How did China Transform into a Big Economy?

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How China, the world’s second largest economy, achieved this economic success has always been a matter of curiosity. While there are many countries in the world that have similar scales to China or have better conditions than China, such as population, living standards and administration; the high growth rate that the Beijing administration has achieved in the economy in a short time and that it maintains this growth rate consistently is a goal that many countries want to achieve. Undoubtedly, there are important parameters behind this economic success.

First of all, it is useful to indicate that the turning point in the country’s economy was 1978 and to take a look at why this year is important. When Mao Zedong came to power in 1949, five-year development plans were implemented for China’s economic development and industrialization. However, among these development plans, the plan, which covers the years between 1958 and 1962 and is known as the Great Leap Forward, caused a backward decline rather than a forward leap in China, leading to instability in the economy and the defeat of the people.

In the same period, China, which broke down with the Union of Soviet Socialist Republics (USSR) and lost the country with which it was in economic cooperation, started to seek new ways to improve its economy. With Deng Xiaoping coming to power in 1978, Beijing found the solution it was looking for as open-door policy in the economy. According to Xiaoping, the distinction between a socialist or liberal economy is irrelevant if it is to help the economy recover. As Xiaoping said that it doesn’t matter whether a cat is black or white, as long as it catches mice.[1]

The Beijing government implemented reform in 1978 that allowed farmers to sell their produce in local markets. Subsequently, the Law on Chinese Foreign Equity Joint Ventures was passed, allowing foreign capital to enter China to help boost the economy.[2] Since 1978, China’s gross domestic product has grown at an average of over 9% per year, and more than 800 million people have been lifted out of poverty.[3] In 2001, China’s membership in the World Trade Organization played a decisive role in establishing the trust in China in the international arena.

Although China has implemented the policy of opening-up, it has not fully integrated its economy into free market conditions. Beijing has remained the owner of strategically important companies. For example, the country’s three major energy companies, PetroChina, Sinopec, and China National Offshore Oil Corporation, are controlled by the government. In addition, the government directs its own companies to high priority projects. Therefore, it is possible to say that China follows a mixed economy model, in other words, a socialist market economy, by combining both market and command economy elements.[4]

Another factor of China’s economic growth is the workforce. Wondering why the country is so successful in the economy, a research team from the International Monetary Fund examined the sources of growth and came up with a surprising result. It has been seen that the driving force behind China’s economic leap is worker productivity. Between 1979 and 1994 productivity gains accounted for more than 42 percent of China’s growth and after 1990 has overtaken capital as the most significant source of that growth.[5] The reason for this is that the economic reforms that took place were effective and led to high efficiency in the economy, and this efficiency triggered the increase in production.[6]

Large-scale capital investment is another factor that plays a role in China’s economic growth. Much of China’s growth can be attributed to capital investment making the country more productive. The Beijing administration has taken various steps to get more efficiency from its economy by purchasing new machines, developing better technologies, and investing in its infrastructure thanks to foreign direct investment. In this way, it transformed its economy and brought it to an integrated level with the international market.[7]

One of the factors underlying China’s economic success is price control. The People’s Bank of China, the country’s central bank, tightly controls the dollar value of the yuan. Thus, China’s export prices are tried to be kept cheaper than those produced in the United States of America (USA). China can do this. Because, compared to the developed world, China’s living standards are at a lower level.[8] The Beijing administration, which sells its products cheaply, is able to establish commercial relations with many countries, and most actors are more willing to buy these products that they can cost more affordable. Today, products of Chinese origin have a very important share in the trade sector.

Keeping both domestic and foreign investors in the country is an important factor for the stability of economic growth. Elements such as more advantageous taxation and more flexible procedures in China, state-supported financial incentives and at the same time less political fluctuations allow investors to carry out long-term business. In addition, the fact that production in China is cheaper compared to many countries is one of the factors that keeps the investor in the country. Providing production at low costs is conducive to an increase in the gross profit of the companies.[9] Thus, companies from all over the world find it appropriate to establish their factories in this country.

As a result of all this, the following conclusion is reached regarding the economic growth of China: The reason behind the growth of the country in question and its place in the world economy are based on foreign trade. The country gave up the closed economy model aiming at self-sufficiency in 1978 and after and reached unprecedented numbers in foreign trade with the applied market reform.[10] It has reached its target of stable growth by directing the capital from foreign trade to the right areas and ensuring the efficiency of the workforce.

[1] “Black Cat, White Cat”, China Daily, (Date of Accession: 22.01.2023).

[2] “A Brief History of China’s Economic Growth”, World Economic Forum,, (Date of Accession: 22.01.2023).

[3] “The World Bank in China”, World Bank,, (Date of Accession: 22.01.2023).

[4] “China’s Economic Growth, Its Causes, Pros, Cons, and Future”, The Balance Economy,, (Date of Accession: 22.01.2023).

[5] “Why Is China Growing So Fast?”, International Monetary Fund,, (Date of Accession: 22.01.2023).

[6] “China’s Economic Rise: History, Trends, Challenges, and Implications for the United States”, Every CRS Report,,Causes%20of%20China’s%20Economic%20Growth,investment)%20and%20rapid%20productivity%20growth, Date of Accession: 22.01.2023).

[7] ““Why Is China…”, op. cit.

[8] “China’s Economic Growth…”, op. cit.

[9] The Pros and Cons of Manufacturing in China”, Red Points,,the%20lower%20cost%20of%20production, (Date of Accession: 22.01.2023).

[10] Mehmet Ozan Saray-Levent Gökdemir, “Çin Ekonomisinin Büyüme Aşamaları (1978-2005)”, Journal of Yasar University, 2(7), 2007, p. 680.

Neslihan TOPCU
Neslihan Topcu, 2017 yılında Adnan Menderes Üniversitesi Siyaset Bilimi ve Kamu Yönetimi bölümünden mezun olmuş ve ardından aynı üniversitenin Uluslararası İlişkiler Anabilim Dalı’nda yüksek lisans eğitimine başlamıştır. Yüksek lisans derecesini elde ettiği “Çin’in Enerji Güvenliği Politikaları” başlıklı tezi, 2020 yılında kitap olarak da yayınlanmıştır. 2016 senesinde Litvanya’daki Kazimieras Simonavičius Üniversitesi’nde ve 2019 yılında da Portekiz’deki Minho Üniversitesi’nde eğitim alan Topçu, halihazırda Selçuk Üniversitesi Uluslararası İlişkiler Anabilim Dalı’nda doktora eğitimine devam etmektedir. Asya Pasifik, enerji güvenliği ve devletlerin uzay politikalarıyla ilgili çalışmaları çeşitli dergilerde ve kitaplarda yayınlanmış olan Topçu, iyi derecede İngilizce ve orta seviyede İspanyolca bilmektedir.