In 2021, China is the second largest economy in the world with a GDP of $ 16.49 trillion, behind the United States’ GDP of $ 21.9 trillion. How did China go from a poor society, devastated by WWII and its own civil war in the mid-20th century, to the world’s second-largest economy today?
After decades of economic stagnation and setbacks under the communist regime, China began to open up to international trade and liberalize its economy when it established diplomatic and trade relations with the United States in 1979.
Growth in Chinese exports then fueled growth in manufacturing and urbanization, and China emerged as a major global economic power over the next four decades.
China has managed to maintain an average annual growth rate of nearly 10%, although this growth has slowed down in recent years. The government has notably been accused of manipulating Chinese stock market index and the currency (RMB) to maintain the attractiveness of exports and investments in China.
An economy of industrial growth
Like most countries looking to develop their economies, China began by developing its heavy industry. Today, China is the world leader in the manufacturing industry and produces almost half of the steel in the world. The Chinese mining industry extracts coal, iron ore, salt, oil, gas and gold. To reduce China’s dependence on coal, the country is moving towards more renewable resources and plans to increase its use of natural gas in the coming years.
The country is also a good candidate for hydropower production, and in 2012, the Three Gorges Dam was completed and is now a major power producer for cities in southern China, including Shanghai.
Workforce
Besides its important textile manufacturing sector, China is also a leading assembler of foreign electronics products. Likewise, China produces automobiles in factories owned by both domestic and foreign companies. The majority of cars made by Chinese companies are exported to Africa, South America, the Middle East or Russia.
Chinese consumerism
Once a country of rationing and shortage of consumer goods, China has become, after economic liberalization, a consumer paradise. China is home to some of the world’s largest shopping malls, and in addition to wholesale trade, retail trade has contributed $ 1.8 trillion to GDP.
Companies like Alibaba have given retail and e-commerce a big boost. Alibaba and JD’s Singles Day sale (11/11) in 2020 saw a record $ 115 billion in single-day sales.
Concerns
While China’s growth seemed unstoppable at one point, there are obvious cracks in its economy. First of all, the country is criticized on environmental issues. As China is already considered a major polluter and emitter of greenhouse gases, Xi Jinping is aiming for carbon neutrality by 2060.
Then there is the problem of underemployment and inflation in China. Although recent inflation has been at a manageable level of 2.3%, the past twenty years have seen the rate of inflation fluctuate wildly, which worries companies wanting to invest in the country.
Limits
China is certainly the second largest economy in the world, but the country is far from being as developed as the other top 10 countries. Public spending is an essential engine of growth, which has led in recent years to construction without discernment. Even with the largest population on the planet, China has struggled to find buyers for real estate in its ghost towns. But the government’s latest program focuses on reviving economic activity and if that happens, the country has enormous leeway to develop and invest in new sectors full of promise …
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