Changes of Transition to Mixed Economy to China

Mixed economy is developed by including elements of free market economy into the system to overcome the weaknesses of centrally planned economy. Different countries have a different mixture of degrees of private economic freedom and government regulation of markets in their mixed economies. Policies variegate between countries in different aspect, however, all of them are of the same objective, which is to improve the economy of their countries and welfare of citizen. Mixed economy enhances the economic development of the country. In a mixed economy, both state and public sectors have adjacent roles in developing the economy.

Their efforts rolled into one, enhancing the economic to develop rapidly in a short period. There is also an optimum use of resources because private enterprises would find the best way to maximize their profit from limited resources. Wastage of resources is minimized as profit is the solitary motivation in private businesses. This is very important especially raw materials are depleting due to rapid globalization. Besides, there is a salmagundi of goods and services to suits everybody’s taste and preference and the market reacts very quickly to the demand of the consumers.

Employees are more motivated and responsible because their jobs are no longer secured. China is one of the most successful countries in developing a mixed economy. Mixed economy had brought a lot of changes to the economy of China. One of the most significant changes is the tremendous growth of the country’s Gross Domestic Production (GDP). With reference to both figure 1 and 2 (Wikipedia, 2006), it is seen that in 1952, the nominal GDP of China was merely at 67. 9 billion RMB Yuan. Since the reformation of market-based economics in 1978, The GDP of China has increased by leaps and bounds from 460.

9 billion RMB Yuan in 1980 to a shocking 25507. 0 billion RMB Yuan in the year of 2010. Farm privatization was carried out by introducing the Household Responsibility System, giving agricultural production responsibility back to households. Farmers were allowed to produce on their own, sell any surplus they produced and retain the profit they earned, provided that they rendered to the cooperative a minimal quota in return for tools, draft animals, seeds and etc. The reformation has brought overwhelming increase to agriculture production of China.

Figure 3 (eBeijing, 2011), shows that almost all types of crops production increased through improvements of organization and technology. Taking grain and cotton as examples, their output increased from 113,180,000 tons and 444,000 tons in 1949, which was before economic reform, to a staggering 508. 390,000 tons and 3,831,000 tons in 1999 which was just only 21 years after reformation. Besides, China’s legalization of foreign investment had cause capital inflows to expand. In 1998, about 40% of China’s exports are produced by foreign-invested enterprises and foreign exchange reserves summated about $145 billion (Wikipedia, 2006).

Foreign exchange reserves of $155 billion and $165 billion were totaled in 1999 and 2000 respectively (Wikipedia, 2006). It further increased to $819 billion in 200, $1. 066 trillion in 2006 and $1. 9 trillion by June 2008 (Wikipedia, 2006). China has now even outdoes Japan with its largest foreign exchange reserves in the world. Today, foreign-invested enterprises further improve, producing half of China’s export and China proceeds to appeal large investment inflows. China, from 1993 to 2001, was the runner-up recipient of foreign direct investment (FDI) in the world, right after USA.

According to World Bank statistics, China received almost $80 billion in 2005 and $69. 47 billion in 2006, making it ahead of others global FDI recipients (Wikipedia, 2006). Luxury goods are also getting more and more popular among the Chinese citizens due to their increasing spending power. The production of motor vehicle industry is expected to expand to almost $200 billion, which is by 29. 5% (Wikipedia, 2006) as many people are shunning traditional transport. Chocolate and other confectionary consumption is also targeted to rise by 24. 3%, expanding to $4. 6 billion (Wikipedia, 2006) to satisfy the cluster of sweet tooth in China.

A growth of 20. 8% (Wikipedia, 2006) is also observed in the fast food industry with the robust entry of major franchises such as McDonald. A report of World Luxury Association (Hu Yang, 2010) showed that China superseded US in becoming the second largest global consumer of luxury goods, with its people consuming 27. 5% of the world’s product. When mixed economy has brought remarkable changes to China’s economy, at the same time it has led to deterioration in environment. As private enterprises are only looking at profit, they are unaware of environmental issues and this has exacerbated pollution in the country especially air pollution.

According to a report published by China’s environmental protection ministry (Jeffrey Hays, 2008) in November 2010, around one third of 113 cities failed to meet national air standards. World Bank studies (Jeffrey Hays, 2008) also showed that among the world’s 20 cities with the worst air, 16 of them are in China and only 1 percent of the China’s 560 million citizen inhaled air considered safe by European Union standards. A study of the World Health Organization (Jeffrey Hays, 2008) estimated that the amount of airborne suspended particulates in northern China has exceeded the safety level by almost 20 times.

Heavy industries and coal-fired power plants accounts for such atrocious condition because tons of pollutants are spewed as they operate so critically to keep in pace with the fast-growing economy. It is sad to know that China has the world highest number of deaths imputed to severe air pollution, with lung cancer as the leading cause. In the previous five years, number of deaths has increased from 18. 5 percent to 34 percent per people (Jeffrey Hays, 2008). It is predicted that 26 percent of all deaths in China are due to respiratory illnesses, which is ridiculously high compared with 2-3 percent in the USA (Jeffrey Hays, 2008).

Apart from that, labor and welfare problem is also an abominable issue due to the development of mixed economy. Before reformation, the socialist policy known as the iron rice bowl is a promise of employment and job-security with womb-to-tomb incumbency to all citizen of China. Reformers eventually abolished the policy because such a labor market was unproductive as overstaffed industries and lack of worker’s incentive to work is not essential for economic development. The dismantling of the iron rice bowl was immediately followed by unemployment of 20 million people in 1979 (Wikipedia, 2006).

The overall unemployment rate in mid-1982 was reckoned to be 5%, which were roughly 25 million people (Wikipedia, 2006), higher than those countries at East Asia and Southeast Asia. At the end of 2003, 7. 4 million laid-off employees (Wikipedia, 2006) had benefited from the unemployment insurance system, which is part of the social security legislation. In 2004, official Chinese statistics showed that 4. 2% of the total city manpower was jobless (Wikipedia, 2006). Income inequality is also a major problem due to mixed economy.

Despite its rapid GDP growth, the dream of being a developed country is still far for China. Due to unequal distribution of growth dividends among the people, income inequality is increasing between different groups of citizens. Until 2011, there were around 150 million people in China living at 1 US dollar every day, which is below the United Nations poverty line (People’s Daily Online, 2011). China’s Gini coefficient of 0. 447 in 2005 (Wikipedia, 2011) further suggests that income inequality was very severe in China. According to a 2007 China Reform Foundation Report (Fang Xu Yuan and Li Yu, 2012), 4.

4 trillion RMB Yuan of grey income, almost 24% of China’s total GDP had not been accounted for. In 2010, the Hurun Research Institute and GroupM Knowledge reported that there were 960,000 millionaires with more than 10 million RMB Yuan in personal wealth (Fang Xu Yuan and Li Yu, 2012). This has showed that income inequality is worsening as years passed by. Such a phenomenon will lead to serious social problems such as increasing crime rates due to poverty and social conflict might appear between the top and bottom income group due to increasing tensions.

In conclusion, it is very obvious that mixed economy is a very good alternative to deputize centrally planned economy. What matters is just that the central government has to control the relative strength and weakness of each element in the system so that the advantages preponderate over the disadvantages. A perfect mixed economy is unlikely to be achieved but its weaknesses have to be minimized to achieve the best equilibrium so that the country and citizens will not suffer from the transition.