China's Economic Development from 1860 to the Present:

Radically different consequences flowed from China's interaction with the global economy during two periods, from 1860 to 1949, and from 1949 to the present. From 1860 to 1949, China's economy stagnated. From 1949 to the present, China's economy grew annually from 4 to 10 percent. 'These different rates resulted from a combination of the levels of Chinese sovereignty and the nature of the global economic environment during each period. From 1860 until 1949, foreign military-imposed unequal treaties reduced China's sovereignty levels and the international economic environment was characterized by predatory trade practices of the European imperialist powers. Together, these two factors reduced the opportunities for China to economically develop through interaction with the global environment from 1860 to 1949, and lead to Chinese economic stagnation. After 1949, Chinese communists regained full national sovereignty and used this control to take over ownership of China's domestic economy from both foreign and Chinese investors. The global economic environment also became less militarily interventionist (imperialist) and more conducive to non-Western economic development. These two new factors combined to lead to successful Chinese economic development from 1949 to 1978, and even faster economic development from 1978 to the present. In sum, low Chinese sovereignty levels before 1949, combined with predatory global economic practices, meant that China was less able to gain potential economic benefits from interacting with the global economic environment. China's economy therefore stagnated from 1860 to 1949. Conversely, higher sovereignty levels gained by China after 1949, combined with a less imperialist global environment, permitted post-1949 China to make major economic development gains from interaction with the global economic environment from 1949 to 1978, and even larger gains after 1978. A. Introduction In 1949, the newly established People's Republic of China designed and carried out economic development policies that led to an annual average economic growth rate of about 4 percent from 1953 to 1978, among the highest in the developing world at the time (Hu, pp. 103-131, World Bank, 1978, Wang, 2000). In 1978, China began post-Mao economic reforms that have since achieved per capital economic growth of 8 to 10 percent annually, among the highest rates in economic development history(Hu, pp. 103-131, World Bank, 1997, Wang. 2000). Studies of China's respectable 1949-1978 economic growth, as well as its dramatic post-1978 economic expansion, have pointed both to domestic and to global factors to explain China's post-1949 economic growth. Domestic factors include the People's Republic of China's (PRC) economic development policies, high savings rates, government control of investment capital, Chinese 1 Forum on Public Policy Confucian culture, and the lessons from Chinese experiences with the pre-1949 global economy. Good social capital in the form of a huge pool of healthy, basically literate, and motivated lowwage workers has also been cited as an important factor in China's post-1978 economic development. Global economic factors, crucial for China's post-1978 growth, include global economy trade opportunities, foreign investment, foreign advice, foreign loans, export-lead development opportunities, export processing zones, investment and assistance by Chinese from Hong Kong and other parts of "greater China," and the examples of successful export-led economic development by Japan and by the four Asian "tigers" (Hong Kong, South Korea, Singapore, and Taiwan) (World Bank, 1997). When we examine China's economic development performance before 1949, however, we see a very negative picture, one of prolonged stagnation rather than of successful economic growth. Before 1800, Imperial China under the Qing Dynasty was a major world economic power, accounting for roughly 32 percent of the world's economy (Maddison, 1998). From 1800 on, however, and particularly after 1860, China's economy grew began to stagnate and then from 1860 on, grew at less than 1 percent annually until 1949, and may even have declined (Maddison, 1998, p. 39). By 1949, China's share of an expanding world economy had shrunk to about 5 percent, and China was seen as one of the poor countries of the world, the "sick man of Asia," with a per capita annual income of about US$50 (Naughton, p. 50).