China is classified as a Newly Industrialized Economy (NIE) because it has been able to make the transition

from being a developing economy to an economy capable of sustaining high rates of industrial and economic
growth, increased levels of saving and foreign investment and consequent rising levels of per capita income
over an extended period of time. More specifically, Chinas classification as a NIE is based on: its annual
economic growth rate which averaged 10% in the 1990s and was recorded at 7.3% in 2001: its average annual
growth of GNP per capita of 7.7% between 1975-1995; GNP per capita being recorded at $3570 in 2000 ($445
above the classification of a low-income nation according to World Bank standards); and savings being
recorded at 40% of GDP in 2000.
China is actively and systematically preparing to become an active participant in the globalization process.
Various forces, such as bilateral and multilateral agreements, membership to the WTO (December 2001) and
trading blocs (APEC 2001) have led to Chinas growing integration with the world economy. In 2000, as a
result of its admission to the WTO, China implemented a number of policies and strategies, all of which
emphasized integration to the global economy. As a result of its affiliation with the WTO and various other
trading blocs, Chinas tariffs have fallen from 32% in 1992 to 12% in 2000 encouraging competition and
efficiency in industry. The Chinese government has also undertaken a number of other policy and structural
changes in its 10th Five-year plan (2001-2005). The plan has three target areas, the spread of market forces,
market development and global integration.
Essential to its development agenda is the area of global integration. China has attempted to fulfill this agenda
through the setting up of Special Economic Zones (SEZs) which are designed, through the use of tax incentives
and other benefits to encourage foreign investment to the country. It has also pursued a general strategy of
decentralizing economic decision making and the implementing a market orientated which has seen output
quadruple to $1.1 trillion in the 22 years to 2000. This global integration began in 1979 when Deng Xiaoping
proclaimed his aim of a greater role of market forces and export led growth combined with a centrally planned
government. Prior to the 80s, the centralized system of government and protectionist policies had largely
inhibited integration due to self sufficiency, corruption and stringent controls on everyday life. These factors
derived from Chinas history of communism, war, nationalism and poverty.
In attempting to fulfill its development agenda, China has to overcome a number of factors including civil
unrest, military defeats and foreign occupation for much of the 19th and 20th centuries which have contributed to
international lack of respect and confidence in its economic system. China also has to overcome its public
sentiment of nationalism which has created a mental wall between the global economy and China.
The second target area, market development is being supported by building the legal, social, human, physical
and institutional infrastructure needed to spur private investment and rapid growth. Technological bodies (ICT
etc.) have been created to increase local business access to the world market, increase education and thus
alleviate poverty. The government has also attempted to develop the transport (lack of access to markets) and
industrial sectors (the lack of technological and physical infrastructure has hindered Chinas integration to the
world market). The development of infrastructure has seen infrastructure levels increase seven fold in the last
10 years.
The third target area involves the spread of market forces, which is being encouraged. Strategies to meet the
aims of this target include stimulating demand and reform of the financial sector. The isolation of Chinese
exchange and financial markets from the global economy has resulted in the exclusion of FDI to Chinese
enterprises in the past. Recently China has begun a process of financial deregulation which has seen an increase
of $US 500 million in FDI.
At the heart of Chinas response to the global economy is the process of reform of the SOEs. This reform
involves the movement from a plan based, public ownership system to a market system whilst trying to catch
up with foreign firms. The government has implemented a policy of managing large SOEs whilst letting go of
smaller ones. Reform has been required due to the increasing debt levels of SOEs as a result of low profitability
and the manipulation of fund through injection and withdrawal of funds.
Due to over 329 million (over half the labourforce) working on small plots of land (10% of China is farmable)
productivity is incredibly low. As a response, restructuring of the agricultural and rural economy is taking place.

Another response to the third target area is venture capital being made simpler to encourage entrepreneurship
and FDI. In recent times China has become the worlds second largest recipient of FDI, with exchange reserves
amounting to US$258.6 billion in September 2002.
China faces a historic and daunting task in moving from a planned to market based economy, whilst trying to
catch up to developed countries. As a result of globalization, China has increased its living standards as well as
its productivity (foreign trade is currently $400 billion, $20 billion in 1980). It has also seen millions of new
jobs created, the illiteracy rate falling from 37% (1996) to 30.3% (2001) and over 270 million Chinese lifted out
of poverty. Of these improvements, the most beneficial has been the improvement of the human development
index, which increased from 0.522 in 1975 to 0.718 in 1999 ranking China 87th out of 162 countries. This has
seen the improvement of health and quality of life indices.
Whilst there have been many positives, negatives also exist. Some negatives include growing inequality (Gini
coefficient was 0.296 1988 and is now 0.403), the loss of employment security (as a result of
outsourcing/mechanization/specialization) and increased environmental damage due to large scale
industrialization. Globalization has also seen the exploitation of resources by large firms as well as China
becoming susceptible to external shocks (e.g. the Asian financial crises).
Chinas phenomenal rate of economic growth and development in recent years has transpired as the result of a
combination of factors however mainly due to the intensified integration with the global economy. Through
further integration, China will undoubtedly experience the presence of negative externalities and other
negatives, but conversely will reap the benefits of higher living standards and increased labour skill levels. How
effectively China deals with these effects will determine its prosperity in the 21st century.