Running head: WHY CHINA IS GROWING RAPIDLY 1

Why China is Growing Rapidly

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Why China is Growing Rapidly

In 1978, the Chinese State assumed control of all productive assets and

initiated a multi-faceted economic reform program that catalyzed its rapid growth

witnessed in recent decades. State capitalism encouraged high-level investment of the

domestic savings accumulated in public and private sectors, resulting in robust

entrepreneurship, innovation, and industrialization under keen government

supervision (Jun, 2019). The reforms succeeded spectacularly in nearly all accounts.

They resulted in substantial capital investment in the economy's targeted sectors and

innovation, leading to higher production efficiency and increased output. Higher

productivity, spurred by technological innovation, is responsible for China's rapid

growth from a low-middle-income in the 1990s to a robust high-income economy in

2017.

A sizeable proposition of China's rapid economic development in recent

decades is attributable to large-scale capital investments. When the government

embarked on significant economic reform programs in the late 20th century, the

resultant decentralization of production catalyzed significant growth in household and

corporate savings (Morrison, 2019). The capital output from the increased production

supported the acquisition of new machinery, better technology, and infrastructure

investments. These factors, combined, helped raise national output to unprecedented

levels. The progression from the start of the economic reform program in the late

1970s to the early 1990s propelled China to the highest gross savings as a percentage

of GDP globally (Morrison, 2019). The domestic savings supported high-level

investment supported rapid economic growth in the 21st century to the current status

as the world's second-largest economy.

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Productivity gains accruing from economic decentralization are responsible

for China's rapid economic growth in recent decades. The country's productivity

improvement is a factor of resource reallocation to more productive economic sectors,

especially those controlled by the government (Morrison, 2019). For example,

reforms to the agricultural sector enhancing mechanization freed labor to participate

in more productive areas, such as manufacturing. The economic decentralization

initiatives encouraged market-oriented production through entrepreneurship and

innovation. During the late 1970s, when the government-initiated implementation of

the economic program reform, Chinese productivity increased at an annual rate of 3.9

%, compared to 1.1 in the 1950s, 1960s, and early 1970s. By 1990s, the growth output

productivity share exceeded 50% following the decentralization initiatives (Morrison,

2019). The increased production efficiency positioned China firmly on a rapid

development path being witnessed today.

Technological innovation and development accelerated China's rapid

economic development from the 1990s to the present day. In the 1970sn and 1980s,

China converged with major developing countries, such as the United States, which

led to the o adoption of foreign technology in various critical economic sectors

(Morrison, 2019). For example, rapid industrial mechanization in agriculture and

manufacturing boosted efficiency, resulting in more national output (Esmail & Shili,

2017). By 2010, these factors catapulted China from a low-middle-income country to

an upper-middle-income. By 2017, rapid diversification of technological innovation

into telecommunication saw China become a high-income economy. Current

economic policy banks in making innovation the country's primary source of

continued rapid economic growth.

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Figure 1: China's economic rise: History, trends, challenges, and implications for the

United States

Economic reforms by the government targeting large-scale capital investment,

productivity gains, and technological development are responsible for China's rapid

economic growth in recent decades. These factors combined led to greater efficiency

leading to higher output and increased resources for continued, diverse investment in

promising economic sectors. While China held high domestic savings levels in private

and public sectors, incentives for investment accompanied by technological

innovation-initiated China's ascent to the apex of the global economy.

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References

Esmail, H. A. H., & Shili, N. N. J. (2017). Key Factors of China's Economic

Emergence. Mediterranean Journal of Social Sciences, 8(3), 251-251.

Jun, Z. (2019, August 8). Opinion | The real reason behind China's decades-long run

of growth. Livemint. https://www.livemint.com/opinion/online-views/opinion-

the-real-reason-behind-china-s-decades-long-run-of-growth-

1565285539171.html

Morrison, W. M. (2019). China's economic rise: History, trends, challenges, and

implications for the United States. Current Politics and Economics of

Northern and Western Asia, 28(2/3), 189-242. Retrieved from

https://fas.org/sgp/crs/row/RL33534.pdf