Why China is different

In the modern era, China's influence in the world economy was minimal until the late 1980s. At
that time, economic reforms initiated after 1978 began to generate significant and steady growth
in investment, consumption and standards of living. China now participates extensively in the
world market and private sector companies play a major role in the economy. Since 1978
hundreds of millions have been lifted out of poverty: According to China's official statistics, the
poverty rate fell from 53% in 1981to 2.5% in 2005. However, in 2006, 10.8% of people still
lived on less than $1 a day (purchasing power parity-adjusted). In the 1949 revolution, China's
economic system was officially made into a communist system. Since the wide-ranging reforms
of the 1980s and afterwards, many scholars assert that China can be defined as one of the leading
examples of state capitalism today.

China's foreign trade has grown faster than its GDP for the past 25 years.China's growth comes
both from huge state investment in infrastructure and heavy industry and from private sector
expansion in light industry instead of just exports, whose role in the economy appears to have
been significantly overestimated. The smaller but highly concentrated public sector, dominated
by 159 large SOEs, provided key inputs from utilities, heavy industries, and energy resources
that facilitated private sector growth and drove investment, the foundation of national growth. In
2008 thousands of private companies closed down and the government announced plans to
expand the public sector to take up the slack caused by the global financial crisis.In 2010, there
were approximately 10 million small businesses in China.

The PRC government's decision to permit China to be used by multinational corporations as an

export platform has made the country a major competitor to other Asian export-led economies,
such as South Korea, Singapore, and Malaysia.China has emphasized raising personal income
and consumption and introducing new management systems to help increase productivity. The
government has also focused on foreign trade as a major vehicle for economic growth. The
restructuring of the economy and resulting efficiency gains have contributed to a more than
tenfold increase in GDP since 1978. Some economists believe that Chinese economic growth has
been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the
growth driven by the private sector and that the extent at which China is dependent on exports is
exaggerated.
International trade makes up a sizeable portion of China's overall economy. The course of
China's foreign trade has experienced considerable transformations since the early 1950s. In
1950 more than 70 percent of the total trade was with non-Communist countries, but by 1954, a
year after the end of the Korean War, the situation was completely reversed, and trade with
Communist countries stood at about 75 percent. In 1965 China's trade with other socialist
countries made up only about a third of the total.

Since economic reforms began in the late 1970s, China sought to decentralize its foreign trade
system to integrate itself into the international trading system. On November 1991, China joined
the Asia-Pacific Economic Cooperation(APEC) group, which promotes free trade and
cooperation the in economic, trade, investment, and technology spheres.

China's investment climate has changed dramatically with more than two decades of reform. In
the early 1980s, China restricted foreign investments to export-oriented operations and required
foreign investors to form joint-venture partnerships with Chinese firms.

Foreign investment remains a strong element in China's rapid expansion in world trade and has
been an important factor in the growth of urban jobs. In 1998, foreign-invested enterprises
produced about 40% of China's exports, and foreign exchange reserves totalled about $145
billion. Foreign-invested enterprises today produce about half of China's exports (the majority of
China's foreign investment come from Hong Kong, Macau and Taiwan), and China continues to
attract large investment inflows.

China’s high savings will spur deals. Companies often have surplus cash and banks surplus
deposits. Today those savings are recycled into rich countries via sovereign-wealth funds and the
central bank, which act as portfolio investors, buying mainly bonds. But China may and probably
should diversify. That shift will be accelerated by China’s political aims: to acquire inputs, such
as raw materials, labour and land; to build up technical and commercial expertise; and to gain
access to foreign markets.

Public announcements of such deals are something of a charade. Wooden Chinese executives
insist they are acting on purely commercial grounds. Western bosses hail a new era of co-
operation. Yet these transactions are tricky partly because of cultural differences and partly
because of the role of the Chinese state. There have been fiascos. In 2005 CNOOC, a Chinese oil
firm, withdrew a bid for Unocal, a Californian producer, after American politicians kicked up a
stink. In 2009 Rio Tinto, an Anglo-Australian mining firm, withdrew from a deal to sell a series
of minority stakes to Chinalco, a Chinese metals firm. Rio’s shareholders opposed the sale but
many reckon that the Australian government did, too.

Outward foreign direct investment is a new feature of Chinese globalization, where local Chinese
firms seek to make investments in both developing and developed countries.