From Divergence to Convergence:

The History Behind China's Economic Growth

2023/3/11 | Wu Hao Zhao, Xinyu

ChatPPT Generation
目录

Background

Divergence stage

Characteristics of this period and reasons for decline

Convergence stage

Economic reform and opening up

The market mechanism works

Mass total factor production

Toward integration
 OVERVIEW
China was located as the world's largest economy for a long
time until the 19th century. However, with the creation of the
1st Industrial Revolution, a huge gap emerged between the
newly rich industrial nations and China's backward economy.
The widening gap was accompanied by a series of attempts at
reform, but it was only after the 1970s that China's economy
narrowed the gap with the world's advanced levels. With
China's reform and opening up, these obstacles to China's
economic progress gradually disappeared providing the
conditions for China's current prosperity. Why did China's
economy lag behind other advanced countries after the
industrial revolution? What are the reasons for China's renewed
prosperity? This is the key to be discussed in this topic.
 PART 1:
Divergence stage

Why China's economy lagged

behind the advanced countries
of the world significantly after
the Industrial Revolution?
 1. Economic development at the
end of China's feudal dynasties
The Song dynasty was the pinnacle of economic development
in ancient China. The imperial examination system was widely
used, land was privatised, the number of urban dwellers
increased significantly and the beginnings of a market
economy emerged.

The Ming and Qing dynasties saw a significant increase in

population and the introduction of various new labour-
intensive crops. But technological change provided only
limited support. There was some foreign trade and
international exchange. In other aspects of the economy,
there was gradual and cumulative development, and these
were slow and cumulative changes over a long period of time.
 2. Constraints on the
development of China's
modern feudal economy
The relative scarcity of land and natural
resources, the rapid expansion of the
population, the relative scarcity of raw materials
and the reinforcement of a self-sufficient feudal
economy limited the development of foreign
trade.
The supply of labour, the declining interest in
science among highly educated people, and the
conservative and closed nature of the political
system led to innovation becoming slow.
3.Traditional Chinese Political Economy
Stability, resilience and path
dependence
Low official financial resources
and a high
speculation tolerance
and rent of
extraction
by local officials
The influence of Confucian
education on popular
incentives
The development of the modern
Chinese economy
Forced openness in the face
of the industrial revolution

1.In the face of Western aggression, the Chinese leaders made

certain changes.

2. The self-sufficient feudal economy began to disintegrate.

3. After the Sino-Japanese War, the government embarked on a

series of sweeping reforms.

4. Economic development 1912-1949

Development under the People's Republic of China

Socialist Programmes 1949 to 1976

1.Correct fiscal and monetary policies,

extensive land reform, implementation of
socialist economic development plans and
learning from the Soviet economic model
Development under the People's Republic of China

Socialist Programmes 1949 to 1976

2. The new government carried out
extensive land reforms and established a
complete vertically integrated administrative
system from central to local level. This
administrative system functioned very
efficiently. The ability of the government to
control tax revenues increased dramatically,
with revenues averaging over 25% of GNP
between 1952 and 1977.
Development under the People's Republic of China

The planned economic system in China

3. It developed and expand a self-sufficient military-
industrial complex. The government controlled prices at the
expense of farmers and consumers to provide the necessary
funds for the development of heavy industry. Guided by this
model, China has seen a remarkable expansion of its
industrial and technological capacity and a significant
improvement in the population's level of education, health
care and life expectancy, surpassing that of most other low-
income countries.
Development under the People's Republic of China

Shortcomings and setbacks of the

planned economy model

The government used its administrative power to implement a

series of anti-market economy policies. These measures are
not conducive to the sustainability of industrial agriculture and
have resulted in a huge gap in living standards between urban
and rural households. The inefficiency of planning and the
weakness of incentives have undermined the population's
incentive to produce
 PART 2:
Convergence stage
Why China's economy catch up
with the advanced countries of
the world significantly after the
reform and opening up?
 Individual impact
on the external
environment
In the history of China's economic growth and development, the influence of individuals on
the external environment has played an important role. It can be seen from the evolution
from differentiation to integration that the Chinese government and people have made a lot
of efforts together by actively responding to the external environment. In the mid-1970s,
China carried out reform and opening-up, which removed restrictions on the external
environment and vigorously promoted economic development. The government took
breakthrough measures to effectively control inflation and improve living standards by
opening up the market and allowing foreign capital to enter the country. In addition, China
has participated in a number of global agreements to enhance economic cooperation
between countries and to attract more foreign investment. Since the beginning of the 21st
century, China has formed a strong market economy in the world and continuously deepened
its ties with the world. Its exchanges and cooperation with other countries have promoted
China's economic development and integration into the global economic system. China has
also played a great role in changing the external environment, making it more stable and
conducive to development. Therefore, it can be seen that the influence of individuals on the
external environment is an important part of the history of China's economic growth and
development, and from differentiation to integration, China has made great contributions in
actively responding to the external environment.
Economic reform and opening-up
came from an ideological revolution

In 1978, the Communist Party of China (CPC), as the ruling party of

China, adjusted its ideology and abandoned dogmatic errors.
"Emancipating the mind and seeking truth from facts" and "practice
is the only standard for testing truth" became the slogan of reform at
that time. In theory, the free competition stage of the market
economy is conducive to the development of productive forces, so
long as the control of its development direction to avoid developing
into the monopoly stage, China's socialist nature can not be
guaranteed to change. Boldly put forward the idea of developing
market economy in China. And through the Third Plenary session of
the 18th CPC Central Committee made an important decision on
comprehensively deepening reform "The basic economic system with
public ownership as the main body and the common development of
various forms of ownership is an important pillar of the socialist
system with Chinese characteristics and the foundation of the
socialist market economy system. Both public ownership and non-
public ownership are important components of the socialist market
economy and an important foundation for China's economic and
social development."
Economic reform and opening up

In 1978, China officially launched the policy, thus bringing the

divided Chinese economic history to a new stage of
development. The reform and opening up ushered in a new
economic period. The independent financial system, the method
of social enterprise and the two-track market system were
vigorously promoted, and China's economic development
rapidly broadened its development path. With the
implementation of reform and opening up, all sectors of Chinese
society have made unprecedented and effective adjustments. In
the new economic period, small enterprises and markets with
low efficiency, large labor force, small scale and limited market
have been formed, as well as large-scale and diversified
enterprises, markets and financial institutions. This enabled the
rural labor force to be released, the urban economy to develop
effectively, the migrant population to enter the cities on a large
scale, and the emergence of retail markets, media markets and
other emerging markets. At the same time, the new economic
era has also brought about a large inflow of foreign capital,
which has made China's economic structure more diversified
and its economic development has grown rapidly.
 The market mechanism works

In the historical background of China's economic growth and development, the market
mechanism has played an important role in adjusting the structure and allocating
resources effectively. In 1978, China abolished the division of industries and began to
promote marketization and reform the way resources are allocated. The reform of
industrial structure greatly reduced the double allocation of agricultural manpower and
changed the average agricultural income level of the whole country. In addition, the
transfer of labor force has brought new opportunities for agriculture to make full use of
free resources. Soes have been transformed into various organizational forms, such as
wholly state-owned companies, joint ventures, joint-stock enterprises and specialized
cooperatives. By dividing large soes, they have improved the allocation of resources,
especially releasing a large amount of national financial resources to support the
development of foreign investment business. - Healthy Competition promotes
economic growth Along with the marketization process of China's economy, the
promotion of healthy competition has also become the driving force of China's
economic growth. The marketization process enables effective quantitative and
qualitative information to be transmitted, thus driving enterprises to implement price
policy adjustment and effectively regulate market supply and demand. At the same
time, healthy competition also promotes enterprises to invest in new technologies and
promote the upgrading of economic structure, thus effectively increasing the total
amount of social wealth and promoting the improvement of productivity.
 Large-scale total factor
production
1. It is an important symbol of the transformation from
differentiation to integration in China's economic
growth and development history. It not only reflects
China's transformation from a closed market to an
open market in modern industrial development, but
also reflects an important historical node in China's
economic growth and development -- the process from
industrial dispersion to integration.

2. It has helped to achieve higher economic growth and

completely changed China's economic structure. It has
not only promoted the integration of investment and
production at the policy level, but also enabled
enterprises to better explore new opportunities at the
market level, promoted the efficient allocation and
optimization of technology and resources, and
strengthened international economic cooperation.
Developing towards
integration
An important theme in the history of China's economic growth and
development is "". Since the 1940s, with the founding of the People's
Republic of China, the Chinese government and people have faced a shift
from differentiation to integration. Reform and opening up have
accelerated the pace of industrialization and urbanization in rural areas
and greatly promoted economic and social development. In particular,
during the Ninth Five-Year Plan period in the 1930s, economic growth
accelerated and achieved remarkable economic growth worldwide. Since
the end of the 20th century, China's economy has been undergoing more
in-depth reforms to improve its socio-economic structure and achieve
economic growth. A series of major reforms have encouraged diversified
development: vigorously developing producer services and emerging
industries, encouraging the development of the capital market,
expanding scientific and technological development, and creating social
welfare and wealth equity. This integrated context has led to increased
economic activity, rising consumer spending and rising urban and rural
incomes, thus achieving a true centralization of China's economic system.
Thankyou
2023/3/11|