China – The World’s New Factory Part I

Until the end of the 1970s, China was largely shielded from the international economic system. Later, the country has become an important part of the world economy, which is especially evident through increased trade. The world’s most populous country has gone from near isolation to active participation in the international economy. An increasing proportion of the goods we buy – especially clothes, toys and electronic products – are “Made in China”.

  • What is the reason for the growth in China’s production?
  • What has international trade meant for China’s development?
  • How do the changes in China affect the economic situation in other countries?

2: High growth and large regional differences

In 1978, Chinese leader Deng Xiaoping launched a series of reforms. The purpose was to change China’s economy and Chinese society, but without changing the political system. The scope of state governance and state ownership was reduced in most sectors , and economic freedom was gradually increased . A key element was the duiwai kaifang – ” opening to the outside “. China was to be gradually integrated into the international economy. Since the reforms were introduced, China has enjoyed economic growth that has been almost unparalleled in history.

A common measure of standard of living is gross domestic product per capita (value creation per capita = per capita). GDP per capita shows the value of what is produced in the country, divided by the number of inhabitants. Before the reforms, China lagged behind other countries in improving living standards – GDP per capita in China was only a fifth of the world average and lower than in the late 1950s. Since the end of the 1970s, economic growth has generally been from eight to ten per cent each year – far higher than in other countries (see Chart 1).
This means that the income level, ie how much money an “average Chinese person” can spend on food, housing and other goods and services, doubled approximately every seven years.

The increase in living standards has gone hand in hand with improvements in other areas. Large parts of the population have been lifted out of poverty, child mortality has decreased, life expectancy has increased, more people can read and write and the level of education has greatly improved. GDP per capita is a measure of prosperity that only captures the economic side of daily life. UNDP (United Nations Development Program) – the UN’s development program – has therefore constructed another indicator – HDI (Human Development Index) – which can be seen as a measure of welfare.

The idea behind HDI is that human welfare, in addition to “an acceptable standard of living”, is affected by knowledge and the possibilities for “a long and healthy life”. “Knowledge” is calculated on the basis of literacy and the participation rate in the school (length of education and the proportion of a cohort who receives an education). “A long and healthy life” is determined by life expectancy. “An acceptable standard of living” is calculated on the basis of GDP per capita.

HDI has received a lot of attention in Norway, especially since we have been at the top of the rankings in recent years. China was in the last overview in 81st place, with the same score as Armenia, and with Peru just below. However, there is one significant problem with HDI – and which we also encounter when we use terms such as “GDP per capita”. The problem is that the “average inhabitant” does not exist. In China , strong economic growth has coincided with growing disparities between rich and poor. Although the poor Chinese have become richer, they have not become as richer as the growth in average income would suggest. In addition, when there are large regional differences in life expectancy, literacy and education, there is reason to be cautious about the use of HDI in large countries such as China, a country located in Asia according to

Figure 2 shows how the various provinces in China would have placed in the HDI ranking if they had been their own states, and not parts of a larger state. The difference between Shanghai – which has the highest welfare – and Tibet is striking. In addition, the urban population is generally higher than the rural population, both in terms of income, knowledge and life expectancy. The “quality of life” for the urban population in Shanghai is at the same level as for the inhabitants of Greece, while people in rural Tibet have lower welfare levels than in India and Botswana. The Shanghai people almost only wanted the rich OECD countries ahead of them on the list of welfare levels, while Tibet largely only wanted the poor African countries behind them.

The difference in HDI between China’s provinces illustrates an important challenge for the authorities; the entire country’s population must be given the opportunity to take part in the improvements in income and other important indicators. Until now, development has largely been limited to some dynamic regions along the coast. Nearly half of all Chinese employed in agriculture still work, even though this sector accounts for just over twelve per cent of value creation. Regulation of internal migration in China, the so-called “hukou” system , limits Chinese farmers’ opportunities to take better-paying jobs in the factories in the fast-growing coastal provinces. At the same time, much of the Chinese growth miracle is being created in these provinces – this is largely where the Chinese goods we see in Norwegian shops are produced.

China - The World's New Factory 1

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