China: the biggest dragon of all?

• Author: Selimuddin, Abu
• Position: Economic development

CHINA lost its lead to Europe as the world's most advanced civilization around 1500. Before then, China was the envy of everyone for its science, technology, and productivity. Between 1500 and 1978, as the West grew richer and more powerful, China was ravaged by revolutions, war, famine, tyranny, and anarchy.

Today, though, China is East and Southeast Asia's largest country in terms of natural resources, population, and land. A quartercentury ago, China saw no foreign investment and loans, and had one of the lowest ratios of foreign trade relative to the size of its population and economy. Things have changed radically. Southern China is attracting huge amounts of capital from the U.S., Japan, Taiwan, Hong Kong, and South Korea. As a result, southern China is the world's fastest growing economy and the developing world's largest trading province.

China has built better economic ties with Japan, Taiwan, Hong Kong, and Sough Korea despite its difficult political relationships with them. For example, China does not recognize Taiwan's government, which continues shopping for arms to assert its independence from the mainland. China also worries about Japanese growing nationalism, militarism, and ambition regarding Taiwan.

Southern China's explosive economic boom began in 1978. Between then and 1991, it averaged nine percent growth in Gross Domestic Product (GDP), nearly double the rate of the Japanese economy and three times that of America. In 1992, when the three leading economies--U.S., Japan, and Germany--were mired in the global slump, China grew at a 12% rate. The mainland's foreign trade reached $165,000,000,000, an 18% gain in exports from the previous year.

Based on its spectacular economic performance, many veteran China-watchers predict that, by 2002, the Chinese economy will be eight times bigger than it was in 1978. At that point, China will have matched the performances of Japan, Taiwan, and South Korea during their fastest quarter-centuries of economic progress. As The Economist magazine points out, "If China's economy grows as fast for the next 20 years as it has for the past 14, it will be the biggest economy on earth."

It makes many wonder how an underdeveloped China could push its economic progress so spectacularly after more than a decade of anarchy in the Cultural Revolution. There is no question that Premier Deng Xiaoping's bold free-market reforms in major sectors of the economy--such as farming, manufacturing, trading, and foreign investment--have been critically important to China's dramatic progress.

In farming, for instance, failed communes are being abolished and replaced by family farms as the unit of production. In addition to a dramatic leap of real income in the countryside, this reform increased production of grain, fruits, and poultry enormously.

In manufacturing, the once dominating state-owned firms have shrunk quickly. In 1978, the state-owned firms accounted for nearly 80% of China's industrial output. By 2000, that share is expected to drop to...