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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

Deforestationb

(1,000km2)

8.8

Average Annual Deforestationb (%, 1980-90)

0.7

Population with Safe Access to Water (%)

83

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http://www.casestudywriting.com/ Malnutrition (% under age 5)

17

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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http://www.casestudywriting.com/ 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

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

Amou

ntin

billion

dollars

14.

5

3.1 4.7 7.3 8.4 10.

3

10.

1

10.

3

11.

6

19.

2

39.

0

44.

3

48.

1

54.

7

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

Aksoy,M.A.,&Beghin,J.C.(2004).GlobalAgriculturalTradeandDevelopingCountries.

Washington:WorldBank.

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

InstituteforInternationalEconomics.

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Gertz,B.(2012).TheChinathreathowthePeople'sRepublictargetsAmerica.Washington,DC,

RegneryPub.

Lloyd,P.J.,&Zhang,X.(2000).Chinaintheglobaleconomy.Cheltenham,UK:EdwardElgar.

Pei,M.(2006).China'strappedtransition:Thelimitsofdevelopmentalautocracy.Cambridge,

Mass.[u.a.:HarvardUniv.Press.

Schell,O.,&Delury,J.(2013).Wealthandpower:China'slongmarchtothetwentyfirst

century.

Qiao,L.,&Wang,X.(2000).Unrestrictedwarfare:China'smasterplantodestroyAmerica.

PanamaCity,Panama:PanAmericanPub.

Vogel,E.F.(2011).DengXiaopingandthetransformationofChina.Cambridge,Mass:

Belknap.

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