Chinese Economic Reform
China’s 1978 Open Door Policy — What is it?
The Chinese Open Door Policy allowed foreign nations to have access trade. This involved the Chinese giving away free land for factories / other industry to encourage foreign investment, helping economic growth (outsourcing). By encouraging foreign investment, capital was injected into the Chinese circular flow. This increased Real GDP demonstrating economic growth.
FDI (foreign direct investment) began to flow into the newly created SECZs (special economic zones) due to low tariffs and cheap labour. China has now been the largest recipient of FDI since 2003 and its share of global trade by value rose from 3% in 2001 to 10% in 2003.
Impact of Economic Growth due to the policy
Growth has provided China with benefits but also many drawbacks. The most impressive positive that growth has enabled is the improvement of living standards, made possible by 300 million Chinese people overcoming absolute poverty. The transport industry in China has also been developed. Since 2000, the country had produced 82 airports with more planned to be built in the future. It has also constructed the world’s longest highway network. However, growth has lead to the erosion of culture in Chinese Hutong’s. The height of China’s transition into modernity resulted in 500,000 residents displaced and 600 Hutong's destroyed each year.
The Chinese economy:
- China is the world’s largest manufacturing economy and exporter of goods. It is also the world’s fastest-growing consumer market and second-largest importer of goods.
- North America and Europe are the top destinations for Chinese foreign direct investment.
- China averaged a growth of roughly 9.5% from 1979–2018, this means that every 11 years the Chinese economy doubles in real size.
What will stop economic growth in the future?
Although China has grown exponentially, this has depended on a huge trade surplus. Consequently this has caused an excess capacity in manufacturing which is not sustainable. Furthermore, recent investment has been wasteful especially in real estate and infrastructure. Due to the coronavirus, economies in Europe and around the world that heavily depend on Chinese goods will reduce their demand. In turn this will decrease Chinese exports and consequently diminish economic growth. Chinese growth is dependent on the potential shift from an export driven economy to an economy that relies on domestic consumption and investment.
