita sense.7. No doubt, for economic welfare, economic development is a necessary condition. Micheal P. Todaro is of the opinion, that there are three objectives of the development. He is of the view that development involves the things, the physical appearance and progress social, economic and institutional processes. This is so to achieve the end of having standard life style. It does not matter that what are the components of better life, but the following objectives are same in every society. 1. Expansion in production of basic necessities of life and widening their distribution such as food, shelter, health care and life protection. 2. Raising standard of living through high incomes, more chances for employment, higher education. All these things will also contribute to generate national self respect. 3. Expanding economic and social choices to the people and reducing their fear. 8



After seeing the basic objectives of development, it is easy to conceptualize the core values of development. Gow and some other thinkers are of the opinion that there are three basic values, which provides the practical guideline for understanding the inner meaning of development. The values are:1. Sustenance. 2. Self Esteem. 3. Freedom. These values relate with the fundamental human needs and necessities, which are necessary in every society, in every time period. Now let’s see the detail of these three core values of development.

SUSTENNCE: The Ability To Meet Basic Needs:
There are some basic needs without which man can’t survive. These basic needs include food, shelter, health and protection. If a man can’t get one of these basic necessities then lives become difficult for him. A fundamental purpose of every economic activity is to provide the opportunities to the people to earn their living and gain all their basic necessities of life. For his reason, we can say that economic development is a necessary condition for the improvement in the quality of life that is development. Without a continuous economic progress in every level, the realization of human potential would not be possible. Progress in per capita incomes, evacuation of poverty, more employment facilities give assurance of necessary conditions for development. This point gets more prominence in the United Nation’s human development report of 1994. Amartya Sen asserts in this report. “Human beings are born with certain potential capabilities. The purpose of development is to create an environment in which all people expand


their capabilities and opportunities can be enlarged for both present and future generations. The real foundation of human development is universalism in acknowledging the life claims of every one……. Wealth is important for human life. But to concentrate on it exclusively is wrong for two reasons. First, accumulating wealth is not necessary for the fulfillment of some important human choices…… Second, human choices extend far beyond economic well being.”

SELF- ESTEEM: To Be A Person
The second most important component to have a standard life is self respect and value of your own personality and not to have a such kind of personality, and people use you as a disposable material. This component can see in societies in a form of authenticity, dignity, respect, honor, gratitude and ego. Development is an essential goal for every society as it is indispensable way for gaining esteem.


The third core value for development is the concept of human freedom. The word freedom is used in a sense of emancipation from alienating material conditions of life and from social servitude nature, ignorance, and dogmatic beliefs. When you give freedom to someone it means that you are giving a wide range of choices to achieve his ends. This is called a development in society.

L. Arthur Lewis explains the relationship between economic growth and freedom from servitude. He said:


“The advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice.”

Wealth can enable a person to have more goods and betters services 9. Economic activity produces goods and services and creates incomes, which are used to provide economic development. The whole cycle of economic struggle is to satisfy human wants. In the words of Habib Ullah Vaseer, “Human want means the desire to get and use goods or services, which provide utility”. 10

Figure 1.1




Economic activity

Wealth (Goods and services)
Source: Habib Ullah Vaseer, Fundamentals of Economics, (Lahore: Farhan Publishers, 2008). P. 27


Development means change and economic development refers to the changes taking place in the economic life of the people or we may also say that economic development is the process of improvement in living standard of the people

According to Watson:
“Economic development is the expansion and consumption faster than population growth because of steadily higher productivity of resources and combination of resources”. 11

According to Higgins:
“Economic development is the permanent rise in the total and per capita income of the country.” 12

According to M. Saeed Nasir:
“Economic development is the process of lifting a nation’s per capita consumption, production and income so its people can enjoy the benefits of improved material well being”. 13

According to Todaro:
“ Development must therefore, be convinced of as a multidimensional process involving major changes in social structures, popular attitudes, and national institutions, as well as the acceleration of economic growth, the reduction of inequality, and he eradication of poverty.” 14

According to Micheal E. Porter:


“Economic development is a sustainable wealth creation process that works with in the frame work of community parameters to maximize the efficient and effective utilization of community resources for economic gain for the local population. More simply, the process of creating wealth for as many people as possible’. 15

According to Meier and Baldwin:
When we consider various definitions in comparison, we find that Meier and Baldwin have better clarified the meaning of economic development. According to them,

1. Complex Process: Economic development is a complex process and a many sided economic activity in which deep rooted changes takes place in the economic and social system of the country, just building of a few factories, roads or schools is not development. 2. National Income Real national income rises. Mere increase in money incomes is not economic development. There must be increase in production of goods and services. 3. Need long time period: Increase in national income for one or two years is not economic development. Income must go on increasing over a long period of time. Then it can be labeled as a true economic development. 4. Effects on Economy:


Economic development affects the economy two ways. Firstly, it affects the supply factors and products. New minerals and water resources are brought in to use. New techniques of production and material are developed. Due to the use of machines and new techniques, productivity of labor and land increases and more goods come to markets. Skills improve and change in organization of economic activities takes place. Secondly, development effects demand for goods and services. Taste and preferences of the people change e.g. demand for banking facilities increases. Distribution of income is affected e.g. there may be increase in the gap between rich and poor. 16

Different measures are present in society to estimate the economic development of a state. Different writers have suggested different measures of economic development in their writings. M. Saeed Nasir said in his book that there are number of measures, which have been used to estimate the economic development of a country. These measures are:1. 2. 3. 4. 5. Increase in real GNP. Increase in real per capita income. Rise in allover well being of the people. Basic needs approach. Human development Index. 17 Dr. S.M. Akhtar gives various measures in his book. He is of the view that various types of indicators could be used for this


purpose. Some are: National income, per capita income, rate of investment, productivity per worker or output per hour of work, the proportion of labor force engaged in secondary industry, contribution in industrial goods to the total national income, per capita consumption of electricity, literacy ratio, and morality rates and so on. 18 Every thinker and scholar gave different approaches to measure economic development but there are some measures on which every thinker and scholar is agreed. That is how economic development can be generally measured in following ways: • • • • GDP (Gross domestic product) GNP (Gross National product) Rise in per capita income. Social indicators.

Micheal P. Todaro explains the GDP in following words. “The Gross Domestic Product (GDP) measures the total value for final use of out put produced by an economy, by both residents and non-residents.” GDP is a measure of National income. It is the total value of all goods and services produced over a given time period which is usually “a year” excluding net property income from abroad. It can be measured either as the total of income, expenditure or output.19 If there is increase in real GDP over a long period of time, the economy will be considered than a strong economic growth. 20


“GNP comprises GDP plus the difference between the income residents receive from abroad for factor services (labor and capital) less payments made to non-residents who contribute to the domestic economy”. 21 The GNP is used a measure to summarize index of relative economic well being of people residing in different states. The most commonly used measure of economic activity is GNP. The method to calculate GNP is to aggregate domestic and foreign value added claimed by a country’s residents without making deduction for depreciation of the domestic capital stock. 22In this method, statistics are not always available but the other methods are comparatively more difficult to apply. So, we can say that the simplest and most commonly used measure to judge economic activity is GNP. A country, whose GNP is rising faster is said to be developing at a higher rate. If we take GNP as a measure of economic development, it means we are assuming that increased use of material goods and services indicate increase in the warfare and happiness of the people. So, we should make policies to increase GNP as fast as we can. 23 Many objectives have been raised against this approach. It is criticized on three points. • It ignores the problems resulting from development e.g. people may suffer due to pollution, industrialization and increase in mass population. After all, production of more cars means more polluted air.


This method also does not show how the composition of national output is changing and what is the effect of development on quality and variety of goods.

If rate of increase of GNP is equal to the people will take place. 24

The third most commonly used measure for economic

development is increase in real per capita income. Per capita income means how much each individual receives, in monetary terms of the yearly income that is generated in their country through productive activities. That is what each citizen would receive if the yearly income generated by a country from its productive activities were divided equally among every one. Per capita income is usually reported in units of currency per year. While per capita income reflects GNP per capita income when comparing nations, it is also used to compare municipalities with in a State. 25 If the rate of growth of income per capita increases over a long period of time then it would reflect that the country was moving towards higher standard of living and achieving economic goals.

The third traditional measure of economic development is an increase in the economic well-being of the people. In this 27

method, the economic development to the State is judged by the capacity of people that too which extent people can afford material goods or how much they are materially advance. In words of OKUN and RICHARDSON: “Economic development is a sustained and secular improvement in the material well-being which is reflected in increase in goods and services”. 26 In order to judge how the economic life of the people is being affected by economic development, economists have started using social indicators. These indicators express the conditions about health, food, education, employment, housing, transportation, and life expectancy ifant morality rate, Working hours, energy consumption, social security and recreational facilities. With the help of social indicators, we can construct quality of life index. This index shows if there is any improvement in conditions of living. 27

Economic development is a process involving lots of complexities as well as a long procedure which involved lots of factors. These factors can be categorized as “Economic” and “non-economic” factors and these factors are further divided in further determinants. These factors influence the patterns and rate of development in a country. These important factors and determinants are as follow:



No doubt, economic development is incomplete without economic factors. As economic factors plays an important role in the development and prosperity of any nation. Rise or fall in total output is to change in economic development mainly. Some of the economic determinants are given below:NATURAL RESOURCES: The principle factor which influences the development of an economy, if a country is rich in natural resources, then a rapid progress can be witnessed. If the natural resources are used in a proper way then they can be very beneficial for any country’s economic conditions. With out using them properly, they are useless. We can say that the basic factor affecting development is the quantity and quality of natural resources which a country possesses. There includes land, forests, minerals, water, and power resources, climate ad geographical location. Abundance of natural resources means the country has more potential for development. The secret of prosperity of many developed countries is their natural resources because all these states possess vast agricultural land. Moreover, the high rate of growth Iran, Saudi Arabia and many Middle East countries is due to their mineral resources but as I have mentioned before that just the existence of resources is not enough. The state must have the ability to utilize these resources. Many under developed countries like Sudan, India and Pakistan have rich natural resources but still they are not developed. 28 CAPITAL FORMATION: Capital accumulation or capital formation is an important factor in the economic activity of a state. Capital means the 29

stock of materials, machines, equipments, vehicles, building and social over heads like roads, canals, power houses, gas and telephone lines. Capital increases productivity of human labor. It is with the help of capital goods that country natural resources can be properly exploited. Capital accumulates when savings are invested. Capital accumulation leads to expansion in industry, agriculture, commerce and transport and energy generation. Although England and Germany have fewer natural resources, yet they have huge capital which is secret of their higher incomes. Most of the developing countries are poor. They do not have enough savings for investment. So, shortage of capital continues and development is slow. 29 The stock of capital can be built up and increased through different resources. The resources are act of saving, capital market and act of investment.  The act of saving, the postponing of consumption, voluntarily or involuntarily so that the fund thus made available be used for investment  The capital market involves all financial institution e.g. banks, (investment as well as development).  To invest in different economic sections of state is necessary, but the main hurdle in investment program is that the businessmen usually hesitate to invest their resources due to political and social instability in the country. 30 HUMAN RESOURCES:


The most important factor for the economic development of any country is the human resources of that country. Perfect human resources includes educated, efficient, patriotic, skilled, healthy. All these qualities contribute a lot to economic development. In contrary, if a state is not doing its best and not flourishing economically then the major cause of this may be unbalanced human resources. If a state is over populated, unemployment, lack of education, lack of patriotism, unawareness. These things can create crucial problems for economic development. 31 It is the human being who is the basic cause and source of all economic activity. Economic development is for human beings and is undertaken by human beings. Material or physical resources of a country are helpful only if the population of the country has the necessary will, skill and technological knowledge to use their resources. Many under developing countries of the world have abundance of natural resources but because of poor quality of human resources, they produce a limited quantity of out put. So, they remain under developed. This fact shows that the development not only physical capital but also human capital is essential. 32 POWER: The true bases of economic development are hidden in the power resources. It consists of 2 types of sources. a. b. Commercial resources of power, which includes, oil, gas, coal hydle, thermal electricity and nuclear. Non commercial sources, which include animal power, fuel, wood, cow dung etc. The power resources are vital to economic growth of a country. Its importance has been changing with the passage of 31

time. Before the emergence of industrial revolution, the energy for operating he machines are mainly supplied by animals, human activity and blow of wind. But with the passage of time, as the technology develops, scientific advancement, coal, oil, gas and water falls are used as principle sources of energy. Now days, the nuclear power and solar energy are being used increasingly for generating electricity by developed countries.

DEFINITION: “Technology means the body of knowledge and

techniques which can be used to combine economic resources for the production of goods and services.” 33 Technology also plays an important role in economic development. Technology means the methods of production. Improvement brought in technology makes human labor and capital revolution, tractor has revolutionized goods more productive. For example, invention of engine industrial agriculture and computer is multiplying the efficiency of human activities in all the spheres of life. Japan has successfully used new technology to achieve high rate of economic growth. All under developed states lack modern technology improvement in technology requires scientific research, inventions and innovations. But this process can’t takes place over night but it needs long period of time, huge amount of capital and education. The developing countries should, therefore, import technology from advanced nation.


Special factors have deep influence on the rate of economic development. Every society has a certain social set up. It follows a particular family system, occupational structure, social attitudes, habits, customs and cultural patterns these things determine their thinking about work, saving, consumption, working of women and family planning. If these factors are favorable in a country, it can develop rapidly. Material and capital are not the most important in economic development. After all, there are life less thing most important is the attitude of man. If in a society people believe in merit, there is dignity of labor are the things which retard development.

Political factors are not less important. Economic development can takes place only when there is political stability. The struggle is making for rapid industrialization. If illiterate people have an influence over politics then no proper development can takes place. In contrary, if people in power are educated or skillful then the process of economic development can takes place. A popular government can infuse new spirit among the people and thus create favourable atmosphere for development activities. Corruption in political and official circles kills the incentive for work. 34



The administrative factor can be labeled as a pillar for the economic development of any state. If the administration of a state works honestly, efficiently and selflessly then it can give a boost to economic development. The major set back of fewer developing countries is their weak and corrupt administration which causes as a hurdle in the way of economic development. 35

As far as the economic development is concerned, its importance is clear from its lots of social and political benefits. Some people are of the view that a state system not only revolves around the economic system but also depends upon it. All the sub-systems of a country works for the economic prosperity. It is said that economic development is the fundamental goal of any state. Government’s ultimate job is to satisfy the economic well being of the people so that people can utilize the economic development of the country. 36 Economic development is a main cause of difference between developed and developing countries. In fact, political aspect is considered next to it. As the level of economic development rises, the percentage share of labor working in primary sector such as farming, mining, food stuff etc, begins to decline, whereas the percentage share of working population e.g. manufacturing in secondary sector proportion of the increases. Moreover, a


visible change is also seen in the commerce portion of an economy e.g. trade, transportation, finance etc. With the change or increase in the economic, industrialization takes place. The structure of foreign trade has also been totally changed. Due to economic development, the traditional techniques give away to science based automated techniques. The most important thing which expresses the

importance of the economic

development is that with the

development in an economy, there is general urbanization and the adoption of modern method of thinking, acting, producing and consuming. 37 The process of economic development ensures that every body gets at least necessities of life.



1. Jean Watson, Hand book Economic Development, (London: Charles K. Wilber, 2001) p. 2 2. Http: Ilen Wikipedia. Org/wikil/Economic development. 3. www. iie. Com 4. W.W Rostow, The fine stages of growth, Development and underdevelopment: The political economy of Global inequality, (New York: W.W Norton, 2001) p. 123. 5. Dr. S.M. Akhtar, Economic development of Pakistan, (Lahore: Publishers United Ltd, 2003) p. 1 6. W.W Rostow, Op. cit, pp. 123, 124 7. Dr. S.M. Akhtar, Op,.cit., p. 2 8. Micheal P. Todaro, Stephen C. Smith, Economic development, (New York: University of the population Council, 2000) pp. 22, 23. 9. Ibid., pp. 21, 22 10. Habib Ullah Vaseer, Fundamentals of Economics, (Lahore: Farhan Publishers, 2008) p. 27 11. Jean Watson, Op. cit., p. 4 12. Benjamin Higgins, Economic development; Principles, problems and policies, (New York: The Oxford University press, 1990) p. 12. 13. M. Saeed Nasir, Economics of Pakistan, (Lahore: Manzoor Press, 2008) p. 3 14. Micheal P. Todaro, Economic development, (london: Longman Group Ltd, 2001) p. 16. 15. Habib Ullah Vaseer, Fundamentals of Economics, (Lahore: The Urdu Bazar, 2003), p. 78. 16. Ibid., p. 79 17. M. Saeed Nasir, Op. cit., p. 4 18. Dr. S.M Akhtar, op. cit., p. 7 19. Shail Afzal, M. Rafique Tahir, Economics, (Lahore: The Urdu Bazar Press, 2003) p. 78 20. M. Saeed Nasir, Op. cit., p. 6. 21. Micheal P. Todaro, Stephen C. Smith, Op. cit., p. 47. 36

22. Micheal p. Todaro, Stephen C. Smith, Op. cit., p. 47. 23. Habib UllahVaseer, Op. cit, p. 16. 24. Ibid., pp. 80, 81. 25. http. Ilen. Wikipedi, org/wikil/Per Capita income. 26. M. Saeed Nasir, Op. cit., p. 5. 27. Benjamin Higgins, op. cit., p. 142. 28. M.Saeed nasir, Op. cit., p. 16. 29. Habib Ullah Vaseer, Op. cit., p. 82 30. M. Saeed Nasir, Op. cit., p. 17 31. Ibid., p. 17. 32. Jean Watson, Op. cit., p. 21 33. M. Saeed Nasir Op. cit., pp. 17, 18. 34. K.K. Dewett, Op. cit., pp. 616, 617, 618. 35. M. Saeed NASIR, O. cit., p.20. 36. Ibid., p. 3 37. Ibid., p.4 38. Habib Ullah vaseer,Op, cit., p.76.






hina is situated in eastern Asia, bounded by pacific in the east. The PRC is the third largest country of the world, next to the Russia and Canada. It has an area of 9.6 million square

kilometers or one fifth of the world’s land mars. The coastline of the main land externals cover over 18,000 KM, washed by the waters of Bohai and Hunanghai, the east China and the south China seas. The Bohai Sea is the inland sea of China. China has more than 5,000 of shore islands, of these the largest is Taiwan. China is a unique country sharing boundaries with many countries i.e. Korea, Mongolia, Russia, Afghanistan, Pakistan, India, Nepal, Sikkim, Bhutan, Burma, Laos and

PRC is divided in to 22 provinces, 5 autonomous regions, and 3 municipalities directly under the central authorities. This division took place for administrative purposes. The Total population of China is 1,338,612,698 1 and the capital of China is Beijing, which is considered as a centre of the country in political, economic and cultural sense. China is having 56 ethnic groups among which the Han nationality is the 94percent of the total population of China. The Han populations live all over the country but their compact communities are in the Huanghe, Chang jeany and zhujiang valleys and the songhua Liaohe plain of the North East.2

The Chinese civilization is one of the earliest civilizations of the world. China has almost 4,000 years of written history. There were different dynasties in China from 16th century BC till 1911. The nationalist party of China ruled form 1927 to 1949. We can say that China’s recovery began under the Kuomintang, or Nationalist party,


which ruled from 1927 to 1949. In this era, the party eliminated most of the foreign spheres of influence and unified the whole country.

Before the Formation of CCP, there was oppression and exploitation by foreign capitalism, domestic feudal forces. In 1917, the revolution in Russia inspired the Chinese group of intellectuals consequently; the May 4 movement took place. This revolution was totally imperialist and anti feudalist. This movement set basis for founding CCP. On July 1921, the 1st national congress held in shinghas and presented clear vision of their ideal regarding democratic revolution. After 3 revolutionary civil wars, the people’s republic of China was proclaimed.

China is known as an emerging economic super power. The reason behind its marvelous development is the rapid growth of his development; China is getting attention of family of nations due to his economic development. Not only in economy but China is giving his best in every field, which is the requirement for becoming super power. Bavy Buzzan asserts that “China certainly presents the most promising the most promising all round profile” of a potential super power. Buzan claims that “China is currently the most fashionable potential superpower” and the one whose degree of alienation from the dominant international society makes it the most obvious political Challenger”. 3 The Chinese economy ranks among the 10 largest economies in the world in absolute terms. The Chinese economy is one of the fastest growing economies in the world. 4 China becomes economically developed not in one night but there is a story of hard struggle behind it, which begins right after his independence in 1949. We can say that economics was the touch 40

stone of Chinese revolution. The leaders of China made the economy of the state stable and developed by setting specific goals, which they achieved step by step, through a gradual process. As economics was the touch stone of Chinese revolution. Industrialization was the main priority for new government, in order to bring the PRC among the worlds most developed and advanced nations. Generally, it is witnessed that progress towards industrialization is rarely smooth; historical experiences indicate that the more rapid the progress, the greater the strains originate with in a society. In formulating the economic politics, the CCP had two goals i.e. equality and prosperity. The first of thee is idealistic and the second one is materialistic. Practically, it is very difficult to pursue both simultaneously. In general, economic policy since 1949 has tended to emphasize either one or the other. The first tendency was more pronounced during Mao ze dong’s leadership, the second under Deng ziaoping’s. However, economic policy under each man’s leadership has also been characterized by fluctuations between emphasis on one goal and the other. 5 In 1949, as a result of revolution, when communist party of China came into power, then the long term goals of Chinese leaders were to transform China into a powerful socialist nation. To achieve this goal, industrialization, improvement of living standards, narrowing of income differences and modern military equipment was needed. The leaders of CCP worked to achieve these goals. We can see a difference in economic policies in different eras but the basic aim was same. Deng Xiaoping, Liu Shaoqi, Zhou Enlai, were the leaders who emphasized more on economic consideration rather than political.

China’s five year plans, like most of the other countries, do not try to guide individual enterprises on a daily, monthly or regular basis.


That is the task of annual and quarterly plans. Instead of this, five year plans provide a frame work with in which annuals plans are drawn up and implemented. They set global targets for social and economic goals, survey past successes, and enumerate the unresolved obstacles to further growth; they describe the means for achieving the goals and a list can be set through debate about the priorities to be given to different sectors.

Annual plans of China are drawn up the state economic commission under the supervision of the state planning commission, which provides guide lines in all long term and short term planning. Annual plans set the important targets of the year and then the working of the whole year takes place to achieve these targets. In Chinese economic history, these five year plans and annual plans have played a vital role. Following table is giving a brief over view of China’s first five year plans. 6

Table: 2.1









Rapid industrialization Achieve goals to through soviet style some extent. planning.

Second FYP


Stress out

on put

tight Voided in 1958 by quality (1958-1959)

financial control and great leap forward standard. Rapid growth of all Voided by cultural sectors, agriculture. especially revolution 69) revolution and still (1966-

Third FYP


Fourth FYP


Industrial support for Effects of cultural agriculture; scale industry reemphasis on small- witnessed foreign trade. Order of priorities: Began on schedule agriculture, industy. light, restructured in industry, and heavy (1978-19790

Fifth FYP


Source: Fredrick M.Kaplan, Julian M. Sobin, Encyclopedia of China Today, (London: Macmillan publishers LTD, 1982) p. 157

THE EARLY YEARS: 1949-1952:


After independence, CCP set some tasks regarding economy. Firstly, to bring the disastrous inflation of new China under control. Secondly, to rebuild the infrastructure and production faculties which was destroyed as a result of war. As far as currency is concerned different regional currencies were abolished and it was ordered that every one has to use Chinese currency “Yuan” also known as “Renminbi”. Banks became nationalized and strictly came under the supervision of CCP. The economic planning system of the centralized State was inspired by Soviet Union’s model. Government fixed the prices of different commodities which were considered fair at that time and also set some punishments for those people who violated the rules of government. These all efforts were done simply to bring the economy in normal working order.

The socialist economy, as it was introduced in China in the early 1950s and continued to exist for over 30 years, differs drastically from liberal market economies. The state controlled the economy by enforcing a state plan. The CCP’s political task is to establish a communist society in China, a society which does not allow exploitation of people by other people a genuinely classless society characterized by an equal allocation of wealth and opportunities. 7

As has stated, Mao’s analysis of the border region economy had 2 points of focus: the development of the private sector and the growth of self supporting undertakings run by army and government personnel


to supplement the operating and living costs of their units. Since there was virtually no private industry, the private sector consisted of agriculture, handicrafts and commerce. Mao defined its primary role as providing for the people’s livelihood. It functions as a source of support for the war and for reconstruction. Which it realized through the taxes paid to the government and trade with the public sector- though important, was secondary to the task of providing that livelihood. Mao argued that the only way to raise the living standards of the people was through the growth of the private sector and it was only by demonstrating its ability to achieve this practical goal. The party could generate support for its cause. On this he was unequivocal: “The primary aspect of our work is not to ask things of the people but what can we give the people?” Under present conditions in the shaanGan-Ning border region, we can organize, lead and help the people to develop production and increase their material wealth and on this basis, we can step by step raise their political awareness and cultural level. 8 The development of self supporting policies give basis to this aim by alleviating government demands on the people and work on the improvement of living standards and working conditions of the peopleMoa had introduced the handicrafts industries, which had fallen in to decline e.g. textiles. On one hand, self supporting production gave relief to the government and on the other hand successful undertakings could eventually be transferred to government control and become state enterprises. Over all Mao specifically warned against developing

undertakings which might harm the private sector: “The economic activities of the army, party and government should harmonize with the economic activities of the people-Any thing which


damages the people’s interest or causes them dissatisfaction is not allowed.” 9

In this context, land reform program was introduced for rural transformation. This land reform considered as most successful rural transformation. This land reform provided land to poor peasants and shelter from exploitation; it actually helped to promote the recovery of rural economy. On the other hand, the Chinese land lords used all the levers of social and political powers at their disposal to undermine the land reform. They were of the view that they were badly exploited by this reform but land lords were specifically to be allowed to have small plots to sustain them selves and their family. Mao agued that they could be used ‘as a labor force of the country’ while the party could also ‘save and remold them’ Perhaps he also had in mind their function as a living symbol of the reversal of the old exploitive class structure. In any event, Mao concluded: “Our task is to abolish the feudal system, to wipe out the land lords as a class, not as individuals.” goals. The evolution of principles in China with regard to Marxist, Neo Marxist, and Leninist principles, can be categorized in to 3 stages. 1. The 1920’s up to 1949 saw the following bent:  Emphasis on nationalism.  Anti imperialism.  Rural class struggle and revolutionism.

The period of balancing economy had achieved its

2- Second stage from 1949 to 1977 saw following turns:


 Principle of Revolution by Lenin  Emphasis on nationalism and anti capitalism  Anti-imperialism.  Rural Revolution.  The Great Leap Forward.  The Cultural Revolution.  Neo Marxism.  Leninist and Stalinist rule.  Autarky. 3- In 3rd stage, from 1978 to the present, China has witnessed following: Nationalist. Dual economy. Empowerment of the rural public. Open Door Policy. Entry in to the Global economic system. Shift from Leninist to authoritarian rule. Emphasis on basic economic and social sights and not on political ones. 11

      

The successful completion by the end of 1952 of basic economic reconstruction paved the way for CCP leadership to begin the transition to socialism through a long tern planning of reconstruction. The ultimate goal of CCP leadership was to achieve the complete modernization of the backward state. For this purpose, Chinese leaders followed the soviet model in every respect. The 47

Chinese leader ship became the follower of Soviet Union’s modal right after its independence. Soviet Union was that country who took initiative to opt and build socialism. Moreover, Soviet Union was the Country, who define socialist system to the whole world and they successfully industrialized their under develop country. China however, was still more backward economically and socially than tsarist Russia had been. The level of industry in China in 1949 was less than half of the Russia in 1917, and by 1952 Chinese industry amounted to only 25 percent of the soviet level for 1927. Agricultural production per capital in China in1952 amounted to only 20 percent of that in Soviet Union in 1927. Thus, the economic conditions for building socialism, or for that matter for carrying out any appreciable modernization of the country, were far less good in China. None the less, the Chinese leadership was adamantly determined to undertake the shift to socialism almost as soon as economic revival had been completed. One of the vital reasons for this desire rested in the fact that the Chinese leaders were now in their 50’s and 60’s and they wanted to see these tasks achieved in their own lifetimes. 12 After making smooth economic base during years (1949-1952) of restoration of economy, the Chinese mainstream leaders of that time like Moa Zedong, zhou Enlai and others were ready to make the first five year economic plan (1953-1957), definitely based on socialist structure. In this context, in September 1953, the principles of first FYP were published. The farmers knew that socialism could not be successful if there is no proper progress of gradual expansion of economy. For this purpose, they found internalization as a tool.

The CCP leaders found industrial sector as a key to expand economy so they work more on it and the priority was given to the


heavy industry. The basic aim behind it was to double the industrial growth during the period of the plan. By following the soviet economic model, heavy industry was emphasized and China invested 20 percent of its resources in this sector. A rapid transfer of technology took place between China and USSR, and the whole world was of the view that it would have taken the PRC more than 30 years to achieve technological betterment which were brought about in to years of soviet assistance. New industrial areas developed rapidly. 13 58 percent of the money to be invested was designated for industry, of which 88.8 percent was assigned to heavy industry, 11.2 percent to light industry. By contrast, only 7.6percent of investments were earmarked for agriculture. The basic premises of the first five year plan wee modeled almost entirely on soviet experience and were drawn up with the contribution of the soviet experts and consultant. Their support played a significant role during this period, especially in the establishment of previously non-existent sectors of industry, in machine building, electronics, steel and oil industries. Close to 10,000 soviet experts worked in China during these years, as did hundreds of engineers form east European countries; and thousands of Chinese technicians were trained in the Soviet Union. 14 This whole industrialization program was based on an assumption that mainly it would have to finance China by herself because in the total amount, for the completion of this five year plan the soviet assistance is only 3percent and there was no hope for gaining aid and assistance from the west due to the cold relations between USA and China. Chinese found the solution of this problem in agricultural sector. It means that agriculture can provide the money which was needed in industrialization. This reason paved the way for agricultural reconstruction in China. The agriculture sector was not given more importance initially but after this serious work took place in this sector. A solid base was created in heavy industry, which includes iron and


steel manufacturing, coal mining, cement production, electricity generation and different machineries. All the above mentioned industries greatly expanded during this period.

In 1949 the rough estimate of gross output of agriculture was 33 billion Yuan. In 1952, after the period of 3 year recovery, output of agriculture raised to 46 billion year. Examination of the long term trend towards a declining share of output contributed by agriculture in China fails. However, to reflect the historical and continuing importance of the sector in economic development, agriculture Continues to provide the main employment of four fifth of the Chinese population, who are rural inhabitants. It has provided substantial resources for investment in industry, as well as meeting its own investment needs and those of industrial and social development in the country side. This has achieved with a relatively low level of agricultural mechanization. economic growth.16 Chinese leaders believed that


sluggishness of agriculture has become a severe drag on Chinese agricultural modernization is important for economic growth. During these five years, a number of industrial and mining enterprises were constructed, including 156 major facilities. Industrial production increased at an average rate of 19 percent between 1952 and 1957 and the growth of national income rate was 9 percent annually. As China gained experience and confidence with the passage of time, they introduced such variations which meet their necessities. 17

Table: 2.2


SR. NO. 1 2 3 Agricultural output Industrial output Handicraft output Gross total output SECTOR 1952 ACTUAL ( £ MILLION) 7,050 3,925 1,075 12,050 1957 PROJECTED 8,700 7,800 1,725 18,225

Source: The state council, the first five year plan (Peking Chinese language, 1955).

By 1957, the main changing in China’s institutional system were complete and transformation was also seen in the Chinese class structure i.e. the bourgeois and rich peasantry class had been dispatched. The primary phase o socialist transformation could be said to be finished. This could be labeled as the 1st step of China towards modernization. During the period of first FYP, industrial production increased in value form 3.4 billion to 7.8 billion Yuan, i.e. 128 percent, an annual increase of 25 percent. Steel production had grown form 1.3 million tons in 1952 to 5.3 million in 1957; out put of coal from 66 million tons to 131 million; electrical power had increased from 7.2 billion kilowatts in 1952 to 19.3 billions in 1957. However the development of agriculture lagged considerably behind that of industry during this same period increasing by only 20 percent, an annual growth rate of less then 4percent .18 The imbalance between the industrial and agricultural growth, dissatisfaction with inefficiency and inflexibility in the decision making process realized Chinese leaders, that the highly centralized, industry biased soviet economic model do not match with Chinese interests.


Great Chinese leaders, Deng Xiaoping explained the concept of socialism and differentiate it from Marxism on June 30, 1984: “What is socialism and what is Marxism? We are not quite clear about this in the past. Marx attaches utmost importance to developing the productive forces. We have said that socialism is the primary stage of communism and that at the advanced stage the principle of from each according to his ability and to each according to his needs will be applied. This calls for highly developed productive forces an over whelming abundance of material wealth. Therefore, the fundamental task for the socialist stage is to develop the productive forces. The superiority of the socialist system is demonstrated, in the final analysis, by faster and greater development of those forces than under the capitalist system. As they develop, the people’s material and cultural life will constantly improve. One of our short comings after the founding of People’s Republic of China was that we did not pay enough attention to developing the productive forces. Socialism means eliminating poverty. Pauperism is not socialism, still less communism.”19 In 1957, there was a shift in authority for economic decision making to the provincial level, country and local administration. Efforts were made for “Great Leap” in productions for all sectors of the economy at once. In 1958, the CCP launched the “Great leap forward” campaign in response in response to above problems. The Great Leap Forward came to be based on a very different development strategy. It was aimed at accomplishing the economic and technical development of the country with greater results. The idea behind the leap was to continue to use source scarce capital and technical knowledge to develop heavy industry but to parallel this effort with a mass mobilization of all types of marginal resources. It means to use rural and urban labor with any difference of male and female. This was so to begin construction project; to take part in technical innovation; to start factories that utilized simple techniques and to find and use the marginal sources of saw materials perforce ignored by central planners 52

concerned with short term cost efficiencies. The party leaders were of the view that more could be achieved in the second FYP (1958-1962), if the people could become active and if country resources could be efficiently used for the simultaneous development of industry and agriculture. These perceptions led the CCP to a high mobilization of the peasantry and public organizations, stepped up ideological guidance of technical expert and efforts to build a more efficient political system. Local industry and rural industrialization were to be given support to centralized planning. Power and responsibilities were to be shifted to the workers by decentralizing the industrial management. Residential areas became very important and useful units of urban life in providing services that facilitated the large scale participation of women in production out side the home. This program was designed to unite residence, services, and productive activity with in a single unit. This thing shows that “the great leap forward” centered on a new economic system. 20

A new institution was introduced in rural areas came in to known as the rural people’s commune. The commune performs an economic function to combine industry and agriculture. The communes also work to perform various domestic services that would specifically enable women to take part in production out side the home. In this plan, small scale rural industry was tried to be encouraged. The base of income was “need” not “effort”. Each commune was planned as a self supporting community for agriculture, small scale industry, schooling, marketing, administration and local security. Women were to participate in production equally with men and so large refectories and crèches, kinder garters and homes for the elderly were promoted. The general displeasure with such steps


caused this policy to be stopped abruptly after a couple of months. The policy was both misconvinced and carried out in such a rigorous manner that it caused huge lose.

The great leap forward was a watershed in Chinese

development strategy and will always be remembered as an economic failure. It became a cause of disastrous effects in the industrial sector. A collapse was seen in quality and complete ignorance of customer’s requirement. A chaos and tension also added when soviet advises suddenly with drawl in 1960.

The economic after effects of he great

leap forward were shortage of food, shortage of industry in raw material, unnecessary production of low quality goods, demoralization of the peasantry and the qualified people. 22 The idea to develop rural industry was in itself, creditable and could have achieved important growth, but it was carried out as a political campaign to achieve targets for which there was no basis in the affected localities. Lack of machines, capital and saw materials and seasonal differences in the implementation of the policy. Following “the great leap forward” there was 2 year severe starvation which affected all over the country. 23

After this the government changed the goals of economy and set new policies by replacing the old ones. Top priority was given to expand agricultural output to meet the needs of the growing population because both the first FYP and the great leap forward shared one common thing and that was to ignore the agricultural sector and neither strategy put much emphasis on investment of modern technology in agriculture. Planning, rather than politics once again guided production decisions, and material rewards rather than revolutionary eagerness 54

became the leading incentive of production. During the re-adjustment and recovery period of 1961-1965, restoration of economy was witnessed. An important source of growth was the widening of rural and small- scale industries, specifically coal mines, hydro electric plants and agricultural machinery plants.

There was also a change in

investment in different sectors as the first consideration was the agriculture, second was high industry and heavy industry on third. The important change in agriculture was the decentralization of production decision making. During this adjustment period, economic stability was revived. After 1961, economic stability was restored. Agricultural output and industrial output grew at an average annual rate of 9.6percent and 10.6percent annually.

Just as the economy was beginning to develop, another large scale disorder took place in the form of the “Cultural Revolution,” This disruption lasted through out the Third FYP (1966-1970) and Fourth FYP (1971-1975). In 1967, there was a downfall in the industrial output value by 13.8percent and 5percent further decrease in he value was seen in the next year. Furthermore, agricultural production declined by 2.5percent although the production figures for the year 1969 and 1970 showed some increase, they were inflated.25 This show a beginning of massive economic downfall in China, which was also witnessed in fourth FYP. During the era of the fourth FYP, situation got even worse, Most of the state enterprises stopped production and the conferences stand meetings for future planning could not held. The annual rate of growth of industrial and agricultural output dropped to 7.8 percent with industry declining to 9.1 percent and agriculture to 4 percent. 26


For the proper understanding of the impact of the Cultural Revolution, it is necessary to clarify that it was not cultural in the usual sense of the word. It was as much concerned with agriculture, industry and political thinking as with culture it self. In short, we can label it as a complete ideological revolution. In the mid of 1966, the Cultural Revolution was about to began, launched by Mao ze dong to counter revisionism ,proliferate ideology, strengthen the foundations of socialism, increase production and to remove the revisionists and bourgeois from the party bureaucracy. A lunge disaster was seen in to domestic upheaval. The Cultural Revolution showed an era of extreme nationalism and isolation with in China. Enthusiasm for the Cultural Revolution, antipathy to western influence, and support for revolutionary values reached high intensity, leading to huge demonstrations that at times spread to Chinese community all over the world. Senior officials, who were led by Zhou Enlai, worked very hard to maintain a complete diplomatic isolation. Anti British riots and demonstrations in Hong Kong were very severe prominently, but so too were anti soviet, anti British and anti USA demonstrations in China.

Initially the Cultural Revolution was a

political uproar and did not make any prominent changes in economic policies. It affects the economy of modern sector. Agricultural production stagnated, but mainly the rural areas experienced less disorder than cities. In industrial sector, production got minimized. This is mainly due to 3 causes. 1. The 1st cause in reduction of production was the political activity of students and workers in the factories and mines. 2. The 2nd cause was the lacks of transportation because the trains and trucks were using to carry the Chinese red guards all cover the country.



The 3rd cause was that factories were instructed by the revolutionary committees, which includes the party representatives, the workers and the PLA, who have little knowledge about the management. Moreover, many intellectual from different professions were forced to participate in labor or being jailed which resulted in their abilities being lost to the enterprise. Consequently, in 1967, 14percent decline in industrial sector was being witnessed.

Further more, the long lasting effect on the economy was the shortage of highly educated personnel caused by the closing of universities. Due to this fact, China’s ability to develop new technology and absorb imported technology would be limited for years by an inval in higher education. Seizing some of the leading positions in the party and the state, Lin Biao and the “Gang of Farer” (Jiang Qing, Zhang Chuqiao, Yao wen Unan and Wang hogwen) wrought terrifying havor on the national economy through their so-called “Cultural Revolution.”

In 1975, when Deng Xiaoping took a charge of daily working of the centre, then things turned towards betterment. There was increase in steel production from 21 million tons of 1974 to 24 million tons and grain out put went up form 275 million to 298 million tons but in 1976, after the death of Zhou Enlai, the “Gang of Four” launched a movement to “Criticize Deng Ziao ping and counter the right deviation trend to reverse the correct verdict on the cultural revolution” They virtually caused great loses to the nation’s material wealth. Their disruption of political life and of economic management undermined economic activity so seriously that they brought the entire national economy to the brink of collapse. As political stability was restored, a gradual development was in motion. They restore the industrial development; a campaign was carried out to return skilled and highly educated personnel’s to their jobs from which they had been displaced during the Cultural Revolution. Foreign contacts were reestablished, universities


were re-open. There was increase in investment, including the contracts with foreign firms for the construction of major facilities for chemical fertilizer production, steel finishing and oil refining. In this era, the annual average rate of the industrial output grew at an annual average rate of 8percent.

The period between 1978 and 1989 was one of the constant struggles for Deng and his agenda of necessity, he made many tactical shifts in policy, but in general, hi strategic goal, out lined in his speech at the third plenum, was his guiding principle. It was under these turbulent conditions that Deng began his efforts in 1979 to transform the economic structure. To do so, he had to reform the party and change old ways of thinking he advocated free thinking by “Path breakers” who dared to go against popular thinking and break old taboos to venture in to new areas, especially foreign economic thinking and practices; devolution of power to the provinces and local authorities to allow them to make their own economic decisions and adoption of western modals and technology. To implement his policy; he recommended: “We must learn to manage the economy by economic means. If we our selves don’t know about the advanced methods of management, we should learn from those who do, either at home or abroad. These methods should be applied not only in the operation of enterprises with newly imported technology and equipment but also in the technical transformation of existing enterprises. Pending the introduction of a unified national program of modern management, we can begin with limited spheres, say a particular region or a given trade, and then spread the methods gradually to others.” The policy of selective experimentation became known in the party legislation as the strategic principle of opening to the out side world. 29


The fifth FYP began in 1976 with the over through of Gang of four in that year; the national economy began to improve. Excessively high targets were set and the scale of capital construction, which was already at the level beyond available resources, was further extended. All greatly intensified the imbalances in the economy and added to financial difficulties. Deng Xiaoping was of the opinion that China’s future depended upon several things. Firstly, by joining the international economic systems, which have a base of capitalism. Secondly, by actively participating in the different economic regimes that revive the Global system gradually, such as the World Bank, the IMF, GATT. Because of this, Deng and his supporters introduced open door in 1978. Deng tried his best to use the capitalist system and its market incentives to bring about immediate improvement in China’s economy by introducing capitalist practices and trade with the wet, Despite to isolating China, Deng took above steps which no doubt gave beneficial results to Chinese economy.

In December 1978, the party leaders decided to under take a programme of gradual but fundamental reform of economic system. They were of the opinion that the old policy of centrally planned economy had to meet the needs which are important for efficient economic growth and had resulted in a manner that China had set for behind from the other nations of the world in industrial sector. The purpose of this economic reform in not to discard communism but to make its working according to the Chinese economic needs. Following are some events of late 1970’s and early 80’s which paved the way for economic development in China.


1. On October 1976, broad ideological debate over priorities in economic organization, management, and planning; culminates in arrest of “Gang of four.” 2. On January 1976, Fifth year plan began. 3. On 10 December 1976, second National agricultural conference held on learning form Dazahi. 4. On 15 February 1977, China sells 80 tons of gold on European markets; its estimated value was $350 million. 5. On 20th April 1977, China’s first National industrial Conference convened. 6. On July 1977, a National conference took place on the issue of foreign trade. China reiterates intention to continue to get knowledge from west through purchase of foreign technology. 7. On August 1977, a barter agreement was signed between SinoSoviet for 1977-1978. Its value estimated at $396 million. 8. On 16 February 1978, Sino Japanese trade agreement was signed for 8 years (1978-1985). It provided a total trade turnover of almost $ 20 billion. 9. On 18 March 1978, China’s first national science conference opens in Beijing. 10. On 3rd April 1978, China signed five year non preferential trade agreement with EEC; that includes MFN clause, PRC agreement to set export prices at world market levels. China became second largest trade out let next to Japan. 11. On 12 August 1978, a ten year treaty of friendship and economic co-operation was signed between Japan and China. 12. On March, 1979, China launched 10 year plan or economic development i.e. 1976-1985. First priority was given to agriculture and light industry. 13. On 30 March 1979, China signed first major international commercial loan, which includes a five year $175 million loan from UK and International Banks.


14. On May 1979, Chinese foreign trade minister announced cutbacks in heavy industry expenditures. In that period, priority was given to light industry and agriculture. 15. On 7 July 1979, a formal trade agreement was signed between USA and China. 16. On 17 October 1979, France and China signed new economic, technological and cultural agreements. 17. On November 1979, China announced plans for export of Chinese skilled and unskilled labor, under contract with foreign ministers. 18. On December 1979, a wide range of cultural, technological and economic agreements were signed between China and Japan. 19. On January 1980, US-China trade agreement ratified by USA congress and China was granted MFN status. 20. On April 1980, China admitted to IMF. 21. On May 1980, China enters into the World Bank. 22. On January 1981, number 17 textile mills in China, begins selling shares of the enterprise to the workers in order to link the workers economic interests more closely to those of the enterprise and reduce the burden of fund raising on the state, each worker may buy a maximum of five shares at Y50 each (USA $ 32.50). Shares pay an annul interest of 5.4percent and a dividend at the end of the year if the enterprise makes a profit. The shares are not transferable and must be redeemed upon the owner’s retirement. 23. On February 1981, China discloses that it has all the technology which is necessary to build medium sized atomic plants using only domestically produced parts. 24. On May 1981, the bank of China and the USA export import bank reach an agreement which will allow China to buy $75 million worth of steam generation power equipment and technology form American companies.


25. On June 1981, China announces plans to liberalize laws in SEZs. Investors will have the power to set wages and dismiss workers. 30

The initial year of the reform gave such fruitful results in the form of increasing incomes, more chances of food housing and high rate of growth in almost all sectors. China’s opening up to the out side world has been a feature of the economic reform form the start. Form 1949 until 1970’s the country was completely closed to western foreign investment. International trade continued after 1949, despite American embargoes, but tightly and centrally controlled but China in the reform period is a major recipient of direct foreign investment and exporter of light manufactured goods. The presence of foreign firms and imported consumer goods brings an exposure to western and Japanese culture and business practices. International trade increasingly means that exporters must confirm to international standards of quality, and domestic producers face import competition. For the planners, international trade means the world prices influences the domestic price structure and important decision making of consumers and enterprises. Such changes have profound political implication too. 31 The evolution of the open policy since 1970’s founded that it has not proceeded in a simple linear fashion. The rate, extent, forms and direction of opening have fluctuated over the past years with advances and retreats which have their origins in economic factors. Regional interests have also shaped the course of the open policy. The decentralization of authority to approve foreign trade and foreign investment contracts has encouraged greater initiative at the micro economic level. However, it has also led to central loss of control over foreign exchange. The open policy and reform have clearly favored the development of the coastal areas. This contrasts starkly with Mao’s attempts to minimize regional differences. Official,


academics and individuals in the inland areas have responded ambiguously to the rapid growth of the coastal board. On the one hand, they have supported some attacks upon the SEZ’S. They have also tried to protect their own industries by blockading products form the coastal areas. On the other hand, some enterprises, units and individuals have been quick to take advantage of new opportunities.

China’s open policy has along with the domestic economic reforms, significant distributive consequences for particular social and economic groups. The open policy involves not only choices about the allocation of central economic resources but also, and indeed more importantly, the granting o particular rights and privileges of selected areas, sectors and social groups. 33

As a result of open policy of China, the Chinese state has entered a period of transition. As a central state level, there has also been proliferation of trading and investment co-operations, the reformist leadership hoped to remove some of the rigidities inherent in a centrally and vertically integrated system. By August 1984, there were over six hundred import/export companies under the foreign trade co-operation at provincial level. The ministry of finance also broadened its activities. It has not only had to devise regulations on finance and taxation for foreign invested enterprises, but also determined their access to the domestic market. It has also decentralized some of its functions. In sum, the

implementation of the state dealing with foreign economic relations.

The Nature of Chinese economic system became shuffled during 1980’s it would not be accurately described as either a centrally planned economy or a market economy. Due to open policy, Chinese state has entered a period of transition. The introduction of market forces has generated elements of a new market facilitating state. Its basic features are as follow:


1. It engages itself in profit gaining end risk taking activates. 2. It explains the relation between the economic actors in market and makes efforts to resolve the disputes of economic nature with the help of law. 3. Technical and professional personals involved in it. 4. It tries to regulate the market not on micro economic level but on macroeconomic level. Above elements can be seen more prominently in the SEZ’s where, the foreign capital is high.

The most prominent aspect of the open policy is the SEZs. They are formed in 1979-1981. The 4 main zones, with this reference, were located with a view to expand the attraction to investment from the ethnic Chinese living abroad. Shenzhen, the largest, was located in Guangdong province immediately adjacent to Hong Kong. Zhuhai was set up beside the Portuguese enclave of Macau, also in Guangdong. Shantou, in the north east of Guangdong province was established in an area with many links with south East Asian Chinese communities and Xiamen SEZ in Fijian province was intended to attract Taiwanese investors. Although the Chinese leadership was undoubtedly influenced by what it knew of export processing Zones (EPZs) set up in other Asian countries, the SEZs were different. The SEZs like EPZs gave generous tax concessions and duty free import privileges to foreign investors, and provided infra structured facilities. However, the SEZs were much larger, and the greater freedom they gave to enterprises to trade has also attracted many domestic Chinese enterprises and organizations to invest there. Initially, the SEZs were set up in the south not only to capitalize on links with Hong Kong and South East Asia, but to confine










established industrial areas. The open cities and other open areas have gradually given new areas access to foreign investment. 35

1. Special tax incentives for foreign investment in SEZs. 2. Greater independence on international trade activities. 3. Economic characteristics are represented as “4 principles” a. Construction primarily relies on attracting and utilizing foreign capital. b. Primary economic forms are Sino foreign joint ventures and partner ship as well as wholly foreign-owned enterprises. c. Products are primarily export oriented. d. Economic activities are primarily driven by market forces. SEZs are listed separately in the national planning (including financial planning) and have province-level authority on economic administration. SEZs local congress and government have legislation authority. Since 1992, the state council has opened a number of border cities of inland provinces and autonomous regions. In addition, 15 free trade Zones, 32 state level economic and technological development zones, and 53 new and high tech industrial development zones have been established in large and medium sized cities. As a result, a multilevel diversified pattern of opening and integrating coastal areas with river, border, and inland areas has been formed in China. 36 After making a deep analysis of all aspects of economic policy that have been emerged in China since the death of Mao Zedong has provided some fundamentally new view point on China’s way of economic development. The emphasis on such issues as changing systems of ownership and distribution of sources, self supporting policy and public participation in economic decision making, all of which became the hall marks of China’s developmental strategy during the cultural revolution, has moved out. In its place, arguments have been advanced and


evidence combined to show whether the strategy was not working or it was not implemented properly but despite of these arguments, the speed and degree of changes in economic policy since 1976 have clearly shown that, in as far as previous strategy was implemented; it rested on very brittle fundamentals. Following figure gives a proper vision about the gross national product and industrial production form 1949 to 1980. Figure: 2.1

Gross National Product and Industrial Production

GNP Industrial production





1 5 9 2 1 9 4 9 1 9 5 0 1 9 5 1 1 9 5 3 1 9 5 4 1 9 5 5 1 9 5 6 1 9 5 7 1 9 5 8 1 9 5 9 1 9 6 0 1 9 6 1 1 9 6 2 1 9 6 3 1 9 6 4 1 9 6 5 1 9 6 6 1 9 6 7 1 9 6 8 1 9 6 9 1 9 7 0 1 9 7 1 1 9 7 2 1 9 7 3 1 9 7 4 1 9 7 5 1 9 7 6 1 9 7 7 1 9 7 8 1 9 7 9 1 9 8 0


Source: Fredrick M.Kaplan, Julian M. Sobin, Encyclopedia of China Today, (London: Macmillan publishers LTD, 1982), P. 221


Discussion of economic policy in the post Mao period has, by contrast, given primacy to questions of technological change, profitability of investment, productivity, the rate of growth of out put, the role of economic incentives , and the use of managed market forces. Such considerations have not only led to the rejection of many of the policies of the 1960’s and 1970’s but also to a reevaluation of the whole process of development in China since 1949, Questions of principle related to such things as socialist planning, ownership and methods of economic administration that have remained relatively settled since the 1650’s have come under close scrutiny. The result has been that some of the fundamental problems of development in China are no longer discussed solely with in the framework of the centrally-planned soviet model of the five year plan or the decentralized, mobilization modal of the great leap forward and Cultural Revolution. 37


1. www. Indexmundi. com 2. Qi Wen, Zahou Yicheng, China an introduction, (Beijing: Foreign Language press, 1962) p. 18 3. http://en.wikipedia.org/wiki/CHINA-as-an-emerging-superpower#CHINA 4. Fleming Christiansen, Shirin Rai, Chinese politics and society an introduction, (London: harvest wheat sheaf,1996) p. XVI 5. June Tuefel Dreyer, China’s political system, (London: Macmillan press, 1996) p. 43 6. Fredrick M.Kaplan, Julian M. Sobin, Encyclopedia of China Today, (London: Macmillan publishers LTD, 1982) p. 157 7. Fleming Christiansen and shirin Rai, Op.cit, p. 185 8. Marc Blecher, China-politics, economies and society (London: frances pinter publishers, 1986) pp. 9-.47. 9. Judith K. Korn Berg, China. In world politics, (New York: Viva books pvt Ltd,1982) pp. 66,67 10. Witold Rodzinski, The people’ Republic of China: a concise political history, (New York: the Free Press. Macmillan Inc.,1988) p. 31 11. Fredrick M.Kaplan, Julian M.Sobin, Op.cit., p. 158 12. Witold Rodzinski, Op.cit., p. 32 13. Karsten Grummitt, China hand book, (London: Euro monitor Publications LTD,1985) p. 50 14. Chu-yuan cheng, China’s economic development, growth and structural change (London: west view press,1989) p. 381 15. Solomon Adler, The Chinese economy, (London: Routledge and kegan paul,1962) p. 70 16. Witold rodzinski, Op.cit., p. 55 17. http://en.wikipedia.org/wiki/economy-of-the-peoplepercent27sRepublic-of-CHINA. 18. Fredrick M Kaplan, Julian M. Sobin, Op.cit., p. 158 68

19. Ibid., p. 159 20. Robert L. Worden and Andréa matles savada, Ronald E.Dolan, CHINA-a country study, (New York: Library of congress, 1988) pp. 43,44 21. Fleming Christiansen, shrin Rai, Op.cit., p. 210 22. Robert L. Worden, Andrea Matles Sanada, Ronald E. Dolan Op.cit., p. 218 23. Xu.Dixin, China’s search for economic growth “The Chinese economy since 1949” (Beijing: New world press,1976) p. 12 24. Ibid., p. 12 25. Fredrick M.Kaplen, Julian M. Son, Op.cit., p. 88 26. Andrew Watson, China’s search for economic growth, The China’s economy since 1949, (USA: New world press, 1982) p. 22 27. Andrew Watson, Mao Zedong and The political economy of the border region, (USA: Cambridge university press, 1980) pp. 23,24 28. Ibid., p. 24 29. Michael E.Marti, China and the legacy of Deng Xiaoping , (Washington: Brassey’s Inc., 2002), p. 16 30. Fredrick M. Kaplan, Julian M.Sobin, Op.Cit., pp . 163,164,164 31. Robert Ben wick and Paul Wingover, China in 1990’s (London: Macmillan press LTD: 1999), p. 16 32. Ibid., p. 172 33. Jude Howel, China opens its doors, (New York: Harvestor Wheat shef/ Lynne Reener, Publishers,1993), p. 182 34. Ibid., pp. 186-188 35. Robert Ben wick, Paul Win grove, Op.cit., p. 173 36. http:wikipedia.org/wiki/special.economic.zones.of.the.peoplepe rcent27’sRepublic of China. 37. Andrew Watson, China’s new development strategy, (New York: Academic press, 1982), p. 82






s mentioned in the 2nd chapter, china began to make major reforms of its economy, since 1979. The Chinese leadership opted a pragmatic perspective on many socio-economic

problems and the role of ideology was also limitized for making


economic policy. In 1980’s the government emphasized on raising personal income and consumption and introducing new system of management to help in increasing productivity. In the era of 1980’s, china also tried to focus on foreign trade as this becomes the most prominent source of development for Chinese economy. All the first FYPs contribute a lot for the Chinese economic development. The success of Chinese FYPs can also be seen in the sixth FYP (19811985).1

Without giving the same level in terms of technology to the large population of china and with lack of capital resources, it would be impossible to touch the status of such type of economic system. After the end of Cultural Revolution, a series of new strategies witnessed in Chinese economy which was the need of that time. For partial adoption the Chinese planners also deeply analyzed the experience of developed western states. This thing also tells us that the Chinese hostile attitude towards the capitalist nations turned in to the admiration after 1976. At that time, when 6th FYP was also formulating, chine was actively seeking for foreign assistance to establish a firm system of economic growth. Moreover, china has also adopted the advanced western technology for its factories and has also solicited long term credit to pay for it. Foreign investment was highly encouraged in china. These things help for departure of policy of isolation as the concept of globalization was emerged in that era of 1980. The sixth FYP was formulated on the basis of searching for new economic order and many experimental changes were seen in the economic system.2 The main idea of this FYP was huge investment in energy conservation. The major policies of sixth FYP were to modify energy intensive industries to increase equipment and process efficiency with technology and cut off the useless apparatus and production processes, to issue energy consumption standards for energy-intensive


products, to provide low interest loans for some energy conservation projects and the most important policy was to support research programs and development in energy conservation technologies. 3 According to Chinese government’s official web portal, in early 1980, the state council decided to revise the mid and long term plans. A meeting was held to compile the 6th FYP. For this purpose, the state planning commission and other related departments started working on research and calculation work on the compilation of the plan and organized related experts to conduct scientific considerations. In December on the 5th meeting of the fifth NPC approved this plan officially. As compare to the early FYPs, it was more comprehensive as it takes the Chinese economy on a road of success and stability. The main focus in this 6th FYP was to adjust, develop, fix and get better. Moreover, to limitize the various challenges of economic development. Following are specific objectives on which the basis of 6 th FYP was lead down. These objectives are:1. 2. To get an average of growth rate five percent for industrial and agricultural products annually. To keep the market prices stable and to keep the supply of products according to the growth of demand. 3. To support the updating of enterprise technology and to compile the capital necessary to build up the construction of important projects regarding energy and communications. 4. To promote the new technological work, to develop the fields of science, arts and culture and faster the construction of an ideological and material civilization. 5. 6. To concentrate on defense industry of the state and also to increase the national defense forces. To raise economic efficiency to increase the revenue and to work on gradual increase of the expenses of cultural construction.


7. 8.

To develop trade and use the foreign capital for developing purposes. To notice the alarming growth of population, give chances of employment to the people and to gradually improve the social and cultural life of people in every area of the country.


To make efforts for environmental protection. 4

Sixth FYP with the principle of readjustment, restructuring, consolidation and improving of the economy, the Sixth FYP for national Socio-economic development was fulfilled or overfilled by 1985.

During the period from 1981 to 1985, the total industrial and agricultural output value and per capita national income rose with an average of 10percent annually. This annual growth rate was steady but was increasing gradually. The GNP reached up to 778 billion Yuan. The overall national economy kept a stable growth.

During this FYP, agriculture, light industry and heavy industry. All of them grow equally. In early years of PRC, the economic problems were weak and agricultural base, a shabby light industry a strong heavy industry and a high accumulation rate. The problems were solved with the passage of time and different sectors grew with the passage of time. 5 During this period, the government also support nonagricultural activities of citizens for example village enterprises in rural 74

enterprises and supported self management for state owned enterprises and also facilitated for the direct contact between Chinese and foreign trading enterprises. During this era, the Chinese economy relied Very much upon the foreign financing and imports. Barriers were lifted from the foreign trade and relaxation was seen in this era. As far as the urban economy was concerned, urban economic reforms were introduced to china with the international economy. Permission was given to the people to promote the private sector.

The reserve funds for the development of these sectors were highly increased. Many scientific and technological projects took place among which 937 received state invention awards. In fact, some of these award mining projects were of the level of world highest projects. During this era, the projects of launching carrier rockets to the Pacific Ocean and under the water were successfully carried out. Moreover, huge electronic computer named as “Galaxy” was manufactured and the putting of an experimental communication into a set orbit succeeded. 6 progress was achieved in infra structure construction and up dating was in technological sector.

Under the 6th FYP, almost four hundred billion Yuan were newly invested in fixed assets of enterprises owned by the masses; almost 500 huge projects successfully came to an end. Technological advancement and renovation of existing industrial enterprises accelerated gradually every year. With the total investment of 105 billion Yuan, the state enterprises successfully completed more than 100,000 transformation projects. 7 75

Enterprises were allowed to keep a substantial share of increases in production. This thing increased the efficiency of the people and their work help a lot in raising the national economy. In addition to this the managerial authority within firms was strengthened and bonuses were granted. 8

In this era, foreign trade and technological exchange entered in a new phase. On the world export volume ranking, china was on No. 28 in 1980 and in 1984, it jumped to No. 10. 9 World saw a new face of china and its economy after the implementation of the 6th FYP. The great achievements obtained in the sixth FYP and laid a solid foundation for economic development. It is stated in a Daily newspaper, “China has successfully adopted strategies that would not only maintain the tempo of growth, but also provide employment to the bulk of its population. The Chinese leadership has launched a series of big projects that serve to provide the infrastructure for future development and keep the economy growing.” 10 The success of sixth five year plan laid the basis for the seventh five year plan and new set of goals were set to achieve in this era.

THE 7TH FIVE YEAR PLAN (1986-1990):
After the success of 6th FYP, the 7th FYP of peoples Republic of China for National, Social and economic development was submitted by the state council in March 1986. After the detailed discussion and


review, the sixth NPC satisfied the 7th five year plan. This plan was constructed on the basis of 6th five year plan. Following are some principles on whose line 7 FYP executed:1. Importance will be given to the reform and coordinate economic development with reform. 2. A balance should be maintained between the demand by the common masses and supply. In equality should not be seen in this issue. A basic balance should also be created between national budget, credit and materials. 3. Economic efficiency should be improved, specifically on product quality, also to handle properly the relations between efficiency and growth rate, quality and quantity. 4. Modifications should be made according to the changing in social demand, and the demands in modernization of economy. Further more, industrial sector should also be modified. 5. To conduct fixed asset investments, readjust the investment structure, the construction of the energy, communications, and telecommunications and raw materials industries should be accelerated. 6. To focus on the construction of the technical updating, reforming and extending of existing enterprises. 7. To work the development of sciences and education. 8. To enhance the policy of opening up and to further open up for the outside world, by combining domestic economic growth with expanding external economic and technological exchanges. 9. The common masses of china should enjoy the improved material and cultural life. 10. To construct both, the socialist ideological civilization and material civilization equality side by side. 11. To carry on in the spirit of laborious struggle, hard work and thrift.


Some goals were also set under this plan for economic development: a. To increase the gross national industrial and agricultural out put by 38 percent within 5 years, or by an average annual rate of 6.7 percent, gross agricultural out put by 4 percent a year and gross industrial output by 7.5 percent. b. To increase gross national output by 44 percent within five years, or by an average annual rate of 6.7 percent, gross agricultural output by 4 percent a year, and gross industrial output by 7.5 percent. c. Production foals for major industrial and agricultural products by 1990 were between 425 and 450million tons for grain, 425 million tons for cotton, 550 billion Kwh for electricity, 1 billion tons for raw coal, 150 million tons for crude oil and between 55 and 58 million tons for steel. Freight volume was set at 9.4 billion tons. d. Investment in fixed assets was at 1,296 billion Yuen with fixed assets projected to grow by 600 billion Yuan. e. To increase total import and export volume by 35 percent within the 5 years while expanding the scale of foreign investment and advanced technology. Further goals were set to increase the actual consumption of both urban and rural residents by 5 percent a year and at the same time keeping the normal balance among the national budget, credit material and foreign exchange. f. To give awareness about education, Government implement the nine year compulsory education scheme, and train five millions professionals, twice that during the previous planning period. 11


The plain outlines the objectives and priorities for the next five Years, within a longer term perspective of economic and social development. It embodies the elective aspirations of common masses, as well as the commitment of government to achieve specific goals and targets. The economy enters seventh plan period in a strong position because of the success of the sixth plan. The rate of growth of the GDP has accelerated. The rate of inflation has been kept under control and the balance of payments has been successfully managed despite an unfavorable external environment. The seventh plan was built on strong foundations. It seeks to maintain the momentum of growth in the economy. The principle was opted that economic growth must be accompanied by social justice and by the removal of age-old social barriers that oppress the weak. This is the essence of the concept of socialism. The plan also seeks to push the process of economic and technological modernization of the economy further forward. In the era of 1080s including 6th FYP and 7th FYP, the Chinese planning system has encountered the problems of inflexibility and unexpected responses that have also emerged in other centrally planned economics. The basic problem faced by the planners was to specify all the important needs of the economy. During 1979 to 1980, few reforms were introduced as an experiment. The success of these reforms paved the way for the other changing reforms in following years. All these policies increase the power of the 79

various economic units and minimize the direct role of the central planning. By the mid 1980”s planning mechanism still for was the government the economy main and directing

correcting imbalance, but its ability to judge and control the behavior of the economy had been greatly reduced.

Before the reform period of 1980s the prices of most commodities were decided by government agencies and were stable. This is because when production costs or demands for a commodity altered, then there was no change in prices; normally they failed to reflect the real values of goods. This became a cause of miscalculation in much kind of goods. The process of supply and demand is the best way to judge the possible best prices essential for economic efficiency and in 1980s, Governments policy was highly advocated. The prices upon which both buyer and seller mutually agreed. In the mid of 1980s prices played a prominent role in production and distribution of commodities in various sectors of the economy. When there was the centrally planned system in the past, the out put quotas and inputs were assigned to enterprises but during the wave of change i.e. sixth FYP and seventh FYP, the incentive to show a positive profit caused even state owned enterprises to choose inputs and products on the basis of prices whenever possible. These state owned enterprises could not alter the amounts or prices of goods, they were required to produce by the plan, but they could try to increase their profits by purchasing inputs as less costly as possible.

By 1987, under the 7th FYP the Chinese economy had made major pace towards achieving modernization and better living standards of the people. There was also an improvement in the


increase in efficiency and productivity by the opening of the economy to broader trade and collaboration with other countries, the vast use of the market to intervene commerce and production, and the increased decision making power of individual economic units. As China is one of the most populated states in the world so the most prominent resource of China was its labor force i.e. the largest in the world. Moreover, the decentralization of management motivate the participation in planning and decision making of growing numbers of local and enterprise level managers, planners, administration and scientists. It also trained future economic leaders for higher administrative responsibilities. 12

In 1980’s while running the special economic zones, china had adopted number of reforms to execute its foreign trade e.g. empowerment of local governments as they have got the power of examination and approval of foreign trade and exports. As a result, the old system based on state monopoly, highly centralized administration with enterprise operations and the state assuming responsibility a profile and losses has basically been changed in this era which really boost the Chinese economy. With the steady process, the state has cut back on mandatory plan s for foreign trade and enterprises, and a management system which indirectly regulates and controls foreign trade through custom duties foreign exchange rates, credits and tax refunds had been put in place step by step. In 1986, as a formal gesture, China applied for reinstatement as a signatory state in GATT. This was so, to make its foreign trade according to practice of International Trade law. For the sake of trade relations, China actively participates in the activities sponsored by the Asian Pacific Economic cooperation organization and still plays significant role in the organization. The bilateral trade relations between China and the United States, the










strengthened in this era because not only China wants relations with these States but these states also want to build economic relations with China due to its emerging position. 13 Japan, who became the prominent trade partner, accounting for 28.9percent of imports and 15.2percent of exports in 1986. In 1980, U.S was the second largest source of imports and in 1986; USA became the third largest over all partners. Western Europe, Germany also got the status of one of the most important trade partners. Chinese foreign trade is developing rapidly in terms of its size and importance. 14 A Chinese National English weekly newspaper have published an article on the significance of china’s developing rapidly, “China’s foreign trade has been developing in tandem with the pulse of the country’s overall economic development. During the first three decades since the founding of the People’s Republic in 1949, foreign trade mainly served as minor leverage for the nation’s economic development… With the country’s reform and opening up policies implemented in 1978, foreign trade has turned into a major locomotive during China’s economy forward at a much faster speed…..corresponding to this rising status is the country’s changing foreign trade land scape, most notably the export structure and diversified foreign trade operators… China owes its phenomenal success in foreign trade development to several reasons, of which two clearly have played a decisive role. Primarily, it should be attributed to the country’s reform and opening up, and with this fundamental national policy shift, China began to increasing make use of external resources to develop its own economy, drawing foreign investment, exploring overseas markets and pushing for free trade and regional economic integration. On the other hand, industrial restructuring and technological transfer that came with economic globalization during 1980’s and 1990’s offered an opportune moment for China. As a result, China has emerged as a world workshop in name as well as in reality, 82 foreign trade, which gives a proper sight that how, much china’s opening policy helped him in

processing and manufacturing goods for entire globe. China’s fast developing foreign trade and economic relations not only have helped to speed up the country’s economic and modernization drives, but also benefited the world at large by fueling globe trade growth and driving economic development around the globe. It proves that the export oriented strategy is now an integral part of China’s development model”

In 1985, government employed about 63percent of labor force; proportion of GNP moved to 33percent. Workers productivity became low because of insufficient supplies of agricultural machinery and other modern inputs. Domestic agriculture production expanded during 1980’s. This was the result of higher prices through the price reforms and more privileges were giving to the producers to market their products. However, the share of food and live animals in total exports has declined over time. China has become of such products since 1984. 16

During seventh five year plan, government employed about 17percent of labor force but produced more than 46percent of GNP. It became a fastest growing sector of china. Its annual average growth was 11 percent from 1952 to 1985. Wide range of technological levels, many small handicrafts units, and many enterprises using machinery installed and designed in 1980s. In this era, outdated mining and ore processing technologies gradually being replaced with modern techniques. There was a large increase in manufactured goods in the total exports since mid 80s is largely accounted for by the increase in t he export in the textile category and the various products category. These two groups include labor intensive products such as textiles, apparel, footwear, toys and sporting goods. 17


By the end of 1980’s china have proved himself as an important state with regard to economy. Although China has adopted some norms of capitalism regarding economy but also not left the socialism and still adopted as a strong ideology. Daily Newspaper “Dawn” stated in this regard. “China is a new economic model for the world with which its leaders are trying to prove that a happy blend of two rival social systems, socialism and capitalism, is possible.” 18 In spite of all above achievements, at the end of 1989, an East Asian form of recession was also seen in China. At that time, industrial output growth was quite below the levels of previous years of the decade. It was called an East Asian type of recession because real growth of an annum was still positive along with a GNP increase of 4percent. The Policy makers desired to minimize the rate of inflation that they deemed excessive by tightly controlling credit to enterprises. Although the government claimed that putting brakes on economic growth was not intended to reverse the 10 year long process of economic reform. 19 Although this recession have disturbed the economic process of China but this was not serious to revise the past policy of china. This was a recession, which disturbed whole Asia. Despite of all these facts, we can not neglect the enormous economic development of China during 1980’s which was achieved due to a proper and long term planning sixth and seventh five year plan. The party next met in the fall of 1990 to work on the draft of the Eighth FYP (1991-1995). China’s tremendous growth in the 1980’s has resulted in high GDP rates, the new proposals recommended a steady GDP for 1990’s of only 6percent.

THE EIGHTH FYP (1991-1995):


The policies of Eighth FYP were formulated under the leadership of Deng Xiaoping. In March, 1991, the NPC in its fourth session approved the state council’s Report entitled “The ten year lay out for National economy and social development and 8th FYP. With this plan, China started a new journey of development. The Chinese authorities reported success for the plan. In this five year plan, it was said to focus on following issues:• • • • • • • More investment in agricultural sector. To focus on basic industries. To strengthen the defense establishment. To modify the infrastructure. To invest on science and technology as they are important sectors for development. To invest highly on education. It was also proposed to renovate of state enterprises, prices, taxation, banking, labor, wages, and investment programs. For the period of 1991-1095, some basic goals were also set: • • • • • To develop the multi owner ship system, with public ownership being predominant. Deepening of enterprise reform. Acceleration of the pace of price reform to solve the dual-track price system. Perfection of macro economic control system by revamping tax distribution and by strengthening the central bank’s functions, To accelerate the reform of the social insurance and housing systems. 20 In the early 1090’s economy of china again got the potential. During a visit to southern china in 1992, Deng Xiaoping, made a series of political declarations, with an aim to reinvigorate the process of economic reform. Deng stated that in the era of 1990, the most important goal for china to achieve is to create a socialist market


economy. He stresses on the bolder reforms for the Chinese economic system. 21 He revived flagging industrial and financial progress in the face of the old guards opposition by declaring. “It is time to prosper! It is glorious to get rich!” That sentiment has forcefully motivated china, releasing the initiative and the energy that have made its economy the fastest growing all over the world. 22 During this period the role of china in the world economy become more significant and its status changed totally. Its volume of trade accounted for 2.2percent. China’s trade regime became more transparent with its desire to join the WTO. More relaxation was seen on imports with a reduction on a large number of tariff rates. The development process was highly accelerated in this period and its ratio of development was much greater than the period of 1980’s. By end of eighth FYP, the GNP reached 5.76 trillion Yuan, which was 4.3 times greater than of 1980’s. During this period, in the world ranking, china became the 1st country with the highest output of coal, cement, positive food stuff, cotton and cotton fabrics, became 2nd in the outputs of steel and chemical fiber, and ranked 3rd in the electricity supply. With a comparison of 7th FYP period, eighth FYP was 4 percentage points higher with the 11percent annual growth. The total investment in fixed assets in this era, hit 3.89 trillion Yuan with an annual growth rate of 17.9percent which was 13.6percent points higher than the seventh FYP. In this respect, investment saw an annual growth of 22.9percent much higher than the average growth of last five year plan i.e. 4.1percent. The infrastructure work was also speed up in this era as 845 large and medium project s of infrastructure were completed and put in to production, as were 374 technical innovation projects. As far as transportation was concerned, 5800 kilometers of railway track, 3400 Kilometers of double track lines, and 2600 kilometers of electrified railway was built. Road tracks were also increased by 105,000 kilometers which includes 1600 kilometers of highway. 86

During this five year plan, 12 new airports were built. More over, in technological advancement, many new steps were taken. A huge amount of telephone switch boards, increased to 58.95 million sets. Total installed generation capacity was increased to 75 million kilowatts and an annual electricity supply grew by 9percent. Industries output value increased at annual growth rate of 4.1percent. The secondary industry was at a rate of 17.3percent and tertiary industry at a rate of 9.5percent. Some important goals were also achieved during this period in the economic reform system. The new financial system with tax decentralization at its core and the new tax system with tax decentralization at its core, and the new tax system with value added tax as its major element, were set up. A slow and steady process was also made to separate policy finance and commercial finance. A system of macro regulation emerged, and the market started to play a major role in allocation of resources. For the further acceleration of economic development almost 1,100 cities of country level were opened for the out world and the 3 bonded zones and other a lot of economic zones were set up. The development of foreign trade was astonishing with a total trade reached up to US. $ 10.145 trillion at an annual growth rate of 19.50percent which was much higher than the period of 6th five year plan and the 7th five year plan. The annual export volume was 100 billion Yuan, accounting for three percent of the world’s commodity trade. By the end of 8th five year plan, china in to 11th position in the world ranking for import and export trade. Some efforts were also made for the well being of the people. As the Chinese economy flourished, the living standard of the people also became better per capita income was 1.578 Yuan. Saving deposit balances in the urban and rural areas reached up to 3 trillion Yuan, 2 trillion, higher than at the end of the previous planning period.


Foreign exchange reserves reached up to the amount of U.S. $ 73.6 billion, which was 5.6 times higher than 7th FYP period. Labor force was increased up to 50 Million, which include an increase of 37.4 Million in Urban areas. Rate of poverty was also decreased which was really a sign of good change in the society. As far as population rate was concerned it was controlled during this period. The growth rate of 1990 was 14.39percent which was decreased in 1995 with 10.55percent. 23 Foreign investment was allowed in new sectors of Chinese economy, like in the service centre. The first joint venture was allowed in the insurance industry. A Japanese company was given the permission to open a joint venture department store in Shanghai and the foreign banks were also given permission to open branches in different cities of the country. A big change was seen during this period that for the first time in the history of PRC, the Chinese authorities have agreed to allow a bank of Taiwan to open a branch in China. Special policies were also made to promote the foreign investment in China. In the year of 1991, china’s two-way trade notched up a 17.5percent increase to $ 136 billion, along with the net surplus of $ 12.5 Billion. In the same year, china reported having accumulated about $ 40 billion in foreign exchange reserves. For the purpose of removal of trade barriers, during this period, the govt. began to take major initiatives. These were also the efforts to join the General Agreement on Tariffs and trade (GATT) which is the world’s ruling body on the issue of trade. 24 China has changed rapidly in many different ways and these changes also have enormous consequences on the global economy. During that period, china’s economy became a major economic player in the global economic system. The trade relations of china expanded all over the world and the products which contain a tag of made in china flooded the markets of the world’s most important cities that obviously speak for the confidence buyers having in the quality.

China stood out in progress in terms of economy in Asia. Chinese model has lessons for the other Asian countries that are also labeled 88

as “the third world countries. A daily newspaper stated that “It goes without saying that china is an extraordinary success story and this story still unfolding itself. The way it is processing has many lessons for the third world countries.” 26 We can analyze the success of 8th Five year plan (1991-1995) with the point that during this period, china’s reform, opening up and modernization reached a new stage, with GNP reaching up to 5,760 billion Yuan in the end of 1995, which was about five years ahead of target.

With all these achievements this period of 8th FYP (1991-

1995) ended and the time comes to plan about 9th Five Year Plan (1996-2000).

The fifth plenary session of the 14th CCP central committee adopted the proposal on the Ninth Five Year Plan on National Economy and Social development on September 28, 1995. It was decided generally, to take the policies of 8th Five year plan in 9th Five Year Plan. Some basic tasks were set in this plan. These were: 1. 2. 3. 4. 5. To complete the second phase in the modernization drive. To limitize the population growth at 300 million by 2000. To quadruple per capita GNP as compared to 1980. To eradicate the elements of poverty from the society for the prosperity of common masses. To accelerate the process of establishment of a modern enterprise system. 28 Some priorities regarding economic development were industrial restructuring, regional and small town development, and globalization of economy. During the making of Ninth Five Year Plan, it was estimated that the entire chemical industry system will give an out put with an annual increase of 15percent to reach up to 240 billion Yuan in the end of 9th Five Year plan. It was also predicted that the added value in industrial


sector will make an annual increase of 14percent to reach almost 10 billion Yuan in 2000. 29

To work for the success of Ninth five year plan (1996-2000) the common masses of china put their efforts whole heartedly and no ethnic or racial discrimination was seen during the working. The people belong to every field of life worked very hard under the umbrella of Chinese governmental officials, at the end; they also got fruitful results of their hard work and obtained great achievements in all fields. The national economy experienced rapid, sound and smooth development. During these five years, china’s GDP increased 8.3percent annually and reached 8940.4 billion Yuan till 2000. As the economy continued to grow and economic performance improved national revenue in 2000 reached 1,338 Billion Yuan an annual average increase of 16.5percent. The out put of major industrial and agricultural products now stands in the top ranking of the world’s economies, and commodity storages were by and large eliminated.

During 9th Five Year Plan focus was put on industrial restructuring. A tremendous increase was seen in production of grain and other major agricultural projects and a proper balance was maintained in total supply and demand, even surplus material was there during good harvest period. Some fruitful results were also achieved in eliminating out model industrial production capacity, reducing excess production capacity and up grading technology in key enterprises. Economic restructuring was extensively carried out, and a specialist market economic structure was preliminarily established. Some important advanced steps were also taken in the reform oriented toward the establishment of a modern corporate structure in large and medium sized state owned enterprises (SOEs). Most key SOEs


became corporations, and a considerable number of them were listed on stock markets inside and outside china. Market progress was made in endeavors to reduce loss and increase profits in enterprises. The market system also continued to improve, and the market of production elements such as capital, technology and labor expanded rapidly. The role of market enhanced and expanded rapidly for the allocation of resources. Moreover, the system of finance and taxation, continued to improve. Some other steps were also taken to strengthen the Chinese economy. 30

In this period, the per annum increase rate of china’s information equipment manufacturing and service industries has stayed at over three times as much as that of the GNP. The gross out put value of electronic information products manufacture surged from 245.7 billion Yuan in 1995 to 778.2 billion Yuan in 1999. Due to this tremendous speed of economic development has laid a foundation for China to become a large information technological product manufacturer. In 1996 a home made computer brand became a domestic brand having a prominent share in Chinese market for the first time ever in Chinese economic history. China has been able to produce nearly all the computer components with the exception of CPU and other core parts. These parts used in various foreign brand computers. As far as the large computers are concerned, china has become the third country after the United States and Japan, capable of developing such computer of high performance. In this period China had made an over all rearrangement for the development of information industry so as to promote the formation of several enterprise groups, which have efficiency to compete internationally and set up an information industry system, which may grow up independently.


During the Ninth five year plan period, china’s information has not only made its contribution to the national economy but it also became a strategic industry promoting re-adjustment of china’s economic structure. 31

As the time passed, china opened itself more to the outer world. It’s opening up relations taking shape. The economy grew rapidly and steadily under reforms of foreign trade. The total volume of imports and exports reached U.S. $ 474.3 billion in 2000 with that of exports standing at US $ 249.2 billion, a rise of 69percent and 67percent respectively over the 1995 figures. The sphere of foreign businesses gradually became more widened and environment became more feasible for investment. Maturity was also seen in the utilization of foreign investment. Up to US $ 289.4 billion in foreign capital were put in to use during this period. China’s foreign exchange reserves, reached up to US $ 165.6 billion at the end of the year 2000.

The development of science, technology and education was highly accelerated and other social under takings progressed in a comprehensive way. A number of goals were achieved in the field of information technology, material science, engineering and other hightech industries. Basic and applied research became more advanced. Acceleration was also seen in the process of commercializing and industrializing technological achievements. Some steps were also taken to strengthen the policy of education. To minimize the rate of illiteracy in the state a policy was implemented of nine year compulsory education all over the country. The management system of higher


education became better. Common masses were very pleased due to the increase in university and college enrolment.

A gradual improvement was seen in living standards of the people at the end of 1999 per capita net income of rural dweller and the per capita disposal income of urban residents reached 2,253, Yuan and 6280 Yuan respectively. There was rich supply of commodities and there was also a rise in level of consumption. Moreover, the total retail sales of consumer goods increased at an average rate of 10.6percent per annum. A considerable improvement was also seen in housing, tele-communications, electricity and other aspects of living conditions for both urban and rural residents. About 30 million people, who were living comparatively poor lines, got the attention of government and steps were taken for their betterment. Furthermore, 100percent increase was seen in personal saving deposits of residents, and rapid reduction in poverty was seen. One of the basic goals of this plan, to help 80 million people get out of poverty, was attained. 32 Premier Zhu Rongji was satisfied with the achievement of Ninth five year plan (1996-2000) and stated that “The people of all nationalities united and worked hard and made great achievements during the Ninth five year plan, despite the complicated situation at home and abroad.” He called the successful completion of the Ninth five year plan and the country’s second stage development program a “milestone” in china’s modernization drive. 33 The achievements of Ninth five year plan laid a solid foundation for undertaking the 10th five year plan. These tremendous achievements in economic and social development during the Ninth five year plan period were hard won victorious over numerous difficulties. China successfully faced the challenges posed by unexpected international events. It protected itself from the impact of


the Asian financial crises, controlled inflation during the early days of ninth five year plan period. Still some numerous problems in the country’s economic life were there. The principle problems which need great attention of government were absurd industrial structure and uncoordinated development of local economies; low overall quality of the national economy and low competitiveness in the international marketimperfections in the socialist market economy. It is said that to cope with above problems, tenth five year plan will be designed to over come these issues.

The tenth five year plan was the first five year plan of china for the new century. The year 2001 was considered as a good beginning for the country’s five year plan for the economic and social development. Under this plan was expected to grow by 7.4 percent exceeding 9 trillion Yuan for the first time in history. This proposal of the CPC central committee was adopted at the fifth plenary session of the 15th CPC central committee. This proposal for the five year plan defined objectives, guiding principles and major tasks for china’s economic and social development. Under this proposal and on the basis of opinions solicited from all sectors of society, the state council drew up the outline of the 10th five year plan for national economic and social development. In the tenth five year plan, following tasks were set to achieve:1. To achieve average economic rate of about 7percent per annum. 2. To achieve a GDP of 12,500/- billion Yuan by 2005, calculated at 2000 prices, and per capita, GDP of 9400 Yuan. 3. To increase the number of urban employees and raise the number of rural laborers transferred to the cities to 40 million


each, there by controlling registered urban unemployment rates at about 5percent. 4. To maintain the stability in prices and also to maintain the balance between international revenue and expenditure. 5. To optimize and upgrade the industrial structure and strengthen scenario. 6. To achieve the GDP growth for the primary, secondary and tertiary industries at the rates of 13, 51 and 36 percent respectively. 7. To improve the national economy and social IT levels. 8. To raise the urbanization level and start developmental projects. 9. To raise research and development funding to more than 1.5percent of GDP and to speed up the technological progress. 10. To provide more seats in institutions /schools of all levels. 11. To reduce the growth rate of population and limit the population at no more than 1.33 billion by 2005. 34 the Chinese compatibility in international

Under the policies of tenth five year plan, Chinese government also takes some measures for enhancement of foreign investment during this period. It was said that in its tenth five year plan period china will enter in a new stage of opening and reform. On gaining WTO access, china will have opportunity to expand its export. In the mean time, china will also face a tough challenge of completion in international market. Proper steps will be taken to utilize the foreign capital. Moreover the state will regulate government admission and enterprise operation, and will try to improve the investment environment. The government will


take the following steps to enhance the level of foreign investment introduction.  Foreign capital introduction will be closely linked with western development in implementing the western Development strategy; there will be more opportunity for foreign investment in many sectors. The government will encourage foreign invested companies to reinvest in china.  In order to china’s entry in WTO china will push forward gradually, the opening of banking, insurance, telecommunications, domestic and foreign trade and tourism to the outside world.  Existing rules and regulations will be re-examined and revised. To meet the changes, which occur after entering in to WTO, Chinese government will take some active and beneficial moves. Laws and regulations on foreign investment will be revised according to the requirements of WTO. To raise working efficiency, a new foreign investment industry policy will be formulated as soon as possible. 35 During these years, efforts should be made to adjust the patterns of economic development between different industries, regions, urban and rural areas with emphasis on the industrial structure. Steps should be taken to stabilize and strengthen agriculture as the base of the economy, accelerate industrial reform promotion of IT for the purpose of economic development. Further more, priority will be given to the development of science, technology and education, train more skilled personals and to integrate science, technology and education with the economy. The basic principle of the tenth five year plan high lights its strategic vision, broad perspectives and policy principles. It contains some specific goals and sets more tentative ones adjustable to structural changes. It emphasis on the point that the role of market mechanisms should be given full play in the implementation of the plan


and economic levers, economic policy and legislation be further employed in the government control.

The information shows that the year 2001 considered as a good beginning for the country’s tenth five year plan (2001-2005) for economic development. The fast economic growth of the year indicates a good start. The state economy becomes stable with a fast growth. A good result was achieved in major sectors, chances of employment were further enhanced, improvement was seen in living standards of both urban and rural residents, china’s opening up for the outer world became more wider, main targets for the economic development had been achieved, and the key tasks of the tenth five year plan had been fulfilled. Following is the detail of achievements of china’s tenth fie year plan:-

The efficiency of the economy as a whole has continued to improve, with profits of industrial enterprises rising 9.3 percent in the year of 2001. In the end of this five year plan, GDP reached 18.23 Yuan. In the year 2005, the ending year of tenth five year plan, fiscal revenue exceeded 3 trillion Yuan, which was 523.2 billion Yuan more than the year of 2004, Import and export volume totalized 1.42 trillion U.S. $, foreign exchange reserves reached up to 818.9 Billion U.S. $. In the end of the year 2005, China’s economy grows 9.9percent.

Encouraging progress has been made in industrial and agricultural sectors. China’s coal mining industry, which was the only loss making industry in the industrial sector, is set to become profitable for the first time in end of his five year plan. Agriculture accounted 12.4percent of the GDP, compared to 47.3percent from industry. 97

Country’s grain production increased by 3.1 percent to 484.01 million tons. In the industrial sector, state owned companies saw their profit up to 17.4percent compared to 47.3percent for private enterprises. China already the world’s biggest producer of many industrial products saw another double digit growth in many products.

China’s entry in to the WTO is viewed as a historical event both in home and abroad. This event will make many changes for china than the country has been since the opening up policy. There were generally three basic reasons for china to join WTO. 1. To strengthen economic reforms. 2. To support economic growth through a better allocation resources. 3. To maintain large inflows of FDI by providing them new opportunities in service sectors. The increasing integration of china into the world economy has been driven by the rapid expansion of its international trade and by large foreign direct investment inflows. These two trends appear closely interconnected FDI has been a major determinant of the opening up of china’s economy. It has strongly contributed to promote competition in the domestic market and determined the evolution of foreign trade. 36 China officially became signatory of WTO on 11 December, 2001. On one hand, it gave lots of challenges to china in international market but on the other hand, it provides lots of opportunities to Chinese economy to flourish and expand its market.

After the end of first year of this five year plan, china managed to achieve a 7.9 percent increase in foreign trade and foreign exchange reserves set new record, which had exceeded 200 billion U.S $. In the3 meantime china has also continued to work on its reform, regulate


market and economic order, and maintain financial stability. With the constant working and struggle in the end of this five year plan, china’s foreign trade volume soared by 23.2percent to $ 1,422.1 billion with a trade surplus of $ 101.9 billion, overseas invested investment of China boosted by 25.8.percent in 2005. enterprises accounted 831.7 billion $ of the Chinese trade volume; foreign

Figure: 3.1

Source:http://en.wikipedia.org/wiki/Economy_of_the_People's_Republi c_of_China#1949.E2.80.931978

In the whole tenth five year plan, china’s progress was remarkable, to improve living standard of the people. The government spent 116.8 billion Yuan in 2005 on science, technology, and education. To survive in natural disasters relief came to 8.9 billion Yuan to help more then 90 million people, 16.2 billion Yuan were allocated


for poverty alleviation and state of poverty reduced by 2.45 million. We can witness the improved standard of living by the two digit growth in the sales of cars, electric appliances, jewelry and other consumer luxury goods. 37

Due to the fast development of science and technology and economic globalization, china’s intellectual property (IP) system enforced, which made much progress during the tenth Five Year Plan (2001-2005). More and more attention is being attached to the IPR in China and it has become one of the fundamental and important measures to promote the nation’s modernism. After becoming member of WTO, China made some laws, which were relevant to IP rights (IPR) protection. The idea behind this was to provide a strong legal backing. During the five years, many laws were formulated which were related to IPR. These laws includes the patent law, law of copy right, law of trademarks, Rules on customs intellectual property protection etc, and judicial interpretations were also made for these laws. The government gives great importance to publicize IP Knowledge and laws. A training program was conducted at different levels. IPR awareness among common masses was also enhanced by deciding to celebrate IPR week, every year in April. After discussing the policies of 10th five year plan, its implementation and achievements, it is clear that this plan give more boost to the Chinese economy and china continued its journey towards economic development. On the success of 10th five year plan, Chinese economist liu Guoguang asserted, “the economic and social achievements china had made this year mainly to the country’s adherence to the policy of expanding domestic demand and commitment to a positive fiscal and


stable financial policies……..the achievements will lay a solid foundation for the country’s economic development”. 38 With the end of this plan, framers of next five year plan (20062010) combine on a mission to double the 2000 GDP by 2010.

With the successful end of tenth five year plan, framers went on a mission to set a new five year plan (2006-2010), which is obviously on the lines of previous five year plan. While working on the 11th five year plan, at a press conference Ma Kai, minister of the “National Development and Reform commission (NDRC), highlighted some of key issues for the 11 th five year plan, which was at that time under discussion in the NPC. He suggested following the spirit of previous five year plan. Ma discusses the following points. • • • The primary goal must be to build the new socialist country side. The structure of industry must be further develop and strengthen. He stressed that, the quality and efficiency of a country’s economic growth can only be judged by taking both output and reinvestment into account. 39 While making the 11th five year plan, the senior officials were of the opinion that China’s economic and social development faces a host of good opportunities and favorable conditions in the 11th five year plan. Ku Lin the Deputy Director of the development plan Bureau, commented about the future 11th five year development program, he said the following:  During this plan, the advantage of sufficient labor supply and a high saving rate can be maintained in china and the upgrading and diversification of domestic consumption will create a huge domestic demand.  The rapid process of urbanization will further stimulate economic growth, and the enhanced industrial technology


progress will improve the competitiveness of the whole economy.  The enhanced institutional reform will paved way for liberalizing the market entities, make the market more transparent .this thing will improve the efficiency of the resource allocation.  The key objective for this plan includes high economic growth, accelerating rural development, adjusting the industrial structure and co-coordinating in regional development. 40 The following are the basic key tasks, which china has set for the 11th five year plan: To raise the GDP up to 7.5percent annually from 18.2 trillion Yuan in 2005 to 26.1 trillion Yuan in 2010.  To raise the per capita GDP up to 6.6percent annually from 13,985 Yuan in 2005 to 19,270 Yuan in 2010.  To raise the rate of urbanization from 43percent in 2005 to 47percent in 2010.  To create new jobs in urban areas for 45 million people during this five year period.  To increase per capita income of rural and residents up to 5percent annually in 5 years.  To seep up the development of Chinese domestic trade, enhance the important function of domestic trade in leading of production, consumption expansion, increase of employment opportunities, and promotion of social and economic development and improvement of people’s living standard. It is said that by 2010, china will achieve significant progress in establishment of a unified, open and orderly modern socialist market system with well developed legal system improved economic and social system, regulated order, reasonable structure, enhanced organization and strong competition to further strengthen the function


of domestic trade in driving up consumption, leading production and improving economic operation efficiency. 41

In 2009, GDP raise up to 33,535.3 billion Yuan which was 8.7percent higher than the last year (2008). The value added of the primary industry, secondary industry and tertiary industry was 3,547.7 billion Yuan, 125,695.8 billion Yuan, and 14,229.8 billion Yuan respectively. In the same year, the number of employed people in china was 779.95 million which was 5.51 million more than of 2008. In the end of 2009, foreign exchange reserves of china were up to $ 2,399.2 billion and the fiscal revenue went up to 6,847.7 billion Yuan which was 11.7percent more than the year 2008. In different sectors of industrial enterprises, the growth of value added for processing of food from agricultural products 15.9percent for textile industry 8.5percent, for manufacture of general machinery 11.0percent, for manufacture of special purpose machinery 13.0percent, for manufacture of communication equipment like computers and other electronic equipment 5.3percent. The value added for the Hi-tech industry grew by 7.7percent over the previous year, 2008. 42

Success in IP during the 10th five year plan laid a solid foundation for the development in 11th plan. As the economic globalization is a prominent factor and technological advancement is taking place day by day and the importance of IPR protection is also increasing. Changing is taking place in the international system of IPR protection to meet with the changes of world environment. To enhance IPR protection is the great need of china’s social economic


development and socialist market economic systems, which are entering in a new phase after many years of careful progress and is an absolute necessity for china’s opening up and reform. All important policies and arrangements made by the Chinese government represent its accurate knowledge about the latest development trend and the internal working rules of the world economy and also meet the demands in IP work during this new period for the speeding up economic development. China’s IP has made remarkable performance but still there is much more space for improvement. Although the IP legal system has been basically established but due to rapid development of the socialist market economy, there are many imperfections in the practice. 43 In the end of the year 2009 china become the second largest economy in the world after United States of America. The Chinese government faces numerous economic development challenges. These are: a. Minimizing its high domestic savings rate and correspondingly low domestic demand through increase corporate transfers. b. c. Sustaining adequate job growth for tens of millions of migrants and new applicants to the work force. Reducing corruption and other economic crimes. Process of economic development is faster in coastal areas than the others and almost 200 million rural labors and their families have set to urban areas to find work. 44 VOTING POWER IN WORLD BANK Recently the World Bank has agreed to increase the voting power china along with some other major countries. Analysts see it as a start of a gradual but new change in the global economic governance. China’s stake at the bank in terms of voting power has gone up from 2.78percent to 4.42percent, ranks it to the third after U.S and Japan among 186 countries of the world. There is reduction in the voting power of western nations like Germany, France and U.K. 104

However, U.S power is still untouched and remains the same at 15.85percent and Japan ranks 2nd in this race with 6.84percent. On this move, china’s finance minister, Xie Kuren stated: “It is the first in the history of the world bank that a reform of governance structure is mainly targeted at promoting representation and voices of developing countries.” The Chinese economist, Yang Fan said, “The belated move is a good start in the right direction…….. It is in line with china’s rising economic power”. 45

Figure: 3.2

Source: Peoples Daily, April 26, 2010

In 1978, when economic reforms and open door policy started, there has been a sharp rise in china’s exports and imports. Since the year 1978, the total value of china’s trade grew at an average annual rate of 15.5percent and annually exports grew at 16.0percent and imports at 15.6percent. During the opening up, china was quite unimportant in international trade. In 1977, china’s total trade volume was $ 14.8 billion, which accounted for only 0.6percent of world trade. By the early 1990’s the


significance of china’s role in the international economy was transformed and its trade volume accounted for 2.2percent of world trade. In late 1990’s the dynamic effects of the Asian financial crises became more apparent and china’s foreign trade faced lots of difficulties and its total trade went down by 0.4percent. A decrease in imports by 1.5percent and growth rate of export was 0.5percent. A rapid growth was seen in 2000 after the recovery from Asian crises. Its total growth rate increased by 31.2percent and its export and import increased by 27.8percent and 35.8percent respectively. In 2007 its export and import reached at $ 1216 billion and $ 953.9 billion respectively. Table: 3.1

Period 1981–85 1986–90 1991–95 1996–2000 2000–05 2006 2007 Two-way trade +12.8percent +10.6percent +19.5percent +11.0percent +24.6percent +27.2percent +25.6percent Exports +8.6percent +17.8percent +19.1percent +10.9percent +25.0percent +19.9percent +20.8percent Imports +16.1percent +4.8percent +19.9percent +11.3percent +24.0percent +23.8percent +23.4percent


SOURCE:http://en.wikipedia.org/wiki/Economy_of_the_People's_Repu blic_of_China

The commodities, which china mainly exports, includes machinery and equipment, textiles and clothing, foot wear, toys, mineral fuels, plastics optical and medical equipments, iron and steel and its major export partners are USA, Latin America, EU, Hong Kong, Japan, Asean, Africa and South Korea.

Table: 3.2

Table Of China’s Exports To The World
(US$ Billion)
E X P OO R 1 9T93 1 9 94 1 9 95 1 9 96 1 9 9 7 1 9 98 1 9 9 9 2 0 0 0 2 0 0 1 T A s i a 5 2 . 6 7 3 . 4 9 2 9 1 . 2 1 0 8 .2 9 8 . 1 1 0 2 .8 1 3 2 .1 1 4 0 .6 2 5 5 9 8 5 3 9 N o r t h A 1 8e. 1 i c 2 2 . 8 2 6 . 2 28.3 3 4 . 6 40.1 44.39 55 .28 8 7.88 a m r6 6 4 E u r o p 1 6 . 4 1 8 . 7 2 2 . 9 2 3 . 8 28 .96 3 3 . 4 3 5 .47 45 .48 49.24 e 3 8 7 3 L a t i n aA m 1.78 2.45 3.15 3.12 4 . 6 1 5.32 5 . 2 7 7 . 1 9 8 . 2 4 e ric


O c e a a i 1.23 1.72 1 . 9 1.96 2 . 4 2.66 3 . 1 1 3 . 9 1 4 . 0 7 n Africa 1.53 1.75 2.49 2.57 3 . 2 4.06 4 . 1 1 5 . 0 4 6 . 0 1 T o t a l 91.7 1 2 1 1 4 8 7. 7 1 5 1 7. 0 18 2.7 1 8 3 1. 7 1 9 4 . 3 2 4 9 . 1 266 .1 9 2

 Source: K.C Fung,Hitomi Izaka,” china’s economy in the 21st century” , June 24- 25, 2002, Hong Kong

The major commodities, which china imports includes machinery and equipment, oil and mineral fuels, plastic, optical and medical equipments organic chemicals, iron and steel and its import partners are Japan, EU, Asean, South Korea, USA, Russia. 46

Table: 3.3

Table of China’s Imports from the World
(US$ Billion)
E X P O mR T 1 f9 o93 1 9 94 1 9 95 1 9 96 1 9 9 7 1 9 98 1 9 9 9 2 0 0 0 2 0 0 1 r A s i a 62.6 6 8.7 7 8.0 83 .4 4 8 8 . 4 87.0 1 01 .6 9 1 41 .3 7 5 5 4 1 47 .1 8

N o r t h A 12.0r 7c 15.7 18.8 18.73 18.31 19.2 21.82 26.12 30.24 a m e i 4 E u r e o 23 .97 25.0 27 .8 27 .6 6 25.75 26.3 32.65 40.78 4 8 . 4 p 2 1 1 L a t i n aA m 1.93 2.25 2.97 3.61 3 . 7 7 2.99 2 . 9 9 5 . 4 1 6 . 7 e ric O c e a a i 2.36 2.92 3.02 3.94 3 . 6 7 3.14 4 . 1 9 5 . 8 8 6 . 2 9 n Africa 1 0.89 1.43 1.46 2 . 4 6 1.48 2 . 3 8 5 . 5 6 4 . 7 9 T o t a l 1 0 3 .9 6 1 1 5 .6 1 3 2 .0 1 3 8 .8 4 1 42.3 1 4 0 .2 16 5.72 225.1 243.6 1 2 8 6 4


Source: K.C Fung,Hitomi Izaka,” china’s economy in the 21st century” , June 24- 25, 2002, Hong Kong

Since the beginning of economic reforms, U. S, China commercial ties immensely expanded. In 1978, U.S exports and import with china were $ 72.1 Million and $ 270.67 million respectively. In 2001, these figures grew to $ 26.20 billion and $ 54.28 billions respectively and it is still increasing day by day. The largest import from china has been electric machinery, which accounts for almost 20percent of total U.S. imports from china in 2000. Since china’s accession to the WTO, it put a significant effect on U.S. China trade.

Japan and have deepened their economic ties since china’s reform policy started in 1978. Japan is china’s largest trading partner, where as china is Japan’s second largest trading partner. The two countries together constitute Asian’s largest trading partner. Japanese exports to china have increased from $ 3.11 billion in 1978 to $ 42.8 billion in 2001 and Japanese imports from china have risen to $ 45.0 billion in 2001, which was $ 1.72 million in 1978.

From 1978 to 2001 total trade volume between China and European Union has increased immensely. In the early 1990s, EU work against china on the issue of dumping. As china’s economy grows, the European Union begins to focus on smooth and stable relations with china. In this reference, EU passed a policy labeled as “A


long term policy for China Europe Relations”. Under this policy, EU tried to have active economic ties with china. Despite of all this china is facing some serious challenges in exporting to EU. The main challenge was the use of anti-dumping duties by the E.U towards China. 47 According to a Chinese daily newspaper, in 2002 total numbers of anti dumping cases against Chinese by EU were 91. 48 On the eve of the New Year, Chinese president Hu Jintao delivered a speech in which he expressed his satisfaction about the working of 2009 and assure hard work for the success of next year. Some of the important part of his speech is “The year 2009 has been a very important one in the economic history of the people’s Republic of China. New and out standing achievements have been made in china’s reform and opening up and socialist modernization drive. The people’s living standards have risen and society as a whole has maintained harmony and stability. China has actively participated in international Cooperation to deal with such issues as the global financial crises and climate change, has expanded exchanges and cooperation with the rest of the world and has made new contributions to world peace and development…….2010 is the last year for implementing china’s 11th five year plan. In the up coming new year, we will unswervingly up hold the great banner of socialism with on Chinese characteristics, further implement the scientific outlook

development under the guidance of Deng Xiaoping theory, maintain the continuity and stability of macro economic policy and adopt a moderately relaxed monetary policy and flexibility based on new situations, work harder to improve the quality and efficiency of

economic growth, pay more attention to transforming the economic development pattern, push forward the reform and opening up drive and further strengthen the vigor and vitality of economic growth. We will pay more attention to improving people’s livelihoods, considering both domestic and international situations, striving for stable and relatively fast economic development and continuing to build a moderately prosperous society in an all around way”. 49 110

1) China and the 10 country association of South East Asian Nations launched the final stage on 1st January, of the world’s biggest regional trade agreement. This free trade agreement covers nearly 1.9 billion people. The deal creates the third largest regional trading agreement by value after the EU and the NAFTA, covering countries with mutual trade flows of $ 231 billion in 2008 and combined GDP of about $ 6,000 billion. 50 2) China overtook Germany as the world’s top exporter after December, 2009, exports jumped 17.7. Percent exports for the last month of 2009 were $ 130.7 billion. That raised total 2009 exports to $1.2 trillion, ahead of the 816 billion Euros. China’s new status is largely symbolic but reflects the ability of its resilient, low-cost manufacturers to keep selling abroad despite a slump in global consumer demand due to the financial crises.

3) According to a daily news paper, in future years, china and India could reshape the global auto industry and pose a significant competitive threat in coming years. Chinese and Indian manufacturers are ramping up quickly. 52 4) In the year 2010, china’s foreign reserves rising sharply. China’s foreign exchange reserves, by far the largest in the world, raised by $ 126.5 billion. In the entire last year, China added $ 453.0 Billion to the reserves, $ 35.0 billion more than the increase in 2008. 53 5) International economists are of the view that china easily beat its 2009 growth target after a blistering fourth quarter performance that set the stage for further monetary tightening and put it on course to over take Japan to become the world’s second largest economy. China’s fastest quarterly growth in two years raised


expectations that Beijing will lift interest rates some time in next few months after a series of over heating. 54 6) This is a news of a daily newspaper that china’s gold output jumped 11.34 percent to a record of 313.98 tons in 2009, the China Gold Association said, securing the country’s position as the worlds largest producer of the yellow metal. 55 7) Chinese government decided to increase aid to farmers to reduce the economic gap B/W Urban and rural residents, China’s leadership is increasingly worried about the income gap brought about by 30 years of market reform that have made a few cities very rich, but raised tensions among the 900 million rural residents. It is said to give more facilities to farmer as to enable them to share the fruits of china’s economic growth. smaller steps taken to contain buoyant lending and present the economy and its market from

After seeing the rapid, continuous and smooth development in economy of China, it is clear that with in few years china will beat all the powerful economies and Yuan (Renimbi) will rule the world. According to an international report, china is set to become the world’s biggest economy by 2026, whereas USA and Japan will become 2nd and 3rd largest economic powers respectively. In fact, china is currently enjoying the status of most powerful country in the world along with U.S. when china sneezes, the world gets a cold. Bill Clinton recognized this fact during his presidential era and started building economic relation with china, and now his successor Barak Hussain Obama is looking for ways to work more closely with the giant nation, with its 1.3 billion people. 56 Price water house coopers also said in its report that by 2030, the top ten world economies could be china, followed by the United States, India, Japan, Brazil, Russia, Germany, Mexico, France and


Britain. The current 10 economies, economies, 2008 data from the IMF are the United States, Japan, China, Germany, France, Britain, Italy, Russia, Spain and Brazil.

Figure: 3.3

Source: China Daily, June 27, 2010 The report also pointed to an increasing share of Global GDP taken by china, compared to the U.S and EU. Jim O’ Neill, Chief Global Economist for US investment bank Goldman Sachs, forecast on November, 2009 that china will over take the US by 2027, 14 years earlier than a previous Goldman Sachs forecast of 2041 made in 2003. 57


1. http:llen.Wikipedia.Org/wiki/economy-of-the-peoplepercent27s Republic of China. 2. Clifton W. Pannell, “China, The geography of development and modernization.”(London: W.H. Winston and sons, 1983) p. 121. 3. http://projects.wri.org/sd-pams-database/china/sixth-five-yearplan-economic-and-social-development. 4. http://www.gov.cn/english/2006-04/05/content_245699.htm. 5. C. V. James, Information China, (New York, Pergamon press , 1989) p. 259. 6. Ibid., p. 259, 260. 7. Ibid., p. 260. 8. http: ilen. Wikipedia. Org/wiki/economy of the people percent 27s-Republic of China. 9. http://www.china.org.cn/english/MATERIAL/157619.htm 10. Dawn, 22 January, 2003. 11. http://www.gov.cn/english/2006-04/05/content_245695.htm 12. http:Ilen. Wikipedia, Org/Wiki/Economic history of the people percent 27s-Republic of China. 13. http: ll. It China. Com.cn/e-China/opening up/foreign trade htm. 114

14. http: Html.




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29. http:// projects. Wre.org/sd-pams-dta base/china/ninth-five-year plan. 30. http:// It China com-cn/e-internet/ZT/HTM/information 1. htm. 31. Peoples daily, 25 November, 2000


32. http:// It. China. Com.cn/e-internet/Zt /htm/information 1. htm. 33. Peoples daily, 25 September, 2000. 34. http://www.gov.cn/english/2006-04/05/content_245624.htm 35. http://english.China.com/zhcn/business/faq/11024764/20041015 /11917291.html. 36. http:// www cepii-fr/anglai graph/ work pap/pdf/2000/wpoo-II.paf. 37. http://www gov. cn/English/2006-02/28/ content 214087 htm. 38. http : // English.people.com cn/20012/06/eng 20011206-86040. shtml. 39. http: // www.gov.cn/english/2006-03/07/content-246929. htm. 40. http: // www.gov.cn/english/2006-01/12/content-156964. htm. 41. http: // www.gov.cn/english/2006-03/06/content-219504. htm. 42. Beijing review, 11 March, 2010. 43. http:// www china.org.cn/English/china/208356-htm. 44. http://wwwcia-gov/library/publications/the-world-fact book/goes/ch. Html. 45. China daily, 27 April, 2010. 46. http://gn-wiki pedia.org/wiki/economy-of-the-people percent 27sRepublic of china.


47. http://www.hilbs.hku.hk/working-paper-updates/pdf/wp pdf. 48. China daily, 28 March, 2002. 49. Global times, 29 April, 2010. 50. Financial times, 3 Janary, 2010. 51. Business Recorder, 11 Jan, 2010. 52. Business Recorder, 14 Jan, 2010. 53. Financial times, 17 January, 2010. 54. Business Recorder, 22 Janaury, 2010. 55. Business Recorder, 29 January, 2010. 56. The National, 1 February, 2010. 57. The Nation, 22 January, 2010.






In this modern era, it is widely recognized that economic development has become the major driving force in economic growth and social development. Now days, the ultimate goal of super power is economic development. Economic development is the development of economic wealth of countries or regions for the well being of their Inhabitant’s Economic development is the source, which has emerged China as a strong power not only among the third world but among the nations of the whole world. China has practiced political, administrative and economic system which has considerably contributed in the past and has attracted the people of the out side world. In 1949, China emerged on the map of the world as an independent state under the leadership of MAO. China under the umbrella of Communism started its economic journey and have 3 years (1949 – 1952) for the re stabilization its economy and then the first five years plan was also made according to the norms of communism. This was based on rapid industrialization through the soviet style planning, with the passage of time of time, chicanes leaders realized that their


necessities are bit different from the Soviet Union. As China gained experience and confidence with the passage of time. They introduced Such variations, which met their necessities. During these five years, numbers of industrial and mining enterprises were constructed. The great leap forward began in the early days of second five year plan (1957), whose chairman bring the nation into the quick forefront of economic development. The great leap forward was based almost entirely upon a domestic system in which steel was produced by the people in their own backyard in order to increase steel export. The great leap forward of 1958 ended with one of greatest famine in human history. It was soon emerged that steel produced was unless due to impure nature, bad quality and lack of experience of the makers. The consequences were extreme from 1959 to 1961, millions of Chinese died as the result of serious food shortage in the country side. The 3rd and 4th five year plans were under the shadow of Cultural Revolution. It was not cultural in the ordinary sense of the world.It was as much concerned with agriculture, industry and political thinking as with culture itself in fact it was, completely ideological. Maozedong was alarmed to see corruption in the younger generation and in the party bureaucracy, they treated them selfness as superior creators above the ordinary workers, which was against the spirit of socialism. It was likely to denied the society into classes and thus class conflict, while socialism conscience classless society. As far as ideology is concerned, it met with great success but during the Cultural Revolution much economic activity was halted with revolution regardless of interpretation being the primary objective of the country. The Cultural Revolution failed as the Great leap forward failed. Deng Xiaoping assumed leadership after the death of Mao Ze Dong. i) He proclaimed contours of socialism with Chinese characteristics, whose salient points were:Seek truth from facts, thus dealing a fatal blow of dogmatism. 120


The Chinese society will remain the primary stage of socialism for a long time to come, therefore all types of ownership is permissible. China will make the most of both planning and market economy.


The main emphasis, during the primary stage, will be on the increase in production by modernizing and adopting ever new science and technology.


Socialism is not distribution of poverty but equitable distribution prosperity.

In 1980’s, China tried to focus on foreign trade as this become the prominent source of development because in 1979, opinion was given that the old policy centrally planned economy had to meet the needs which important for efficient economic growth. The purpose of this economic reform is not to discard communism but to make its working according to the Chinese economic needs. China’s open door policy gave fruitful result to it and it entered into a new period of transition. There was also a huge increase in trading and investment co- operations. The nature of Chinese economic system became shuffled during 1980’s. It would not be accurately described as either a centrally planned economy or a market economy. The most prominent aspect of the open policy was the special economic zones, which were established to expand the attraction to investment from the ethnic Chinese living abroad. Jiang zamin assumed the leadership after Deng Xiao Peng. Alongwith Zhou Enlai, who has proved to be one of the most successful economists of the world,. Jiang Zamin took china to ever grater heights.A good beginning was seen in 2001, with reference to economy. A good result was achieved in major sectors; improvement was seen in lining slandered of both urban and rural residents. China’s opening up for the outer world became wider. Encouraging progress had been made in industrial and agricultural sectors. Moreover china’s 121

entry into the WTO is viewed as a historic event, which paved way for many new developments. China’s progress was also remarkable in foreign trade. China had achieved lots of prestige and power in recent years. China became the second largest economy in the world after USA. the world bank has also agreed to increase its power. This is a start of new change in the global economic governance. With these developments and powerful status, China has to face lots of challenges and problems. Further more, it is not easy for China to with this race of economy, because the other athletes are very much experienced and they may give tough competition to China. In the future, we see that there are many challenges facing China in the area of international trade. First, with China’s competitiveness will –perceive that their producers will not able to compete with the Chinese exports, either in the third market or in their own domestic market. The backlash will take the form of an increased use of anti dumping duties and safeguard. Many countries are using such trade instruments against China from a variety of countries. Another challenge facing China is how to manage its trade relationship with the USA. The United States is the largest economy in the world, and China’s largest export market as well. A stable and healthy relationship with the United States is important for China’s economic development. It is a historical fact that to accept newly emergent economic power is the difficult process for countries. U.S.A, E.U and other economic power may perceive China as a potential economic threat. Managing and smoothing such as relationship should be an important goal for China.


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