Doing Business in China

A Brief History of China's Emerging Market

Written by Bobby Jan for Gaebler Ventures

In this article, we take a brief look at China's economic transformation from 1978 to present.

If you are thinking about doing business in China or just wondering why everybody is talking about China, you should first understand the scope and meaning of China's emerging market.

Embracing Capitalism

Shortly after the death of Chairman Mao in 1976, China began its economic reform under the leadership of Deng Xiao Ping. Beginning in 1978, Chinese leaders began separating communist and socialist ideologies from economic policies. After suffering decades of catastrophic results under central planning, China began experimenting with free-market principles.

As China began embracing free market principals, the social status of capitalists and entrepreneurs began rising in society. Today, no longer the pariahs of society, entrepreneurs are often viewed as glorified heroes. "To get rich is glorious," declared Deng.

Instead of taking large, drastic changes, China established special economic zones where free market principals could be tested. With the success of China's special economic zones, free-market principals began spreading all over China. Today, due to the their early exposure to capitalism, many of these special economic zones such as Shengzhen, Zhuhai, and Shanghai are many times wealthier per capita than the rest of China.

China began shifting the power of deciding what and how much to produce from central planners to entrepreneurs and the free market. To attract foreign investments and know-how, China cut down bureaucratic red tape and market interventions while developing a legal and physical infrastructure to support free enterprise.

To spur foreign trade, China began developing industries where it has comparative advantages. One thing China had and still has in abundance is cheap labor, which is why so many labor intensive industries were developed in China. However, China is already on a path toward increasing knowledge intensive industries as a percentage of its GDP.

As China's economy began to boom, the Chinese government began shutting down or privatizing inefficient state-owned enterprises. Although a significant portion of China's production still comes from state-owned enterprises, the trend toward privatization is expected to Continue.

China's Economic Miracle

Here are some key figures that demonstrate why many consider China an economic miracle:

- Since China embraced free-market reforms in 1978, according to state and independently confirmed figures, China's real (inflation adjusted) growth is 9-10% annually.

- As a benchmark, the world's GDP growth during the same time is around 2-3%.

- China's per capital GDP increased from $190 in 1978 to $2,856 in 2010 according to the National Bureau of Statistics.

- Since 1978, hundreds of millions of people have been lifted out of poverty.

- According to state statistics, in 1981, 53% of the Chinese population lived below the poverty line. In 2005, the figure has been reduced to 2.5%.

- Infant and maternal mortality rate fell by 39.1% and 41% respectively from 1979 to 2009.

- China's literacy rate rose from 70% in 1979 to 93.3% in 2009.

Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.

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