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posted on 27 June 2016

The Three Phases Of China's Rise As An Industrial Power - Part 3 Of 3

from the St Louis Fed

Over the past 120 years, China has attempted industrial revolution four times. Given the country's rapidly rising status as an industrial power, what happened over the past 35 years that differed from its three previous failed attempts at industrialization?

In an article in The Regional Economist, Assistant Vice President and Economist Yi Wen explained that the current attempt started in 1978 under Deng Xiaoping. Instead of following the advice of Western economists, China used a gradual approach for reforms. Specifically, China sought to:

  • Maintain political stability at all costs

  • Start with reforms in the agriculture sector, rather than the financial sector

  • Promote rural industries

  • Exchange manufactured goods (rather than natural resources) for machinery

  • Build up infrastructure through government support

  • Have both government and private ownership, rather than privatization alone

  • Move up the industrial ladder: from light to heavy industries, labor- to capital-intensive production, manufacturing to financial capitalism and a high-saving state to a consumeristic welfare state

Wen noted that China has gone through through three major phases on its path to industrialization.

Proto-Industrialization: 1978-88

Wen noted that millions of rural enterprises fueled the first 10 years of economic reform:

  • The number of village firms increased from 1.5 million to 18.9 million.

  • Village industrial output increased more than 13.5-fold.

  • Village peasant-workers grew to nearly 100 million.

  • Farmers' aggregate wage income increased 12-fold.

Wen wrote: "Because of such phenomenal growth in the supply of basic consumer goods, China ended its shortage economy (a typical feature of all centrally planned economies, characterized by the rationing of meat, other food, clothes and other basic consumer goods) in the mid-1980s and simultaneously solved its food security problem."

First Industrial Revolution: 1988-98

The second phase featured mass production of labor-intensive light consumer goods across China's rural and urban areas. Wen noted that China became the world's largest producer and exporter of textiles, the largest producer and importer of cotton and the largest producer and exporter of furniture and toys during this period. Also, village industrial output grew by 28 percent per year.

Second Industrial Revolution: 1998-Present

The current phase features China mass producing the means of mass production. Wen wrote: "Because of the rapidly and enormously expanding domestic market for intermediate goods, machinery and transportation, there was a big surge in the consumption and production of coal, steel, cement, chemical fibers, machine tools, highways, bridges, tunnels, ships, etc."

He noted that 2.6 million miles of public roads have been built. This includes more than 70,000 miles of express highways, or 46 percent more than in the U.S. Also, 28 of China's 30 provinces have high-speed trains now, with total rail length being 50 percent more than the rest of the world combined.

Conclusion

Wen concluded by stating that the U.S. pursued one of history's most successful nation-building win-win strategies following World War II. It assisted in rebuilding Europe and Japan and developing other poor countries. Wen wrote: "China today seems to be carrying the U.S. banner forward: China is pursuing win-win development strategies, too, that are focused on economics. It is doing so through global business engagement and international infrastructure buildup regardless of religion, culture, political system and national boundary."

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Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

Source

https://www.stlouisfed.org/on-the-economy/2016/june/three-phases-chinas-rise-industrial-power

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