#83 China’s Economic Growth After Mao: Part 1
The Rate of Growth
The issue that has undermined western Chinese analysis is Mao. During Mao's period, China was a closed society, relatively speaking. Mao struggled with the central issue of the Communist Party: how to create an industrial revolution, without becoming dependent on western economies. The period of his rule was turbulent. Western assumptions that there was a lack of growth during Mao’s time have been shown to be false. In fact, between 1970 and 1979, China’s GDP growth rate was 6.8% per annum at 1980 constant prices.
There was a continuous growth rate every year in fact for 70 years. If we examine capital accumulation, i.e., the growth rates of productive capital stock, capital equipment, machinery, tools, industrial buildings, excluding residential buildings and the value of land, there was an annual growth rate of 10.3% from 1952 to 2015. If residential buildings and land are included, the rates are almost identical. In brief, there was a sustained accumulation of capital stocks over this entire period.
During these 70 years, the state invested massively in education and research across the board. It is more difficult to provide accurate statistics to illustrate the impact of these educational investments. Education is always a long-term process. Very simply, the growth rates referred to above would have been impossible without the parallel investments in people’s education. A central pillar of the 1949 revolution was education. Research and development (R&D) are easier to quantify. In Western governments, R&D is a mixture of private and public, the public often originating in the military. The level of technological advance in industry and commerce is a factor of R&D. The Communist Party recognised the importance of technology from day one of the revolution. In part at least, a huge investment in Chinese R&D has been behind the success of the country’s growth.
China’s growth had begun behind closed doors and was more or less closely allied to the Soviet system. The USSR had supported Mao’s fledgling Communist Party in the 1920s and 1930s. After 1949, the USSR had again provided support by introducing production lines into north-eastern China. They provided guidance on how to plan an economy, allowed the use of Soviet model factories, and had been an essential ally in China's early days. By the time of the rift in 1960-1962, they had provided access to over 600 infrastructure projects. By 1953, when the Korean War ended, there was a strategic alliance that had formed between the USSR and China. This committed the USSR to support China in building an industrial infrastructure, which focused on armoury and military facilities. Soviet technicians, schools, administration, and engineers entered China and were all Soviet-trained.
The Sustainability of China’s Economic Growth
China's economic growth has been increasing faster and for longer than any nation since the start of industrialisation in 1760. As in all things Chinese, there has been a huge debate among economists in the West: first, over the accuracy of the statistics, and then - when all the evidence supported the rates of growth put forward by Chinese statisticians – over whether the growth was sustainable. Western experts have continually regarded Chinese growth as evidence that China was about to move into a deep crisis. There now has been 70 years to judge the Chinese growth model. Here I shall briefly illustrate the growth rates and attempt to explain why this model has been so successful for the Chinese people.
- Since 1978, for 39 years, China sustained growth averaging 9.6% every year. During this time her economy increased by 3200%
- From 1949 to 2018, her GDP averaged annually 8.5% per capital which meant an improvement of 2100% in people’s standard of living
- Comparisons with Western Europe and the USA’s (over the same periods) economies over this period does not make good sense as the richer an economy grows, the more difficult growth becomes. Comparisons are useful when equated with the early periods of industrialisation elsewhere.
Life expectancy is widely accepted as the best indicator of a people's wellbeing. Personal income is not the only determinant of a person’s wellbeing: healthcare, medical insurance, and education are all important factors in assessing a person’s wellbeing as well. Likewise, pollution, smog, lack of healthcare and privatised medicine are negative factors. According to the World Bank, per capita GDP income account for 68% of the differences between countries. Per capita GDP is a life-or-death question. Life expectancy in a high-income country is 80 years, and in an upper-middle-income country like China, it is 75 years (It is actually 76 years).
Another useful way of examining the rapid growth of China is as follows:
1. Between 1975 and 1990, the USSR was the second-largest economy in the world: in Gross Domestic Product terms, it was approximately half the size of the USA
2. China was not on the competitive map in 1975, i.e. within the 10 largest countries in terms of total GDP. China appears in 1985 as the 9th largest country with a GDP of roughly 7% compared to the USA.
3. After 1990, Russia drops off the map of the 10 largest countries in terms of GDP and China begins to move towards the second place. By the year 2005, China is in 6th place with a GDP which is 17% of the size of the USA.
4. By 2010, China is in second place behind the USA, with a little over 33% of the USA's GDP.
5. By 2015 China's GDP is 66% of the USA’s.
These comparative figures illustrate that China was rapidly catching up with the USA in terms of the overall size of her economy. Although, that tells us nothing about key components of either the American or Chinese economy, like inequality or other issues like external debt, food self-sufficiency, and so on.
Explaining Chinese Economic Growth: The West’s Failure to Understand
How can we explain the Chinese performance? At this point, it is difficult to contradict the simple facts of growth above.
The first issue to handle is the conceptual framework. Development economics is a poor sister to macro-and micro-economics, the mainstay of the Western economics profession. Development economics is dominated by concepts like 'emergence', 'take-off' and 'modernisation': terms that relate to ideas from Western history. Yet economic history is an even weaker sister to development economics, and many students studying economics go through their studies never taking courses in either development or the history of their subject.
These severe limitations on Western understanding of the Chinese growth rate are problems of the economics profession. Development economics is the poor relation of the profession and economic history has been pushed to one side as hardly relevant. The consequence as far as China is concerned is that Western economists on the whole do not have the tools to understand what has happened in China. Chinese economists often start with a tool kit called ‘political economy’. European economics all came from political economy in the late 18th century and early 19th century but soon removed the politics, that is the account of power from their study. Political economy today is seen as the study that originates in Marx. Chinese students of the subject certainly start at this point. In many ways, it is this toolkit that has allowed Chinese economists to direct their world successfully through the difficulties they have encountered so far.
Sources
There is nothing special about the sources I have used for this blog. The details about China’s growth have been discussed endlessly by academics concerned with Chinese affairs. The basics are not now disputed, and here I have only used basic statistics in order to provide an outline. Even the growth of the Chinese economy during Mao’s time is not disputed anymore. Here are some sources:
Minqi Li, China and the 21st Century Crisis, Pluto Books, 2016.
International Monetary Fund, World Economic Outlook Growth, Short and Long Term factors, 2015.
The National Bureau of Statistics of China, 2020 and earlier years.
Sit Tsui and three others, The Tyranny of Monopoly Finance Capital: A Chinese Perspective, Monthly Review, February 2017.
Dilip Hiro, Donald Trump is Losing his Tech war with Xi Jinping, Tom Dispatch, 18th Aug 2020.
Godfrey Roberts, How Has China Sustained Economic Growth for so Long, Quora 17.12.2020.
Copyright Notice. This blog is published under the Creative Commons licence. If anyone wishes to use any of the writing for scholarly or educational purposes they may do so as long as they correctly attribute the author and the blog. If anyone wishes to use the material for commercial purpose of any kind, permission must be granted from the author.
The peoples of Western Europe had risen from one world of relative poverty and had learnt how to take the wealth from the Americas and transfer it to their own countries. This was slavery and latterly until 1920, indentureship. A whole set up of banks, shipping companies, and insurance companies had arisen to make these transfers possible. From the 1750s the European invaders turned their attention to Asia and systematically began the colonisation process anew. At the same time, as they attempted to colonise and extract the wealth of Asia, the colonising countries began the process we now recognise as industrialisation alongside the rapid growth of cities. The surplus resources extracted through colonisation were used to finance the growth of new industries.