China: An example that Trade is the key of Economic Development

By Sarah Maria Melendez Bonilla – International Relations Student

“China is a sleeping giant, let her sleep for when she wakes, she will shake the world” - Napoleon Bonaparte

Every type of society, country, region, etc., needs money, employment and resources to survive, so the economic development of a country is of utmost importance, it is even so important that the differences that a country or a region has in terms of development has created a gap that divides the world into developed and developing countries. Of course, finding the ideal formula that developing countries should follow to get out of their condition is not an easy task, there has been an endless debate on whether trade or aid are the perfect tools for developing countries and although there is no right or wrong answer it is important to take into account the economic history of different countries in the world, that way finding an answer is easier because, for example, countries like China show that trade is one of the ways in which the economic development of a country can grow exponentially.

Today, thanks to the media and the various reports of the Bretton Woods Institutions, we know that China is one of the world's economic powers that competes with the United States for the first place of who is the largest economy in the world, however, this has not always been the case. During the year 1949 when the People's Republic of China was founded, the country experienced a period of isolation in which diplomatic and commercial relations with Western countries were broken due to the establishment of communism in the country (Yuan, 2003, p. 20). However, decades later things changed and, in 1978, as a result of the beginning of the fall of communism around the world, Deng Xiaoping the Chinese, leader of the time, during the Third Plenary Session of the 11th Central Committee of the Communist Party decided to implement economic reforms in the country changing the economic model of planned economy to a mixed economy (Denmark, 2018) marking the beginning of China as the economic superpower that we know today.

The economic reforms implemented by China were based in more engagement with the international community by changing their international political economy. A year after the Plenary Session, the Law on Chinese Foreign Equity Joint Ventures was implement which allowed foreign capital entered into this Asian territory helping to improve regional economies and also help the government to ease pricing restrictions and allow companies to retain profits and set up their own wage structures (Hirst, 2015). Also, the country implemented more friendly trade policies including export tax rebate, export subsidy, foreign exchange retention quota and multiple exchange rates system (Bin,2015). All these policies were successful, as total exports went from $49.13 billion in 1990 to $2,641.27 billion in 2019 (Macrotrends, n.d.), helping the country's extreme poverty to decrease from 750 million people living in poverty in 1990 to 7.2 million in 2016 (Goodman, 2021). China's economic turnaround has been so great that it is now one of the United States' biggest economic rivals, to the point that in 2019 it started a trade war that worried many U.S. companies that rely heavily on Chinese products.

With all this information we can conclude that, based on the economic history of China, trade is a way to overcome poverty and increase economic development. However, despite the fact that China have succeeded in its economic development, is important to highlight that the internal situation is not perfect. China is still dealing with income inequality because just in 2015 around 50% of people in the country earn approximately 15% of total national income (Piketty et al., 2019). Also, the country is still dealing with social issues such as the Respect of Human Rights, aspects that matters in every society.

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References:

• Bin, S. (2015). China´s Trade Development Strategy and Trade policy Reforms: overview and Prospect. The International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/china-trade-strategy-policy-reform.pdf?q=sites/default/files/publications/china-trade-strategy-policy-reform.pdf

• Denmark, A. (2018). 40 years ago, Deng Xiaoping changed China and the world. https://www.washingtonpost.com/news/monkey-cage/wp/2018/12/19/40-years-ago-deng-xiaoping-changed-china-and-the-world/

• Goodman, J. (2021). Has China lifted 100 million people out of poverty? https://www.bbc.com/news/56213271

• Hirst, T. (2015). A brief history of China´s Economic Growth. https://www.weforum.org/agenda/2015/07/brief-history-of-china-economic-growth/

• Macrotrends. (n.d.). China Exports 1960-2021. https://www.macrotrends.net/countries/CHN/china/exports

• Piketty T. et al. (2019). Income inequality is growing fast in China and making it look more like the US. https://blogs.lse.ac.uk/businessreview/2019/04/01/income-inequality-is-growing-fast-in-china-and-making-it-look-more-like-the-us/

• Yuan, Y. (2003). The Mixed Economy in China: Through Rhetorical Perspective. https://core.ac.uk/download/pdf/4268665.pdf