Did economic growth during the Chinese Economic Reform contribute to human development?

Introduction: In 1978, the Chinese Communist party leaders led by Deng Xiao-ping, in order to improve people’s well-being, decided to undertake a program of gradual but fundamental reform of the economic system. The Reform transformed planned economy into a capable of generating strong . However, as Shively suggests, on the issue of people’s well-being, it is “not enough to ask whether the people of a state are prospering; rather, we must ask, how well they are living” (Shively, 91). Therefore, looking back on the achievements of this reform, did it really contribute to human development positively in every aspect? In this paper I explore the different aspects of human life before, during and after the Economic Reform to see how economic change brought by the Reform contributed to human development in China. The contributions include the amazing achievements in China’s general economic development and people’s economic life, education, social welfare and cultural life; at the same time, the Reform also introduced many problems following fast economic growth such as inequality, unemployment, corruption and social instability. In order to make this argument, I examine data and facts from many aspects of human development in China during the two decades of the Reform–from 1975 which is before the Economic Reform, to 1985 when the effects of the Reform began to appear, and 1995 when the achievements become more conspicuous.

From 1949 to 1978, Mao's and devastated the Chinese economy, resulting in a massive disaster in the country’s development, which included barely sufficient food supplies, inadequate housing, poor education, inefficient service sectors, and etc. After the main leftist supporters were ousted in a coup, reformists led by took power and introduced the 1978 Chinese Economic Reform which aimed at increasing living standards and the well-being of Chinese people. From then on, unprecedented economic growth occurred, with the Gross Domestic Product increasing by 9.5% a year (Economic Statistics by country). The first stage of the Economic Reform, in the late 1970s and early 1980s, involved the decollectivization of agriculture, the opening up of the country to foreign investment, and granting of permission for to start up businesses, with most industry remained state-owned. The second stage of reform, in the late 1980s and 1990s, included the of much state-owned industry and the lifting of price controls, protectionist policies and regulations, although in sectors such as banking and petroleum still remained. Today, China's economy has become the second largest, right after the . The fast and immense economic growth greatly influenced the human development of Chinese society and has resulted in massive changes.

Chinese Communist leaders at that time concluded that the centrally planned economy had failed to produce efficient economic growth and thus caused China to fall far behind the industrialized states in human development. So the Reform first and foremost focused on stimulating general economic growth. Compared to Mao’s period, Deng’s Economic Reform was successful because the growth in GDP, GPP and import and export is spectacular, and becomes even more promising after years of application and practice. In 1975, China’s GDP was US $161,162 million with a yearly growth rate of 13.34%; in 1985, the GDP grew 89.19% to US $304,911million with a yearly growth rate of 19.06 %. By 1995, China’s GDP had increased another 138.76% to US $728.010 million and the growth rate increased to an impressive 30% (Gross Domestic Product). The similar tendency of growth happened to GDP per capita: because of an immense economic growth and an effective population control, from 1975 to 1985 to 1995, China’s GPP grew from US $175.87 to US $ 290.05 to US $604.23; the yearly growth rate doubled from 51.22% during the first decade to 108.32% during the second decade. (Economic Statistics by country) From the above data we can see China achieved an immense growth in GDP, GPP and their growth rates, indicating a great and lasting domestic economic growth after the Reform.

China demonstrates its amazing economic growth in its international trade—import and export of goods and services. After the government adopted the open door policy in the Reform, its foreign trade grew rapidly as the volume of imports increased largely and exports rose shortly afterwards. Chinese imports have grown from US $1.09 billion in 1975 to US $4.23 billion in 1985 and reached US $13.21 billion in 1995. Compared to the total GDP, import of goods and services was 4.57% in 1975 and 14.1% in 1985 due to big amount of import on advanced science and technology; the percentage of import continued to grow to 20.9% in 1995. At the same time, exports have climbed from US $0.98 billion in 1975 to almost US $2.74 billion in 1985, to US $14.88 billion in 1995; the percentage of export in GDP rose from 4.59% to 9.94% from 1975 to 1985, and accomplished a great leap to reach 23.1% in 1995 which exceeded the world average. Moreover, in 2005, Chinese export which is 37.4% of total GDP had already been way above the world average of 27%, and the value of international trade peaked US $115.46billion (Economic Statistics by country). The rapid increase in trade volume not only resulted from a gradual shift from a closed to an open economy, but also came from trade composition changes due to industrialization and capitalization following the Economic Reform. For example, in 1975, about 51% of China’s total exports were mineral and agricultural products; however since the Economic Reform, the Chinese government has placed high priority on the trade of capital goods and advanced technology, so the share of mineral and agricultural products gradually decreased to 44% in 1985 and 14.44% in 1995, while the share of capital goods devoted to capital investments and the manufacturing sector climbed from 6.3% to over 30% in two decades (China Total Value of Import and Export).

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As the economy grew and the economic structure changed in a positive way as, many aspects of human life developed and improved accordingly. The most obvious effect economic growth has on human development is on the economic quality of daily life. After the Reform, the Engle Coefficient dropped from 0.59 to 0.38 in urban households and from 0.70 to 0.47 in rural households over three decades (Chen). The great drops in the Coefficient strongly contrast the situation in which these figures remained high up before the Reform. Another way to evaluate the rise in economic quality of life is by examining the annual incomes. For rural households, per capita Annual Income grew from US $19.65, a mere 7.5% of Western Europe in 1975, to US $58.47 in 1985 and US $232.01 in 1995; for urban households, per capita Annual Income also increased from US $48.50 in 1975 to US $108.69 in 1985 and US $629.85 in 1995. (allcountries.org) The amazing growth in income is the direct achievement of economic growth. Accordingly, consumption and expenditure rose to a large extent too. At the same time, the population in poverty dropped from 250 million (30.7% of the total population) in 1975 to 125 million (14.8%) in 1985, and then reduced to only 80 million (8.8%) close to 1995. These measures of economic quality of living indicate the achievements of years of rapid economic growth (National Bureau of Statistics).

Another improved aspect of China’s human development is education, because economic growth created more available money for the education system, and by sufficing for people’s economic need and improving their living standard, triggered an increase of people’s awareness to gain knowledge, enrich their minds and cultivate themselves. Let’s first look at literacy which is a common and basic character for civilized citizens of the modern world. In 1975, China’s literacy rate was 66.42% and in 1985, it increased to 77.19% and in 1995, the literacy rate reached 89.21% which was on top of most developing countries at the end of the twentieth century (allcountries.org). At the same time, not only did the popularity of education expanded, the level of education was also improved and the number of people involved in higher education increased. Before the Economic Reform, there existed only 589 regular institutions of higher education in China, and only a mere 165,000 people graduated from these institutions. Post-secondary school education was obviously considered a luxury and privilege for people before the Reform. By 1985, with the economy’s support of the improvement of education, there were 1016 regular institutions of higher education and the number of college graduates of that year increased to 316,000. In 1995, 38 more institutions appeared and the number of college graduates reached 805,000 which is a great leap. Further into the twentieth-first century, Chinese college graduates had reached 2,391 thousand in 2005, which was nearly 15 times the number before the Reform. During this period, the average annual growth rate for college enrollment was 26.1% and graduate enrollment grew at an average annual rate of 28.6%, both much higher than the national economic growth rate (Jing). The great achievements in general education and higher education, which we can conclude from the figures and percentiles, indicate the positive influence of economic growth on education, an important indicator of human development.

Economic growth led to great developments in social welfare, particularly in the area of health care, which greatly influenced quality of medical treatment, people’s life expectancy and mortality rate at childbirth. First of all, in order to address concerns over health, the Chinese government greatly increased the number and quality of health-care personnel. Before 1975 only 33,000 nurses and 363,000 physicians were practicing; by 1985 the numbers had risen dramatically to 637,000 nurses and 1.4 million physicians. Official Chinese statistics also reported that the number of students in medical and pharmaceutical colleges in China rose from about 100,000 in 1975 to approximately 190,000 in 1985. Great efforts were also made to improve and expand medical facilities. The number of hospital beds increased from 1.7 million in 1975 to 2.2 million in 1985. The number of hospitals increased from 63,000 in 1975 to 67,000 in 1985, and the number of specialized hospitals and scientific research institutions doubled during the same period. (Google public data explorer) As a result of these improvements, the life expectancy of Chinese people rose from 64.5 in 1975 to 66.9 in 1985 to 69.6 in 1995. Mortality rate at birth dropped sharply from 8.9% in 1975 to 6.9% in 1985 to 6.0% in 1995; and the percentage of births attended by skilled health staff rose from about 40% in 1985 to 55.7% in 1995 (allcountries.org). Also, the government took a major move to improve social welfare—many more shelters were built and much more help were provided for the homeless and the poor. People with a of less than US $80.71 decreased 2.9 million or 10%; those with a per capita income of no more than US $111.64 decreased by 6.4 million or 11.4% during the first two decades after the Reform, according to statistics from China ’s . These great advancements in social welfare would not be possible if not for economic growth after the Reform.

Economic growth also had a lot of influence on people’s cultural life including entertainment and communications. The most obvious is the change in the way people spent their private time. As the state loosened its grip on how people spent their free time, new forms of leisure and the expansion of the private sector have developed along with individual autonomy and a consumer culture in contemporary China (Yep, 12). As a result, the whole Chinese culture has been undergoing a great change, from traditional and conservative to modern and international. Also, new technology and cultural import led to more communications—within Chinese people and with the international community—the introduction of cell phones, computers and the internet. In 1975 and 1985, there were no mobile cellular or internet use in China. In 1995, cell phone users began to take up 0.3% of the total population; in 2005, however, there were already 30.2% of people using cell phones and in 2008, the figure grew to 48.4%. Internet began to populate later in 1995, with total users grew to 8.6% in 2005 and amazingly, reached 22.5% in 2008. Though most of the figures are still behind world standard, the immense change they imply is revolutionary for China’s cultural life. (Google public data explorer)

The 1978 Chinese Economic Reform achieved remarkable results in economic growth and greatly contributed to human development: quality of economic life, education, social welfare and cultural life. By the end of the twentieth century, China had successfully transformed itself from a closed economy predominantly state owned and tightly regulated by central planning, into a mixed economy with a strong flavor of capitalism and extensive linkages with the world economy. Therefore, we can see economic growth after the Reform did perform its “most basic capabilities for human development”—to lead long and healthy lives, to be knowledgeable, to have access to the resources and social services needed for a decent standard of living and to be able to participate in the life of the community (UNDP). However, economic growth did not contribute to human development positively in all aspects—it created many new problems and tensions for the post-Reform Chinese society, such as economic inequality, corruption, unemployment, and social instability.

The most serious and obvious problem following the rapid economic growth is inequality. As the Economic Reform abandoned planned economy and equal distribution to adapt capitalism, it acquires more capital, which leads to the owners of this capital having more wealth and income and therefore introducing inequality. One important aspect of inequality exists between coastal urban and inland rural areas. In the coastal area where cities were industrialized and Special Economic Zones were set up, per capita income is much higher than the undeveloped inland area where economy still relied on agriculture. Back before the Economic Reform, urban and rural areas were equally poor. But in 2000, for example, the average per capita income of costal urban households was US $919.86 while that in rural households was only US $330.01; the coastal capitalized Guangdong province had the highest Gross Regional Product of US $14.15 billion while the inland rural Tibet had the lowest which is only US $0.17 billion (Gross Domestic Product). Moreover, there’s data suggest that Gini Coeffient which measures income inequality was only 0.15 in 1975; it grew to 0.28 in 1985 and 0.37 in 1995, getting much closer to a destructive level of income gap (Chen). At the same time, due to inequality after the Reform, economic situation and education did not improve much in rural areas, so child labor flourished. Many families could not afford to send their children to school or could not locate a school in their area. Although Chinese law forbids employment of anyone less than sixteen years in age, it is rarely enforced in rural and distant areas and estimate for child-laborers was up to ten-million in 1995 (UNDP). From the rising inequality within two decades, we can see the by-product of immense economic growth has become more and more serious in China.

Under a more and more capitalistic environment after the Economic Reform, economic inequality is also interdependent with the growing problem of unemployment. Prior to the Reform, people are guaranteed lifetime-employment and payment by the government because of the communist principle of equal distribution and planned economy. This is widely known as the “Iron Rice Bowl”. However, after the Reform, more diverse jobs were created, so more people freed from the self-sufficient economy to look for high-paying jobs under capitalistic economy. The most important reason is that the government moved forward with long-delayed plans to diversify ownership of state-owned enterprises and to allow inefficient firms to reduce employment or go bankrupt. This aggressive economic restructuring led to the layoffs of 45 million workers from 1995 to 2002, including 36 million from the state sector. The number of state sector workers fell from a peak of 113 million in 1995 to 71 million in 2002 (Google public data explorer). In “What is China’s True Unemployment Rate”, Giles defines unemployment as including “all jobless individuals who are able to work and searching for work” with his calculation based on published government data on employment, registered unemployment, and officially laid off workers. His study shows a steady increase in unemployment rate from 9.6% in 1995 to 11.6% in 1999 to 12.4% in 2002. This is especially obvious in urban areas as unemployment rate rose from 6.1% in 1995 to 10.8% in 2002(Giles). From these data we can see the rising problem of unemployment after the Economic Reform, during which the government privatized or downsized state-owned enterprises, broke the “Iron Rice Bowl”, and emphasized greater competition in employment.

The Reform substantially increased the role of market mechanisms in the economic system and reduced government control, but it never eliminate government participation in economy or abandon communism in politics. This combination of a fast-growing economy and a lack of necessary separation between business and the government brought about corruption. Since the launch of the Economic Reform in 1978, corruption has become more and more widespread in China—at the end of the twentieth century, some political scientists argued that corruption exists at every level of the Chinese political system. For example, in 1989, the market price of coal was 674% of the subsidized price in China. Similarly, other producer goods were substantially higher than prices fixed by the state (Rose-Ackerman). In the political system, government officials granting and protecting the privileges is the very root of corruption problems. Even though Deng emphasized on the quality of leadership and the government is well aware of this problem, Deng gave many privileges to some top government officials and major state-owned and private-owned enterprises in order to gain their support for the Reform. It is an unavoidable political strategy but as a result, the privileged by utilizing their monopoly power were able to seize a great amount of wealth created by ordinary people. Another cause for the problem corruption is that the capitalist market mechanisms introduced by the Reform made people become more money-oriented and more likely to act corruption in exchanging advantages. Industrial and commercial enterprises in China require government authorization to operate which promotes corruption in the area of enterprise licensing through bribery done by applicants to obtain the licenses (Manion, 1996). The corruption caused by exploitation by the privileged group and the unequal advantage exchanges is a major drawback of economic growth and capitalization.

During the economic growth, under the problems of economic inequality, unemployment and corruption, social instability formed. The great regional inequality after the Economic Reform produced a situation that the coastal areas became an ideal destination for people, especially those seeking jobs. Since 1975, many people have migrated to the coastal cities to look for jobs, most of the time low-paid and temporary. This large-scale migration created a 100-million blind flow. The fluid population often cannot become legal residents of the areas to which they have moved, which means they have to exist outside of the social safety net of the locality: they had no access to health care, social service, reasonable income, etc(UNDP). They would become the prey for injustice and criminals, they would also become the performer of violence and illegal acts therefore jeopardize the stability of the city. On the other hand, rebellions and demonstrations happened more frequently after the Reform. Because as economic growth fulfilled people’s basic economic needs, broaden people’s view and increased their level of education, people started to ask for more from the government, discover more social problems, and form opinions about China’s differences from the western world. Although people’s perspectives and attempts were not always accurate and progressive, they still went into movements requesting political freedom, religious freedom, etc. The public complains and demonstrations peaked during the late 1980s and estimated 4th June Incident in 1989. In 1995 alone, at least 800 incidents of rural rebellion involving more than 500 people each took place, including 21 cases involving crowds of more than 5000. The figures were ten times as much as those in 1975(allcountries.org). I believe the reason is partly because that the government never intended to change Chinese political system, ideology and society to cooperate with its economic system. The fast-growing economy gradually became so incompatible with the political system and cultural environment that many serious problems appeared but ended up with no solutions from those in power. Therefore, economic growth did provide the environment for, if not directly activated, social instability.

After the Economic Reform in 1978, the government has transformed the formerly closed and planned economy to a more open and capitalistic economy. Capitalism has brought new wealth to Chinese people, but still had side effects due to incompatibility with other aspects of the Chinese society. Through the numerous data, facts and perspectives, we have seen that economic growth after the Chinese Economic Reform contributed great improvement to human development: it greatly improved quality of economic life, education, social welfare and cultural life. However, it creates new and serious problems such as inequality, corruption, unemployment and social instability, which may largely jeopardize the society and human development.

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Did economic growth during the Chinese Economic Reform contribute to human development?

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