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School of Social Sciences & Humanities

National University of Science & Technology

Course: Chinese Development Experience

Assignment 1

Submitted to: Syed Hasan Javed

Submitted by: Fatima Nadeem
BS Economics 2k17

16th October, 2018

Q) What were the major challenges China faced after liberation?

Ans) The following is a timeline of the multiple challenges China has faced since
its liberation;

1949-1969: Not completely a challenge, but a historical event which took place
during this time was The Korean war. China intervened in this war though it was
of no concern of China. This led to a direct conflict of China with America. This
caused friction between the two countries and thus throughout this time period,
United States tried to disrupt, destabilize, and weaken China’s communist

During this time, Washington encouraged its allies to refrain entering into
diplomatic relations with Beijing. The United States prohibited Americans from
visiting China. The United States cut off trade and orchestrated an international
embargo of China.

During this period China faced some problems with the rightists of the country and
the Anti-Rightist campaign took place.

1970-1990: The peak of the Cultural Revolution was observed during this period.
This revolution was conceived of as a "revolution to touch people’s souls," the aim
of the Cultural Revolution was to attack the Four Olds-- old ideas, old culture, old
customs, and old habits--in order to bring the areas of education, art and literature
in line with Communist ideology.

In 1976, Chairman Mao passed away.

After the death of Chairman Mao, the gang of four was arrested and their trial
took place. After being found guilty, all of them were
severely punished.

Soon the Chinese government realized there was a

grave issue of overpopulation in the country, thus in
1980, One-Child Policy was introduced. This was a
countrywide family planning system which allowed
people to only have one child per couple.
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1990-Present: China is currently
undergoing a major restructuring of its
economic model. Policies that were
employed in the past to essentially produce
rapid economic growth at any cost were
very successful. However, such policies
have entailed a number of costs (such as
heavy pollution, widening income
inequality, overcapacity in many industries,
an inefficient financial system, rising
Chairman Mao corporate debt, and numerous imbalances
in the economy) and therefore the old
growth model is viewed by many economists as no longer sustainable.

China could face a period of stagnant economic, growth and living standards, a
condition referred to by economists as the “middle-income trap”

The following are the major problems being faced by China currently:

 Export Driven Economy to Consumption Driven Economy; after 8 years

of zero interest rate policy, the rates are now set to rise. This is expected to
cause a drastic drop in demand in the United States. As a result, Chinese
exports will also suffer. Add to this the fact that the economy is already
slowing down and we may have a deflationary scenario underway.
 Manufacturing and Banking Viability; the Chinese government central
planning has led to a lot of mal investments. This is particularly true in the
manufacturing sector. Since the money was loaned out by state banks, the
banking system is also reeling under the effects of this problem.
 Falling Growth Rate

Q) Why was the centrally planned economy not able to deliver results?
Ans) Because of the three major reasons;

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 Consumers cannot choose and only those goods and services are produced
which are decided by the government.
 Lack of profit motive may lead to firms being inefficient.
 Lot of time and money is wasted in communicating instructions from the
government to the firms

The Chinese government soon realized that planning everything beforehand,

themselves, for the people would not be beneficial as people would not be
motivated to strive for anything and there would be a lack of innovation. Along
with the fact that China has a very large population so pre planning and
controlling everything would have eventually led to a collapse of the economy.
The government accurately guessed that if the people receive proper training to
work and produce goods themselves would lead to overall prosperity. The
government also feared a revolt by the people so giving them control over their
property and jobs, would lead to an increase in trust between the government of
China and its people.

Q) What were the major reforms undertaken after 1978 which made China
an economic superpower?
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Ans) The following are the reforms;

 Devolution of fiscal powers to provinces, regions and Municipalities

 More autonomy to state owned enterprises
 Growth of private sector and individual enterprises
 Development of stock market
 Evolution of modern banking sector
 Promotion of export culture and opening up to foreign investment

A major reason why these reforms made China an economic superpower is

that China strengthened its market and planned to take over the global
market rather than aim for global leadership. Because of this China avoided
conflicts and clashes with other countries and thus overtime its economy
became one of the strongest worldwide.

There was evident improvement in the bureaucracy since the size of the
government was reduced and increase in promotions.

The most prominent reason was the ending of corruption and strict emphasis
on maintaining the law and order of the country. By giving heavy
punishments to anyone who broke the law, China decreased its crime rate
vastly and improved its living standards by the double.

A certain extension of free markets were also introduced where farmers

could grow any crops of their choice and sell them in the free markets as
long the meet the stated quota. The farmers were gradually allowed to even
set up their own small enterprises. With these great improvements in the
primary sector, China’s agricultural system became one of the strongest in
the world.

The last point being the policy of opposing the three evils; separatism,
extremism and terrorism.

Through these reforms and policies, China became an economic superpower.

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