Government and Business

The Government Role in the Chinese Economy

The Chinese economy has grown immensely in the past few years, and a big part of that is because of the government and the changes it has made in the economic structure of the country. Today China has the fastest growing economy on the planet and it is expected to become the strongest and largest economy in the world by the middle of the 21-st century or even earlier. At its current rate of growth, analysts see China replacing the US as the world’s top economy in about a decade. “It’s realistic to say that within 10 years China will be roughly the same size as the US economy”, says Tom Miller of GK Dragonomics, a Beijing-based economic consultancy.

It’s a growing force and it all began in 1978 when the government made the decision to lessen its restrictions and bring in more free enterprise in the economy and business. So, since 1978 the government’s role in the economy has fallen greatly, while the role of private enterprises has grown. In 1994, the pricing system was changed to allow free price movements. By the mid 1990s China was well on the path of opening up its economy. Export was flooding out and China was given the title of “the world’s factory”. Taking advantage of its huge population, China began to move up in the ranking of the world’s top economies.

But nevertheless, the government still maintains an active role in the economy. The government’s management of the economy is involved through a top-down chain of command with hundreds of ministries, commissions, administrations, bureaus, and corporations. Direct control of the economy by the government is done through designating physical output quotas, while indirect control is done through affecting market incentives.

Over the past 35 years, Chinese companies have begun to gain more and more independence from the government in a range of activities. Together with this, large-scale construction, as well as important industries and services are still managed heavily by the government through direct management and 1/3 of the country’s GDP is still generated through government-controlled industries.

Notes:

free enterprise – свободное предпринимательство

open up - активизировать

output quotas – нормы выработки