It’s indeed true that China currently is the second-largest economy in the world and is also the manufacturing hub of the world. But just 40 years ago it was one of the poorest countries in Asia.
So, how did it progress?
There are several reasons for it to happen:
(1) Agricultural reforms: Under this reform, the lands controlled by the government was released and encouraged private farming.
- Before this reform, All the harvest of the crops were going to the government-controlled farming market and farmers were paid just a basic wage — Similar to APMC and Mandi system in India.
- After this reform, the farmers were given the freedom to sell their crops in the market. Farmers have hugely profited with these reforms and this turned out to be a massive success in turning China into an agricultural surplus state in a shorter time.
- After the rise of the basic income of farmers, they started investing in growing cotton. Growing cotton in massive land was one of the reasons which gave rise to the Textile revolution in China.
(2) Skilling of labour: Under this, schools and colleges had compulsory vocational institutions along with technical education. Vocational training helped in gaining extra additional skills required for getting jobs in the market easier. Internships which were also offered from companies through college rooms helped in up-skilling.
(3) Secondary sector units: All the surplus farmers in the agricultural market were bought to the low skill secondary sector jobs like constructions, iron and steel mills and other factory related jobs. This gave a boost to the building of townships and thereby becoming the foundation of the Chinese economy.
(4) Township and Village Enterprise (TVEs): Similar to the 2nd point, it was meant to promote and produce farm tools, toys, fertilizer products etc and it was privatized.
- TVE’s were first started under the name “Commune and Brigade enterprise” which were under government control and under government control, there was massive corruption and the government had to face a lot of losses.
- After this enterprise was reformed, governmental control was released and empowered local government to control factory units taking local problems into consideration.
- TVE’s employment grew from 2.8 crores in 1978 to 13.5 crores in 1996 and the production of TVE’s grew from $7.5 Billion in 1978 to $280 billion in 1992 and in its peak contributed to 25% of the GDP.
(5) Textile Revolution: The agricultural reforms bought commercialization of crops which lead to investing in cotton crops, the availability of cheap cotton and labour lead to huge profit giving rise to the textile revolution. The massive export of textile products to the world gave rise to china’s presence in the world’s GDP.
(6) Electronic revolution: Due to the shortage of labours in East Asian giants like South Korea, Japan, Taiwan and western countries like the USA and Germany. The tech and manufacturing giants like TSMC, LG, Panasonic, Apple, Qualcomm, Foxconn etc constructed their plants in China due to the availability of a massive skilled workforce and land and it attracted investments in China.
- From here, China started expanding their manufacturing industries which eventually paved the way to becoming a world factory. The local entrepreneurs started reverse-engineering the manufactured product to produce their own variant of products and set up their own plants for electronic goods.
(7) Massive investments in infrastructure: For keeping the supply chain smooth, China invested massively in infrastructure such as building highways, expressways, subways, bullet trains and established special economic zones for setting up higher-end factories. This resulted in attracting investors from all over the world and thereby giving a boost to its GDP.
- Shenzhen which was just a fishing village in the 1980s ended up becoming the silicon valley of china involving 30% of exports of china.
(8) Tech-Revolution: During the early 1990s, there was an internet boom in America and the tech companies needed cheap labour for manufacturing their hardware products. This resulted in the outsourcing of manufacturing industries to China and other third world countries.
- The tech giants tied up with local companies resulted in technology transfer. The local companies using reverse engineering started manufacturing their own high-end goods and selling the goods at much cheaper rates. These manufactured products were then sold to third world countries.
- By the early 2000s, the demand for this electronic manufactured goods like laptops and smartphones increased in neighbouring countries. By reinvesting the profited money, even the quality of the product was improved. Companies like Huawei, Xiaomi, ZTE have emerged to become global brands.
(9) Service Industry: After the success in manufacturing industries and Tech industries, China started shifting to service industries. This shift led to another massive growth in the GDP of China. In the 1970s, the Service sector contributed up to 24.9% of GDP but in 2020, it contributed to 55% of GDP.
IT-led technologies have a major role in the service sector. Reverse engineering process took place even in this service technology which led to the creation of alternative Chinese apps such as:
- Weibo from Twitter
- Alibaba from Amazon and e-bay
- Wechat from WhatsApp, Telegram
- Baidu from Google
- Renren network from Facebook etc
(10) Investment in R&D: After establishing manufacturing and service industries, China shifted to investing in Research and Development. In 2012 alone, China invested a massive $160 billion in R&D which was the second-highest spending after America. An increase in spending has helped developments in science and technology and improved the country’s innovation capabilities. Improved capabilities have played an important role in developing advanced and strategically important sectors.
All these factors helped China to transform from an agrarian society to a World factory and its GDP increased from $1.3 Trillion in 2000 to $15 Trillion in 2021 making it the second-largest economy in the world behind the USA.
These are some of the reasons as to how China became the manufacturing hub of the world and the second-largest economy of the world.
DISCLAIMER: The image sources are from the internet
