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China success story has so far been overrated. Discuss.

After Chinas opening up in 1978, Chinas economy had made quantum leaps to
where it is today as the second largest economy of the world. Although China
today appears to be bogged down my many problems, it has made leaps and
bounds improvement from the Maoist times. Hence, this essay seeks to argue
that despite emerging new challenges and old ones that could offset its recent
successes, the impressive advancements made from being a closed Maoist
country are already in and of themselves a remarkable improvement and hence,
Chinas success story is largely not overrated.
China success story has not been overrated as CCP-directed economic reforms
since 1978 have unmistakably generated large amount of wealth across the
country for the past 3decades. China is the fastest growing major nation for the
past quarter of a century with an average annual GDP growth rate above 10%.
Per capita income has grown at an average annual rate of more than 8% over
the last three decades drastically reducing poverty. Poverty rate went down from
53% in 1981 to 8% in 2001. The restructuring of the economy and resulting
efficiency gains have contributed to a more than tenfold increase in GDP since
1978. Growth not only creates more employment opportunities but relatively
high growth rate for a sustained period of time during the transition, largely
through raising the standard of living has demonstrated convincingly that the
gradualist approach to reform such as reforms from the rural sector to urban
sector and ascension to WTO adopted by China since the late 1970s has worked.
Therefore, Chinas success story has not been overrated.
Nevertheless, the economic success of rising affluence in China has been at the
expense of income equality. Economic development has resulted in the yawning
income gap between the rich and the poor between urban and rural areas. The
coastal areas such as Shanghai, for geographical reasons such as better
infrastructure and better and cheaper transportation by water have had an
advantage in economic development, often being the preferred choice for FDI
and prioritized by the government for development. In the year 2007 the top
10% of urban Chinese earn 9.2times as much as the bottom tenth, which have
grown from 8.9times the previous year, a great worry as it threatens social
stability. In 2005, about 87000 illegal disturbances that were born out of
dissatisfaction from the income inequality were reported. Furthermore, income
disparity has also sparked the desire of many peasants to move to the urban
areas in search for a better life. Due to the problem of rural urban migration,
public amenities, housing and employment in the urban areas are strained. Rural
sector on the other hand, also suffered because the lack of manpower when
people abandon their land results not only in nationwide food shortages but also
harvest. Hence, in this aspect, Chinas success story is limited.
Moreover, as a direct result of Chinas economic development, China also has a
problem with sustainability due to its environment and energy issues. Relentless
drive of Chinas leaders to amass power, consolidate territory, develop the
economy and support a burgeoning population have led to the plundering of
forests and mineral resources, constructing river diversion and leading to poor
water management projectsa clear lack of ethos for conservation. China has
continued to build more dams to harness hydro electrical power despite rising
alarm of environment degradation. 30 to 40 million Chinese are expected to
migrate as a result of depletion of resources. If not managed properly, the
combination of migrant laborers and unemployed urban workers could trigger

serious conflict in urban area. Furthermore, as incomes rise, the demand for
private cars and air travel also increases exponentially, causing more
consumption of energy. The dependency on energy is a threat to Chinas
economic growth as growth and stability would then be bound to its energy
security where an unreliable energy supply could seriously affect Chinas ability
to maintain its role as the factory of the world based on low cost manufacturing,
hence putting the claim of Chinas success story in question.
Nevertheless, resource-management policies by the far-sighted and decisive
Chinese leadership have mitigated the problem of sustainability posed by
environment and energy issues. Under the former premier Zhu Rongji, logging of
old forests are banned while an ambitious reforestation program is implemented.
Chinas State Environmental Protection Agrency (SEPA) is given vast power to
deal with resource depletion within the country. The use of high sulphur coal is
also heavily taxed so that industries would resort to suing cleaner burning fuels.
Special loans are extended by the state banks to firms that practice the proper
environmental protection measures. Construction of the Three Gorges Dam,
along with several other smaller dams, attests to governments determination to
resort to hydroelectricity to satisfy mounting energy demands. The government
also plans to build nuclear plants to supply power to the cities of Southern China.
Under governmental encouragement, wind and solar power generators are
becoming popular even in private households, especially for those in the
countryside and interior China. By having alternate sources of energy and
environmental protection, the problem of sustainability posed by environmental
and energy issues though it still exists, is mitigated.
China has also been able to marry the planned and market economy into a
successful model though the two were thought to be diametrical opposites. Even
though SOEs were privatized and SEZs were implemented, this transformation to
a market economy is not a total complete change as SOE is still part of the state
sector due to focus on Socialism market with Chinese characteristics. While the
SEZs are given preferential treatment such as special tax incentive freedom to
import inputs, rights to retain foreign exchange and also privileged access to
water, electricity and transportation where they pay the same price as the state
sector, the SOEs are still kept for social security purposes as they are important
instruments for government to maintain full employment and ensuring
legitimacy. Without a social safety net, and given concerns about instability,
reforming of the economy would have been a difficult challenge for China. The
increase in investment by MNC where FDI in China rose from US$1.5billion to
US$40billion in 1980s and 1990s is a proof of Chinas success in amalgamating
the two. Hence, Chinas success story has not been overrated as it managed to
successfully create and sustain a mix economy of its own despite it going against
the conventional wisdom in economic theory.
Nevertheless, Chinas mixed economy has also been laden with problems. Most
private enterprises in China are overshadowed by SOEs which have been
receiving the bulk of governmental attention, support and resources for their
development despite them being mammoth and inefficient. The SOEs are also
not transparent in their operations, giving them room to be socially irresponsible
in their operation. Unprofitable SOEs are also responsible for the accumulated
bad debts held by state banks. Chinas financial system remained centrallyplanned and underdeveloped. Despite progresses made in the modernization of
Chinas financial system, the four major state banks remained under strong state
control and are inflexible to the needs of the market. Chinese agriculture sector,

handicapped by state land ownership are smaller neither as productive nor


efficient. They do not enjoy EOS as the land is owned by the government.
Arbitrary misappropriation of lands by local officials is also common, giving
farmers relatively less incentives to innovate and to improve on productivity as
they would if agriculture is fully privatized. Hence, the success of Chinas story of
a mixed economy is also limited.
In conclusion, although China today appears to be bogged down my many
problems, it has made great improvement from the Maoist times. Moreover,
despite emerging new challenges and old ones, China has fairly been able to
mitigate and contain them and hence, Chinas success story is largely not
overrated.