chapter  6
25 Pages

Economic growth and income inequality in China over 30 years of reforms

Introduction Since promulgating the reform and open-door policy in the late 1970s, China has achieved magnificent economic growth, with its real gross domestic product (GDP) growing at 9.7 per cent per year during 1978-2007. Real per capita GDP increased ninefold and real per capita income sevenfold over the same period. While most parts of the world have been experiencing a slowdown or recession since 1999, China’s GDP continues to grow at more than 9 per cent annually and the country accelerates its export growth and continues to absorb foreign capital in a swift way. China is now the fourth largest economy in the world and the largest producer of many industrial and agricultural products. In 1978, China was the twenty-third largest trading nation in the world. By the end of 2006 it was the world’s third largest, after the USA and Germany. By 2007, China was the world’s second largest trading nation, with a total trade volume of $2.17 trillion, over 100 times as large as in 1978. China has been the largest recipient of foreign direct investment (FDI) in the developing world since 1996, and the second largest recipient in the world after the USA. The amount of FDI inflows rose rapidly from $3.5 billion in 1990 to $74.8 billion in 2007. The total amount of FDI inflow from 1979 to 2007 was $753 billion from over 200 countries. The first three quarters of 2008 witnessed another 40 per cent increase of FDI inflows compared to the same period in 2007. Fast economic growth has led to a fundamental transformation of the Chinese society in terms of industrialisation, urbanisation and employment. Agriculture’s share as a proportion of the country’s GDP declined from 28 per cent in 1978 to 11 per cent in 2007. Rural population in the country’s total declined from 80 per cent to 55 per cent and agricultural labour in total labour from 70 per cent to 44 per cent over the same period. By 2007, China had become the largest or second largest producer and consumer of many key agricultural and industrial products in the world, including steel, TV sets, motor vehicles, cement, coal, cloth, cotton, grain, fish and meat. In 1978, the vast majority of Chinese peasants lived in poverty. By 2007, the level of poverty was reduced to a much lower level. China is not only a strong engine of world economic growth but also the world’s largest contributor to poverty reduction over the last 30 years.