China's economy

Leon, your room is a mess! You should tidy up. Your ball, your backpack, your cellphone… Hey Leon, do you know what these things have in common? Look closely at the labels. Made ...in ...China!

You probably own lots of things made in China. China makes and sends more goods to be sold abroad than any other country in the world. But it wasn’t always this way. Let’s go back to 1949. A new government has imposed new laws: the Chinese government owns all the land, factories, and machinery in China.

People can’t own property themselves. Instead, they have to own it together - collectively. The government is inspired by ideas of socialism. Their goal is to organize society so that everyone is equal. To do this, they feel they need to have control over the population.

In China, the government plans and decides everything related to the economy. It becomes a strict planning economy. In the planning economy, people are forbidden to produce more than the government allows, or sell at a higher price than the government decides. The government wants China to be independent and decreases the amount of international trade. Cut off from the rest of the world, the economy grows slowly.

But in 1976, the leader Mao Zedong dies. The new leader, Deng Xiaoping, wants to run the economy differently, opening it up to the world. After all, people in other countries have different knowledge and technology that they could share. They also have money to invest in new businesses. It would be good to have these people investing in China!

To help this happen, in the 1980s the government sets up four special areas along the coast. These are the first of many economic free zones. In these zones, foreign companies do not have to pay many taxes or fees. Meanwhile, in the rest of the world, manufacturing costs are rising. Many foreign companies are looking for new places to manufacture their goods cheaply.

Here, factory owners can push the workers harder, and have them accept a more dangerous workplace. China’s economic free zones are a very attractive option. And China has the largest workforce in the world, with hundreds of millions of people ready to work. The timing is perfect for China to learn the newest methods of manufacturing and become an economic superpower. It’s not only foreign businesses who start doing well in China.

Local people are also allowed to start their own private companies. Farmers can also have their own land, and are motivated to start producing lots of food to make a profit. Those who work hard and become wealthy, are praised by the government. With this encouragement, the economy begins to grow much faster than it did in the past. Wait… what about being equal?

If some people are getting rich, is China still socialist? Under Deng Xiaoping, China’s socialist policy shifts: rather than equality, economic growth becomes the priority. So the economy goes through lots of big changes. First, the government reduces its control of the economy to increase competition. Next, the government encourages investments and knowledge transfer from foreign firms, all while giving state support to national firms.

But, even as the economy becomes more “free”, the government’s tight control of the population — what they do and how they express their opinions — does not change. So China's economy becomes a compromise: one between socialist planning, and a free-market system. One could perhaps label it a socialist market economy. You won’t find an economy like this anywhere else in the world. It’s an economic system that’s uniquely “Made in China.”