July 26, 2013, by Tony Hong

China: A Country in Transition

By Catriona Deery,

Studying Geography at the University of Nottingham UK.

A country in transition is defined as a nation state that has undergone significant and profound political-economic change over a relatively short period of time. Countries in transition are often scripted as being ‘emerging markets’. They have social impacts including alternative modes of social organisation and massive levels of social polarisation; transition also implies a change of social attitudes and approaches.

China is a key example of a country that is going through transition. Most importantly the effects of change can be seen in the country’s economy. For instance China now has the 2nd highest GDP after the USA, overtaking Japan in 2010. China’s economy has been growing at an annual rate in excess of 9% since the late 1970s and now it stands to have the biggest current account balance globally, translating China into being a major geopolitical entity.  

China’s economy today is more than 90-times bigger than when Deng Xiaoping started economic reforms in 1978, demonstrating the extent of China’s transition. The reforms initiated in 1979 with the start of the ‘Open Policy’ rapidly increased trade and inward investment.  This growing open policy with western capitalism led to huge economic development which reached net breaking speed in the 1990s. A further reform saw the introduction of China’s Special Economic Zones (SEZs), seeing Foreign Direct Investment focused in agglomerations. Initially in 1979 there were four Special Economic Zones: Shenzhen, Zhuhai, Shantou and Xiamen. SEZs played an instrumental role in the integration of China to the global economy and in its economic development. Their setting aimed at attracting foreign investments and technology, provide employment, utilize Chinese and imported resources, and support capital formation. Furthermore in the 1980s Economic & Technological Development Zones were also implemented.

By far the most important aspect of the command economy in China was the State Owned Enterprises (SOEs). They accounted for 90 per cent of the output in 1980s in China, employing the majority of the urban workforce. In 1978 SOEs produced 77% of industrial output, with collectives producing 14%.  The SOEs have undergone transition themselves through three stages, from 1984 to the present. From 1984-1992, there was more autonomy and financial incentives granted to managers and they employed the majority of the urban work force. More than 90% of the lending for fixed investment from 1980 through 1995 by the Industrial and Commercial Bank of China, the largest bank in China, was to SOEs. Then from 1993-2002 there began privatization of the small and middle sized enterprises. Finally from 2002 to the present shareholding companies were introduced. As of 2011, 35% of business activity and 43% of profits in the People’s Republic of China resulted from companies in which the state owned a majority interest. However by just 2004 23% of SOEs were small scale privately owned. State owned enterprises compete both with household businesses and multinational corporations.

Although China is a country transition and now competes economically on a global stage, there are still incomplete transitions. For example there is worsening rural-urban inequality, and urbanisation in China is now 50% whereas it used to be 80% rural, causing rural-urban income disparity.


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