The Chinese economy experienced astonishing growth in the last few decades that catapulted

the country to become the world's second largest economy. In 1978—when China started the
program of economic reforms—the country ranked ninth in nominal gross domestic product
(GDP) with USD 214 billion; 35 years later it jumped up to second place with a nominal GDP of
USD 9.2 trillion.

Since the introduction of the economic reforms in 1978, China has become the world’s
manufacturing hub, where the secondary sector (comprising industry and construction)
represented the largest share of GDP. However, in recent years, China’s modernization
propelled the tertiary sector, and in 2013, it became the largest category of GDP with a share of
46.1%, while the secondary sector still accounted for a sizeable 45.0% of the country’s total
output. Meanwhile, the primary sector’s weight in GDP has shrunk dramatically since the country
opened to the world.

Today the Chinese economy is the second largest in the world and although it experienced
massive growth in that 35-year span, authorities have taken a new approach to the economy
called the “new normal.” To avoid overheating the economy, authorities are conducting a
managed slowdown, which has seen growth gradually slow year after year since 2010. The
economy is projected to grow 6.4% in 2018, which is nothing to sniff at, but is a far cry from the
over 10% annual growth seen not too long ago.

The International Monetary Fund (IMF), the most prestigious

international financial institution in the world, has rated
China’s ranking to number one economic superpower in the
world — surpassing those of the United States based upon
the purchasing power parity of GDP indicator (gross
domestic product). IMF has asserted that China produced
17% of the world gross domestic product (GDP) in 2014
exceeding U.SA’s GDP of world’s 16% (1). China’s economic
growth performance over the last 30 years has impressed
development economists who took the position that China
will remain in the low/middle income group of nations
permanently due to its very large population —
approximately 1.2+ billion in 2015. Moreover, China’s
performance has inspired other low and middle income
countries to emulate China’s approach and engage in
growthmanship including many middle income countries of
Latin America such as Brazil, Argentina, Columbia and India
which also has a large population like China.

It is most likely that China will maintain its lead in economic

ranking of GDP in the foreseeable future largely due to
catch-up of its per capita income which is rising annually at
8%-10%. (2) Although China’s GDP has converged and
surpassed Untired States GDP, its per capita GDP is still
below the U.S. and first world. However, China’s rapid GDP
growth coupled with low fertility rate (number of children
per women) will boost China’s per capita income to high
marginal annual growth paving the way for its convergence,
in less than two decades, to the level of high income
countries as estimated by USC researchers (3). It follows
that the GDP gap between China and other countries will
further widen in the future. Moreover, the U.S. carries a
heavy military burden which does not feedback to economic
growth while China has avoided heavy military burden.
Instead in 2014, China inaugurated a major international
economic development program by financing infrastructure
projects in the historical silk route countries. It is engaged
in financing economic infrastructure projects in the silk
route countries with positive ROI for China and the recipient
countries. (4)

The genesis of China’s remarkable upswing in a relatively

short span of time goes back more than five decades to
1948 when China emerged an independent state after World
War II upon the defeat of Japan by the United States.
China’s leadership was bifurcated between Chairman Mao
Zedong’s communist party and Chiang Kai-shek’s
Kuomintang regime raising concern of a pending civil war.
(5)

To China’s good fortune, the two leaders’ views coalesced

and a coalition government was formed. The absence of a
civil war and the peaceful political transition of leadership
largely explains the remarkable ascent of China’s political
and economic fortunes.

China’s political system is not monolithic, or colossal, it has

worked under a seven-member Politburo Standing
Committee of party congress. Political leadership is elected
every five years.
The second major influence that explains China’s good
fortune is its decision to open up to the free world and get
out of the Soviet sphere of influence. It was prompted in the
1960s when President Richard M. Nixon sought
reproachment with China and sent his Secretary of State
Henry Kissinger to China who arranged a personal visit by
President Nixon with China’s leadership. The approach
turned out to be very successful. It got China out of the
sphere of Soviet Union’s influence, paved the way for China
to open up to the Western world, and the rest of the world,
and eventually modify its system of political economy to a
very unique system of private enterprise market economy
and a one-party political system. This unique approach has
turned out to be successful both politically and
economically for China, and it has benefitted the rest of the
world in trade, commerce and international peace. In 2014,
President Barrack Obama initiated the exchange of 100,000
American students to study in China further cementing
cultural and education relations between the two countries.

Following is a synopsis of China’s economic, political and

social framework that augur well for its continued
development and leadership, and provide a blueprint for
other nations to emulate.

A. LEADERSHIP
The transition of leadership in China has been remarkably
peaceful and smooth. As can be seen Deng Xiao Ping
adopted market economy in December 1978. Deng Xiaoping
(1978-1987) was instrumental and responsible for
modernization and reform. Premier Zhu RongJi (1988-2003)
paved the way for China’s entry into World Trade
Organization (WTO). President Jiang Zemin (1993-2003),
theory of promoting business and entrepreneurial class into
the country’s one-party system, helped China’s economic
expansion. Current president Xi Jinping launched the
economic development of the silk route countries, clamped
down on corruption by rooting out high party members and
military brass, has launched a rural development program to
close distributional and development gaps, and promote
social equity.

The economic innovation in China started in the early

eighties beginning with Deng Xiaoping through Hujintao
implementing innovative economic policies which lifted
China’s sluggish economy by introducing private ownership,
market economy, and less governmental control
contributing to robust economic performance. A succession
of leadership in China including president Hu Jinping and
follow-up by the current president Xi Jinping’s flexible and
innovative economic policy took advantage of globalization
and export orientation, attracting foreign investment, and
maintaining a sound monetary and fiscal policy. China
became a member of the World Trade Organization (WTO)
and hosted a very successful International Olympic Games.

B. INTERNATIONAL TRADE ORIENTATION.

Beginning in early 1980s, China shifted its economic
strategy from self-sufficiency to export orientation. The shift
was pivotal to the growth rate of China’s GNP. Concurrently,
China is building its domestic consumer sector so that in the
future it will have a strong and well-developed domestic
market. The multi-billion dollar natural gas contract with
Russia in May of 2014 will be a major plus for China’s energy
demand. China’s drive for the development of non-fossil fuel
under its twelfth five-year plan could make it a world leader
in energy exports and offer unmatchable prices on
alternative energy in the world market contributing to
convergence of per capita income of the silk rout countries.

C. GROWTH RATE PERFORMANCE.

The process of China’s remaining catch-up time of per capita
income to that of the first world is estimated to take place
in approximately two decades. It follows that China’s catch-
up time with the first world would take place in five
decades, starting in 1980 while it took the first world nearly
50 decades to reach its current level of per capita income.
Part of the explanation is the diminishing return to capital in
the first world since it is saturated with capital and return to
capital has dropped. And the law of accumulation of capital
due to growth rates differential between the first world’s
average of 2% annual growth and those of China with an
annual growth range of 7%-10%. The United States achieved
a 2.0 percent average annual growth rate of real GDP per
capita between 1891 and 2007. (x) And its growth rate for
the next couple decades may be somewhat lower than 2%.
This means that there may exist 4%-6% percentage point
differential in growth rates that has contributed to the rising
trend of annual growth rate of China. This phenomena will
continue until China’s per capita income reaches within 70%
level of the first world. Then its annual growth rate will
conform to the first world’s annual growth rate of
approximately 2% per year.

D. MACROECONOMIC MANAGEMENT.
China’s sound macroeconomic management was
demonstrated during the Great Recession (2007-2009) when
its export dropped 15% - 18% causing 23 million to become
unemployed, but 98% found jobs as the economy readily
bounced back and the unemployment rate dropped to 4%.
This performance is in sharp contrast to a number of
countries where the recession is still lingering in 2014. It is
most notable that China escaped three global financial
meltdowns since 1990, including the Japanese severe credit
implosion, the Asian economies foreign reserve meltdown
caused by capital flight due to rigidity of fixed exchange
rate. The Great Recession (2007-2009) which engulfed the
world economy was contagious, and China was subject to
the turbulence and transmittable global meltdown — but
ironically China escaped. China’s experience has drawn re-
examination of the Western neoclassical paradigm
concerning macroeconomic stability, and efficacy, of
countercyclical measures via mini manipulation of the
supply of money by the Federal Reserve Board. A better
alternative for all nation states is to establish social
indicator targets.
E. RENEWABLE ENEGY
China’s 12th five-year plan has placed specific emphasis
upon the targeted development of renewable energy to
satisfy 15% of China’s energy needs by the year 2025. This
policy will contribute to clean air in China and prevent
environmental degradation as the use of fossil fuel is
substituted by renewable energy.

F. China is already the world’s biggest merchant marine

operator according to U.N. data. Container port data
compiled by the United Nations shows. Customs
administration figures show around 40,000 ships entered
and left Chinese ports in the first half of 2014.

G. POPULATION POLICY.
China’s one-child policy and its recent modification has been
optimal given the absolute number and the possibility of
population trap. Successful control of fertility rate (number
of children per women) is the hallmark of optimal population
and determinant of China’s long-term growth potential and
carrying capacity. China’s prosperity is closely connected to
its population policy although the age distribution of the
population may pose some problems concerning productivity
in the future. Its population is expected to peak to 1.5 billion
by 2040 reaching zero growth rate and avoiding the
population trap dilemma. No doubt, it is known that
population policy in Europe in the 14th century led to the
Industrial Revolution in the 18th century. Technology of
industrialization from 18th century to the present created
the high level of per capita income in the first world. Clearly,
demographic policy affects economic development in all
low- and middle-income countries.

H. POVERTY REDUCTION.
Since 1978, China has uplifted millions of peasants out of
poverty and it has been the most successful country in the
world in poverty reduction. China will deserve very high
marks for its social indictor and distributional objectives.
Other favorable political economy policies that have made
poverty reduction feasible include annexation of Hong Kong.
Three-fifths of China’s foreign direct investment are financed
through Hong Kong, and billions of dollars of China’s assets
are in Hong Kong’s financial institutions. Development of
Growth Zones — such as Shanghai to attract foreign
investment — and investment in human capital including all
levels of education through college are among the hallmarks
of growth policies in China. The above factors have given a
major impetus of high growth to China since 1980, ranging in
an annual growth rate of 7 to 10%. This is an unprecedented
growth rate in the experience of world economy with the
exception of Germany in the ‘20s, largely due to military
buildup.

I. ANTI-CORRUPTION CAMPAIGN
Unfortunately corruption is a universal problem and once it
takes roots it becomes institutionalized and penetrates the
culture. Thus it becomes difficult to undo corruption. It is
keenly prevalent in low- and middle-income countries. China
is no exception in this regard, however, a concerted effort
has been launched to bring corruption under control
beginning with the effort of former president Hu Jinping and
follow-up by the current president Xi Jinping. Beginning in
2012, reportedly imposing punishment occurred upon
182,000 government officials at all ranks through 2014.
Several high level party members have been removed; legal
cases of anti-corruption of high officials in China have been
reported in the Western press with due process. Perhaps
China will succeed to clean up corruption completely. The
anti-corruption drive in China is serious and admirable. It is
certainly instructive for other countries to adopt a policy of
transparency and uproot such criminal activities.

J. UNIQUE FEATURES OF CHINA’S SOCIETY AND POLITY

Altruism, social cognition, equity, equality, egalitarian
motives, public service and economic growth are the
hallmark of China’s leadership pronouncements. The duel
system of one political party and free competitive market
economy characterize China’s unique socio-economic-
political system. The political system is not monolithic, or
colossal, it has worked under a seven-member Politburo
Standing Committee of party congress. Political leadership
is elected every five years. Last year 10,000 small protests
were tolerated. Currently over half of China’s GDP is
produced by private enterprises. China’s government has not
been shut down due to internal political dissent of multi-
party feuds. More than 250 million people have been lifted
out of poverty, this is approximately 20% of the total
population.

In June of 2014, China’s 2,400-year-old Grand Canal, which

historically linked sections of the Silk Road, was awarded
Enesco heritage status, as were large portions of the
ancient overland Silk Road. The 11,179 kilometer Yunxinou
International Railway linking Chongqing and Xinjiang with
Europe and, commonly referred to as the “New Silk Road”,
runs alongside many of these ancient caravan tracts.

The foregoing are indicative that China is embarking in a

distinctly alternative approach of inter-governmental
collaboration and connectivity to promote economic catch-
up of low and middle income countries that are located in
the path of silk road.

NAKE M. KAMRANY IS PROFESSOR OF ECONOMICS AT THE

UNIVERSITY OF SOUTHERN CLIFORNIA, FRANK JIANG IS
PRESIDENT OF A STUDENT RESEARCH ORGANIZATION -
THE USC GLOBAL INCOME CONVERGENCE GROUP AND A
SENIOR IN ECONOMICS AT THE UNIVERSITY OF SOUTHERN
CLAIFORNIA.