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ThelogicbehindtheChinesedevelopmentstrategywasthattherewasunderproduction
inthecountry.Thecountryhadresourcesthatcouldbeusedtoensurehugeeconomic
development,buttherewasthelackofcertainimportantenvironmentalfactorsrequiredto
facilitateproduction.Thestrategiesaimedatencouragingincreaseinoutputbyfacilitating
competitionandmotivatingpeopletoproducemorethattheywereproducing.Anexampleis
wherethedualpricesmotivatedthefarmerstoincreasetheiroutput(Aksoy,2004).Thesupport
bythegovernmentandthefactthatindividualhouseholdscouldproducetheirowngoods
motivatedthecitizenstoengageineconomicactivitiesandrealizetheirpotential.Trade
strategiesalsoencouragedcompetitionwithothercountries,andthismotivatedtheChineseto
workharder.Thedualpricesandhouseholdresponsibilitystrategiesworkedperfectlyforthe
agriculturalsectorbutfailedingovernmentorganizations.Thisisbecause,thestatecorporations
enjoysomeprotectionandarenotmotivatedtocompete.Manyofthemreceivesubsidiesfrom
thegovernmentwhentheyperformpoorly,andthisiswhytheylackthemotivationtowork
harderandimprovetheirperformance.

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TheChinesegovernmenthadrealizedthattheincreasingpopulationwasnotaresourceto
thecountryanymore.Thetablebelowshowstherateofincreaseinpopulation.
Year

Totalpopulation

Percentageincreasein
population

1975

924.2

1.57

1980

987.0

1.19

1986

1,075.0

1.15

1988

1,110.2

1.58

1990

1,143.3

1.44

1991

1,158.2

1.30

1992

1,171.7

1.16

1993

1,185.1

1.15

1994

1,198.5

1.12

1995

1,211.2

1.05

2000

1,255.1

0.93

2010

1,348.0

0.70

2020

1,434.3

0.60

2030

1,500.6

0.39

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Source
:
Adapted from
Chinese Statistical Yearbook
. World Bank,
World Population Projections
.

Havingrealizedthis,theChinesegovernmentrealizedthatoneofthestrategiesofachieving
economicdevelopmentisthroughcontrolofeverincreasingpopulation.
Thebenefitsofthestrategiesbenefitedthepopulationbecausethestandardsoflivinghad
increasedbytheyear1997.Thetablebelowsummarizestheindicatorsofimprovedliving
standardsinChina.
Indicator

%value

Life
Expectancy
at Birth in years

69

Fertilityrate(1995)

1.9

Adult
Illiteracy Rate (males)

10%

Adult
Illiteracy Rate (females)

27%

Labor Force in millions

709

Annual

8.8

Deforestationb
(1,000km2)
Average
Annual
Deforestation
b
(%, 1980-90)

0.7

Population
with Safe
Access to
Water (%)

83

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17

Malnutrition
(% under age
5)
Source
:
Adapted from
World Development Indicators
, 1997.

TheChinesegovernmenthadadutytoensurethatthegovernmentownedcompaniesalso
performedwell.Toachievethis,therewasaneedtoensurethattheemployeesinthecompanies
areselectedprofessionallywithoutconsideringtheirpoliticalalliances.Theyshouldalsobeable
tobenefitfromthecompanydependingonperformance.Thisensuresthatthereisadirect
benefitbymanagingthecompaniestoensuregoodperformance.Thegovernmentshouldalso
allowcompetitionfromothersimilarcorporations(Schell,2013).Doingthisleavesthemanagers
withnootheroptionotherthanmanagethecompanieswellandensurethattheyperformwellso
thattheycangetrewardsandavoidbeingcompetedbyothersimilarcompanies.Removalof
protectionstrategiesisnecessarytoensurethatthisisachieved.Incaseswherethecorporations
failtoperformwellcompletely,theChinesegovernmentshouldhaveprivatizedthecompanies.
However,companiesprovidingpublicgoodsshouldbesupportedbyallmeansregardlessof
theirpoorperformance.
ThestrategiesthatwereappliedintheChineseeconomyresultedinexcessproductionof
goodsandthiscreatedtheneedtoexportsomeoftheproducts.Theincreaseinexportsinchina
playedagreatroleinthedevelopmentoftheChineseeconomy.Inthefirstplace,thehigh
demandfortheChineseproductsmotivatedtheChinesetradersandcompaniestoengageinthe
productionofmoregoodssothattheycouldmeetthehighdemand.Theeffectsofthiswerethe

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increasedGDPoftheChineseeconomy(Qiao,2000).Thetablebelowshowsanincreasein
exportsfromChinaasthestrategiesworkedinfavorofthelocalcompanies.
Year

Shareofexports

1985

1.1

1986

1.9

1987

3.1

1988

5.2

1989

9.4

1990

12.6

1991

16.8

1992

20.4

1993

25.8

1994

28.7

1995

31.5

1996

40.8

Source
:
Adapted from China, SSB; China, General Administration of Customs,
China Customs Statistics, as reported in Barry Naughton, "China's
Emergence and Prospects as a Trading Nation,"
Brookings Papers
on Economic Activity
2: 1996. p. 299.
The exports from china during the period can also be summarized in the table below

Item

Value$(billions)

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Clothing and Textiles

37.1

Machinery and Elect. Equip

35.3

Foodstuffs

11.6

Chemicals

8.9

Footwear

7.1

Mineral Fuels

5.9

Source:AdaptedfromEconomistIntellegenceUnit:CountryReport:China,3rdQuarter
1997
Fromtheincreasedexport,Chinesecompaniesandtradersgottherequiredforeign
exchangethattheyneededinthepurchaseofcapitalgoodsthatwererequiredintheproduction.
Theavailabilityoftherequiredinputsmotivatedthecompaniestoproducemoreandsellitinthe
internationalmarket.Withtheincreasedexports,competitionintheexternalmarketmadethe
localChinesecompanieslearnfromthecompetitorshowtocompetemoreeffectivelyby
producingavarietyofproductsaswellasgoodsofhighquality.
Withtime,theopeningoftheeconomyfacilitatedforeigndirectinvestmentinchina.The
tablebelowsummarizesthechangeinforeigndirectinvestmentinChina.

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Year

1979
-198
3

Amou

14.

ntin

198

198

198

198

198

198

199

199

199

199

199

199

199

3.1

4.7

7.3

8.4

10.

10.

10.

11.

19.

39.

44.

48.

54.

billion
dollars
Source
:
Adapted from
Chinese Statistical Yearbook
.

ForeigndirectinvestmentsinChinahaveagreatimpactintheChineseeconomy.Inthe
firstplace,theChineselaborerssecuredjobsfromthecompaniesthathadestablishedthemselves
inChina(Bergsten,2008).Thisbenefitedtheeconomybecausemanypeoplebecameemployed,
andtheirlivingstandardsimproved.
Theforeigncompaniesinchinareducedimportsforthecountry.Thismeantthatthe
tradeimbalanceinchinawascorrected,andthelocalscouldaccesscheaplocallymadeproducts.
Sincethetransportcostswerelowered,theproductswerecheap,andthisbenefitedthelocals.
TheforeigncompaniesinchinaledtoanincreaseinexportswhichwasgoodfortheChinese
economy.Thisledtoimprovedbalanceofpaymentasindicatedinthetablebelow
Year

Overallbalanceofpaymentbillion($)

1980

900

1982

5,674

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1984

2030

1986

-7,034

1988

-3,802

1990

11,997

1991

13,272

1992

6401

1993

-11,609

1994

6,908

1995

1,618

1996

7,243

Source
:
Adapted from
Balance of Payments Statistics Yearbook
and
International Finance Statistics Yearbook
. 1980
information from World Bank,
World Tables
, 1991, as reported in
China: The Great
Awakening
, Harvard Case Study, number 9-794-019.

TheforeigncompaniesinChinaprovidedabasisofcompetitioninChina.Thecompanies
competedwiththelocalcompanies,andthismotivatedtheneedtomanagecostsandresourcesin
thecompanies.Thecompetitionledtoefficienciesintheproductionprocess,andthequalityof
productsimproved(Gertz,2012).Thelocalsbenefitedfromthecompetitionbecausetheprices
oftheproductswerelow,andthequalityremainedhigh.
Theforeigncompaniesbroughtnewtechnologiesinchina.Thenewtechnology
facilitatedinnovationandthisledtoincreaseinavarietyofproductsproducedfromchina.The
technologyalsoloweredthecostsofproduction,andtheexportsincreasedbenefitingthe
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economymore(Bergsten,2008).Technologyalsoincreasedoutputinchinawhichledto
improvedGDP.Generally,theforeigndirectinvestmentsplayedabigroleinchangingthe
Chineseeconomy.
TheChineseeconomyfacedgreatchallengesin1997,andsomeofthemposeagreat
threattothecountry'seconomicgrowth.Thefirstmajorchallengeisinflation.Thehighinflation
meansthatthepricesoftheproductsinthecountryareveryhigh.Thecitizensinchinawould
preferbuyingfromforeignsellerswhoseproductsarecheaper.TheChinesecompanieswould
alsofinditdifficulttoexport.Thismeansthatthecompanieswillhavetoreducetheiroutput,
andthishastheeffectofreducingtherateofeconomicgrowth.Thisisbecausereduced
productionreducestheGDPinthecountry.
ThefailureinthefinancialsystemsisalsoanotherthreattoChineseeconomic
development.Ifthepeopledoubtthestabilityofthebankingsystem,theywillwithdrawtheir
savingsfromthebanksandholditinotherforms(Lloyd,2000).Thiswillreducetheabilityto
lendsavedfundsrequiredforinvestmentpurposes.Reducedinvestmentreduceseconomic
growth.Failureinthefinancialinstitutionshastheeffectofdiscouragingforeigninvestmentsin
china.
Thefactthatchinaisnotamemberofworldtradeorganizationmeansthattheexports
fromthecountryarelimitedunlessthegovernmentengagesinmanybilateraltradeagreements.
Reducedinternationaltradewilldiscourageproductionofproductsinchinabecauseofthe

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reducedmarket(Lloyd,2000).Importoftherawmaterialsalsoprovestobeverydifficult,and
theeffectofthisisreducedproduction.AreductionintheoutputreducestheGDPofacountry
hencetheeconomicdevelopmentofthecountry.
Zhuhastochangethestrategiesitengagesinordertoturnaroundtheeconomyandavoid
thecurrentchallenges.Thefirststepistocontrolthefinancialsectortoensurethatthereis
responsiblelending.Therelevantbodieshaveadutyofmonitoringthefinancialsystemusing
economictheoriestoachievestabilityinthesystems.Theuseofmonetaryandfiscalpolicies
willworkeffectivelytodealwithinflationaswellasregainthetrustthepeoplehaveonthe
financialsystem.Ifthisisachieved,thensavingandfurtherinvestmentswillbeincreasedand
theeconomywillcontinuegrowing.
Theotherchangeinstrategyrequiredismakingtradeallianceswiththedeveloping
countries.Developedcountriesarenotgoodcustomersforchinabecausetheyhavetheirown
companiesproducingtheirowngoods.Partneringwithdevelopingcountrieswillbeofbenefit
becausetheresourcesinthesecountriesareyettobeexploited(Pei,2006).Asthesecountries
benefitfromthetechnologies,expertiseandproductsfromchina,theGDPwillincreasebecause
outputwillhavegrown.Nowthatchinaisnotamemberofworldtradeorganization,thereisa
needtobeclosetodevelopingcountriesthatwillfinditfavorabletotradewithchina.
FromtheChinacasestudy,oneobservesthatchinahasbeensuccessfulinturningaround
itseconomybecauseofthemanyeconomicpoliciesthatitimplemented.Thechangewas

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howeverrealizedwithmanychallengesthatcontinuetobeaddresseduptodate.Forchinato
remainrelevantintheinternationalmarketandsustainitseconomy,thereisaneedtochange
strategiesandpartnerwithdevelopingcountriesthatneedproductsfromthecountry(Pei,2006).
Apartnershipthatwillmutuallybenefitthesecountrieswillbethebeststrategyfornow
consideringthatthesecountriesareafterpartneringwithcountriesthatleadtoamutualbenefit.
TheChinesegovernmentinthatcasehasnoreasontorelaxbecausemuchhastobedoneifthe
Chineseeconomyhastocontinuegrowingasisexpected.Globalizationshouldbetaken
advantageof,andbilateraltradeagreementscanworkinachievingtheobjectivesofthecountry.

References
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GlobalAgriculturalTradeandDevelopingCountries
.
Washington:WorldBank.
Bergsten,C.F.(2008).
China'sRise:ChallengesandOpportunities
.Washington,D.C:Peterson
InstituteforInternationalEconomics.

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Gertz,B.(2012).
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RegneryPub.
Lloyd,P.J.,&Zhang,X.(2000).
Chinaintheglobaleconomy
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Pei,M.(2006).
China'strappedtransition:Thelimitsofdevelopmentalautocracy
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Qiao,L.,&Wang,X.(2000).
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PanamaCity,Panama:PanAmericanPub.
Vogel,E.F.(2011).
DengXiaopingandthetransformationofChina
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Belknap.

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