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History of the Chinese economy


Chinese industry
Chinese industry

For more than 2,000 years the Chinese economy operated under a type of feudal system; land was concentrated in the hands of a relatively small group of landowners whose livelihood depended on rents from their peasant tenants. Further adding to the peasant farmers’ burden were agricultural taxes levied by the imperial government and crop yields subject to drought and floods. Early industry and commerce were dominated by government monopolies and other forms of state control. By the 11th century ad under the Song dynasty, China had developed a sophisticated commercial economy, with paper money and emerging forms of banking. However, under the Ming dynasty innovation lapsed. Under the Qing dynasty, China enjoyed another age of great prosperity and expanding population, but this was followed by economic stagnation and internal strife.

The conclusion of the Opium Wars in 1860 formally initiated a period of Western penetration of China from the coastal treaty ports. Railways were constructed, and some Western-style industrial development was begun. Such activity had little impact, however, on the overall Chinese economy. In effect, China was carved up into a number of competing colonial spheres of influence. Japan, which tried to attach China to its East Asia Co-Prosperity Sphere in the 1930s and 1940s, was able to create only isolated nodes of a modern industrialized economy.

The Chinese Communist Party emerged in the 1920s in the midst of a mounting economic crisis caused by foreign intervention and increased landlord influence in the countryside. For more than two decades, it expanded its control over large rural areas by introducing an agrarian programme based on the control of rent and usury, and by giving power to peasant associations.

On October 1, 1949, the Communist Party successfully established a unified national government and economy on the mainland for the first time since the end of the imperial period in 1912. From 1949 to 1952 the emphasis was on halting inflation and ending food shortages and unemployment. The new government initiated a land reform programme that redistributed land to 300 million poor peasants.

Chinese farm
Chinese farm

Under the first five-year plan (1953-1957), 92 per cent of the agricultural population was organized into cooperative farms. In 1958 the rural people’s communes were established, and these dominated agriculture in China until the early 1980s. The commune was based on the collective ownership of all land and major tools by its members, who produced mainly to meet state planning targets and who were rewarded according to the work they performed, although basic necessities were guaranteed to all members. In the urban-industrial sector, state ownership of property and of industrial and commercial enterprises was gradually extended. Industry grew steadily from heavy investment under the first five-year plan, and the state-owned sector achieved an overwhelming importance. The second five-year plan was introduced in 1958, and in the summer of that year the regime embarked on its much-publicized Great Leap Forward. This programme was characterized by large investments in heavy industry and the establishment of small-scale versions of such industries as steel refining.

The programme, however, caused great disruptions in economic management and in rational economic growth, to say nothing of mass starvation leading to an estimated 20 million deaths, and in 1960 the Great Leap Forward had to be abandoned. The Chinese economy then entered a period of readjustment, but by 1965 production in many fields again approached the level of the late 1950s. The third five-year plan began in 1966, but both agricultural and industrial production were severely curtailed by the effects of the Cultural Revolution; a fourth five-year plan was introduced in 1971 as the economy began its recovery.

After eliminating the vestiges of the Cultural Revolution in 1976, China’s leaders decided to move at a faster pace on all economic fronts to make up for the loss suffered in the preceding ten years.

A fifth five-year programme was begun in 1976 but was interrupted in 1978, when the Four Modernizations programme was launched. It called for the “all-round modernization of agriculture, industry, national defence, and science and technology by the end of the century so that the economy can take its place in the front ranks of the world”. A ten-year plan for 1976 to 1985 stressed improvement in economic management and a larger role for private and collectively owned (as opposed to state-owned) enterprises. This programme was superseded by a more modest ten-year plan for 1981 to 1990, but efforts to attract Western technology and investment continued, as did a programme of incentives to increase agricultural production. Policies introduced in October 1984 called for further decentralization of economic planning and for increased reliance on market forces to determine the prices of consumer goods. The five-year plan for 1986 to 1990 anticipated an annual economic growth rate of 7 per cent, but the economy slowed after the political crackdown in 1989. The slowdown, however, was temporary, and the Chinese economy expanded rapidly during the early 1990s as the government continued to ease controls; in 1992 the economy grew by about 13 per cent and in 1994 by 12 per cent. Foreign investment capital became a major factor in growth, with US$30 million of investment in 1994. This rapid growth has caused some problems, such as high inflation rates in urban areas and increasing economic inequalities between regions and social groups.

The gross national product (GNP) of China in 2004 was some US$1,938 billion (World Bank figure), or about US$2,000 per capita, though these figures are regarded as more unreliable than for most developed countries. Agricultural output (which also includes some small-scale industries in rural areas, forestry, and fishing) accounts for about 11.7 per cent of national income, and industrial output (which includes manufacturing, mining, electricity generation, and building and construction) accounts for 48.4 per cent. Between 1965 and 1979 the gross domestic product grew at a rate of 6.4 per cent a year, and between 1980 and 1988 the increase was 10.3 per cent annually. The growth rate dipped below 4 per cent in 1989, but returned to well above 10 per cent annually in the early and mid-1990s. "China" © Emmanuel BUCHOT, Encarta, Wikipedia

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