China and its people have experienced a tumultuous century. After over 400 years of stable dominance by a few, China attempted to transform itself with all the dreams of Communism. Unfortunately, these did not materialise. Between 1934 and 1935, Mao Zedong rose to lead the Communist party, and in 1949 after 20 years of civil war, and shortly after the Japanese were defeated in World War II, Zedong’s party achieved victory against the nationalists,. This gave rise to the People’s Republic of China, the world’s third Communist nation.
Through the struggle of the Korean War, which proved extremely costly, as well as purges after the Hundred Flowers Campaign, a new China emerged. In 1958 a five-year plan, coined the Great Leap Forward, in which farming was collectivized, led to an economic breakdown so severe that it was abandoned after two years. Under Mao’s plan, between 14 and 45 million people perished, more than the number of people who died from the atomic bombs. Not long after this, between 1966 and 1976, China underwent the infamous Cultural Revolution, 10 years of political and ideological campaigns to revive revolutionary spirit but which paradoxically led to mass social upheaval, and yet more deaths. The year 1976 not only saw the end of the Cultural Revolution, but also the death of Mao Zedong, who had been in charge for 27 years, but had been a strong force for far longer. A year later, Deng Xiaoping emerged as the leader, introducing far-reaching economic reform, which would have a dramatic effect. Much of this was reflected in 1986, with the introduction of China’s Open Door Policy, allowing foreign investment and the development of a market economy for the first time.
Since these dramatic changes to China’s policy, it has grown into an economic powerhouse Milton Friedman could only dream of. In 1989 stock markets opened in Shanghai and Shenzhen, and two years later the International Monetary Fund (IMF) pronounced China the third largest economy in the world. Politically, 1997 saw Hong Kong, with all of its economic development and its key role in the global economy, return to China after a 99-year lease to the United Kingdom. By February 2011, China formally overtook Japan to become the world’s second largest economy.
So what do all these facts and history about China’s development mean? China has seen the development of its society from a strictly Communist model into a still totalitarian one-party state, but with state-driven capitalism. Its GDP continues, in the most recent figures, to grow at a year on year rate of 8.1 percent. The banks are incredibly stable with a fifth of all deposits held in reserve by the central bank and an aggregated savings rate across the economy of 51 percent. The West’s nature of overspending into a deficit has been accompanied by an increasing surplus for China. In short, the Chinese economy is incredibly resilient and ready to continue growing. In fact, one prediction by Lawrence Saez, at the School of Oriental and African Studies in London, goes as far as to state that China will have the largest economy by 2021 and may soon overtaketake America as the world’s next superpower (even if America’s soft power endures longer).
The World Bank has recently released a detailed and penetrating analysis of what China needs structurally, institutionally and politically in their report titled: “China 2030: Building a Modern, Harmonious, and Creative High-Income Society.” This report includes recommendations that the state should have a lesser role in the economy, as well as a suggestion that China should gradually increase its spending on social security by between seven to eight percent over the next 20 years. The problem then is whether or not the undemocratic minority relinquish the benefits they get from state owned enterprises (SEOs) as well as reducing tax expenditure on their lavish lifestyles?