China Economic History

Ancient history

Chinais one of the oldest civilisations in the world and has been the largest and most advanced economy for much of recorded history.  China’s ancient history is divided into three eras: Pre-Imperial era (ca. 10,000 – 221BC), Early Imperial era (221BC – 960AD) and Late Imperial era (960 – 1911AD). 

Three Golden Ages in ancient Chinese history:

• Han (206BC-190AD)
• Tang/Song (618-1279AD)
• Ming (1368-1662AD)

During the Pre-Imperial era, the tribes living around the Yellow River area, were practising agriculture.  The earliest silk remains date to the early third millennium BC.  By the third millennium BC, stratified bronze-age societies had emerged.  A merchant class dominated during the Warring States Period, resulting in increased trade.  The emperors established an intricate bureaucracy, using it to wage imperial wars, build large temples and perform public works projects.  The new system rewarded talent over birthright; important positions were no longer occupied solely by nobility.  An agricultural revolution, caused by the adoption of new iron tools, led to a large population increase during this period. 

The Early Imperial erawas marked by strong governments and emperors with almost limitless power.  The states were centralised, although local officials still maintained limited autonomy.  During this period, self-sufficient peasant farmers and artisans ruled the economy.  Commerce was relatively frequent, increasing after the Han Dynasty with the development of the Silk Road.  By 221BC, the state of Qin unified China, by embracing reform more than any other state.  Its Emperor Qin Shihuang was the first emperor in China.  He built the Great Wall and set consistent standards of government.  The Han Dynasty is remembered as the first of China’s Golden Ages.  With a population of 58 million, it was one of the most powerful and populous nations on earth, exceeding the Roman Empire.  During this period, large-scale enterprises emerged, and technological innovations such as the wheelbarrow, paper and the seismograph were invented.  The Silk Road was opened up, allowing trade between China and its western regions to flourish.  Confucius’s philosophy, and Taoism and its values gained prominence in China during the Han Dynasty.  However, the economy was crippled by an uprising and did not recover until the Tang Dynasty.  The Tang Dynasty was a further golden age.  A series of strong rulers, including a woman, ruled China efficiently and expanded the Tang Empire to the point that it rivalled the later Yuan, Ming and Qing dynasties.  The state’s withdrawal encouraged economic growth and helped China’s economy to develop into the mercantilism of the Song and Ming Dynasties in the next era.

The Late Imperial erabegan with the Song Dynasty.  It brought an economic revolution to China.  Encouraged by technological advancement, China saw the beginnings of large-scale enterprise, waged labour and the introduction of paper money.  Overseas trade flourished under the Ming Dynasty.  Investment, capital and commerce were liberalised as technology advanced and the central state weakened.  Government manufacturing industries were privatised.  The emergence of rural and urban markets, where production was geared towards consumption, was a key development in this era.  The economic growth was interrupted by the Mongol Yuan Dynasty (1279 – 1368AD) when the Mongol rule was highly unpopular.  Frequent famines and droughts led to unrest among the Chinese.  However, the Ming Dynasty was ultimately founded, and this is considered to be the third Golden Age in China.   The Ming and Song Dynasties are sometimes regarded as being the “roots of Capitalism”, having the potential to develop into a capitalist society.  Ming China had a population of almost 200 million and an economy that produced nearly a third of the world’s GDP.  However, China’s growing wealth in this era led to the loss of martial power.  By the end of the isolationist Manchu Qing Dynasty, China’s development slowed, falling behind that of the West, and its economy accounted for only 9% of the world GDP. 

Ancient history Outline

• Pre-Imperial Era (ca. 10,000 – 221BC)
• 221 – 207 BC:         1st Emperor Qin Shihuang 
• 206 BC – AD 220:   Han Dynasty
• 581 – 618:               Sui Dynasty
• 618 – 907:              Tang Dynasty 
• 960 – 1279:            Song Dynasty       
• 1206 – 1368:          Yuan Dynasty                  
• 1368 – 1644:          Ming Dynasty
• 1644 – 1911:          Qing Dynasty
• 1911 – 1949:          Transitional Period

 Modern history

In this modern era, China’s influence in the world economy was minimal until the major reforms to the economy took place in the late 1980s.

Since the fall of the Qing Dynasty in 1911, China underwent a period of instability and disrupted economic activity.  Under the Nanjing decade/Republic of China (1927-1937), China propelled several industries, in particular those relating to the military, in an effort to catch up with the West and prepare for war with Japan. The Second Sino-Japanese War (1937-1945) and the following Chinese civil war caused the collapse of the Republic of China and the formation of thePeople's Republic of China.

China’s modern history is divided into pre reform and post reform.

Chinawas established by the communist party in 1949.  It followed a socialist development strategy focused on heavy industry.  Consumption was reduced while rapid industrialisation was given high priority.  The government took control of a large part of the economy and redirected resources into building new factories.  Entire new industries were created.   However, small to large private sector businesses were suppressed and capitalists were severely fined or punished.  Meanwhile, agriculture was forced to depend on its own minimal capital resources for a significant portion of its funding.  By following the Soviet model, the goal was to set up technologically sophisticated, large-scale, capital-intensive plants.  Many new factories were built with the Soviet’s technical and financial assistance.  With the policy of the Great Leap Forward, people’s communes replaced private plots, the construction of large factories continued apace, and a massive auxiliary network of simple, small-scale industries and plants was built and managed locally.  The Sino-Soviet split in the late 50s caused the cancellation of Soviet assistance, which had provided the blueprints and technical know-how.  Consequently, by the late 1960s, the country was in the throes of an economic and humanitarian disaster.  With Liu Shaoqi’s new policy of restoring private plots, reducing the size of the communes and giving greater independence to private  producers, there was a mass transition of the unemployed from industry to the countryside, and industrial investment was temporarily slashed in order to free resources for farm production.  This policy led to an immediate improvement in the agricultural situation, and industrial production and construction also gathered some momentum.  In 1966, to gain political power, the 10 year Cultural Revolution was initiated by Mao Zedong.   Industrial production was badly affected by the ensuing confusion and strife, when hundreds of millions of people simply stopped working, while notable politicians, factory owners, and even teachers were victims of the massive “uprisings”.   While overall output continued to grow, capital output ratios declined.  In agriculture, per capital output in 1977 was no higher than in 1957. 

Since 1979, China has embarked on a new era of unprecedented development by applying major reforms to its economy.  The Chinese leadership adopted a pragmatic approach to many political and socio-economic problems, and sharply reduced the role of ideology in economic policy to build a “Socialism with Chinese characteristics”.  Political and social stability, economic productivity, and public and consumer welfare were considered paramount and indivisible.  The government also focused on foreign trade as a major vehicle for economic growth.  Reforms began in the agricultural, industrial, fiscal, financial, banking, price setting and labour systems. 

Modern history outline: 

• 1949:

October: The Establishment of the People’s Republic of China.

• 1956 - 1957:

The Hundred Flowers Campaign.  Greater intellectual freedom was encouraged, although the resulting criticism proved to be unacceptable to the government, hence many participants were put in jail or entitled with the derogatory term – ‘Rightest’.

• 1958:

The Great Leap Forward Campaign was an ambitious economic programme, aimed at utilising the vast population to transform China rapidly from an agrarian economy into a modern industrialised communist society.

• 1959 – 1961:

Three years of natural disasters ensued.  Poor economic policies combined with abnormal rainfall patterns caused widespread famine, resulting in many millions of deaths.

• 1966 – 1976:

The Cultural Revolution.  An almighty struggle for power within the Communist Party of China was fought out, enveloping large sections of Chinese society and eventually bringing the entire country to its knees. 

• 1978:

Both the Reform and the Open Door policy were adopted in China, ending years of China’s history of self seclusion.

• 1989:

Tiananmen Square in Beijing was the venue for thousands of demonstrators gathering together to voice complaints ranging from minor criticisms of Chinese rule through to calls for a fully-fledged democracy and the establishment of broader freedoms.

• 1992:

A key year for the Chinese economy: Deng Xiaoping’s well-known “After Southern Tour Speech” called for bold, across-the-board economic reform in order to let market forces play a greater role in a “socialist economy with Chinese characteristics”.

• 1997:

Hong Kong was returned back to China from British rule.

• 1999:

Macau was returned back to China from Portuguese rule.

• 2001:

November: China was admitted to the World Trade Organisation.  Its entry ended a 15 year debate over whether China was entitled to full trading rights with capitalist countries.

• 2002:

Vice President Hu Jintao became General Secretary of the Communist Party at the 16th Party Congress, succeeding President Jiang Zemin.  Hu Jintao also assumed the Presidency in March 2003.

• 2003:

March: Severe Acute Respiratory Syndrome (SARS) hit China to devastating effect within the gaze of the world’s media.

• 2005:

12th October: the second manned spacecraft Shenzhou VI (“Magic Vessel VI”) carried two astronauts into space for a five-day mission in preparation for a manned space probe to the moon.

21st July: The People’s Bank of China announced that its currency will no longer be pegged to the US dollar and its exchange rate will float with reference to a basket of currencies.

• 2007:

August: Mattel recalled millions of products due to potentially hazardous levels of lead paint, naming the Chinese factory involved in the manufacture.

• 2008

January/February: the severe winter storm and snow affected large portions of southern and central China, directly causing 129 deaths.

10th March: riots began in Tibet against Beijing’s rule. 

12th May: The Sichuan earthquake killed over 68,000 people.

8th August: The Olympic Games and Summer Paralympics were held in Beijing

9thNovember: China announced an aggressive $586 billion economic stimulus package, the largest in the country's history, to ease the pressure of social unrest due to factory closures and rising unemployment.

• 2009

On 3rd July, Chinese stocks passed the 3,000 mark for the first time in over a year after manufacturing and business activity data ended positively in June, heralding continued expansion despite the global economic downturn.  

1st October: China celebrated its 60th anniversary with parade with a colourful and impressive display of military might, featuring goose-stepping troops, tanks and missiles, and air force flyovers, accompanied by an array of floats and balloons.