China Economic Transition

Economic systems doesn’t remain static as they are always in transition. They are determined by history and culture of their people. A transition economy is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization, where market forces set prices rather than a central planning organization. In addition to this trade barriers are removed, there is a push to privatize state-owned businesses and resources, and a financial sector is created to facilitate macroeconomic stabilization and the movement of private capital.

The process has been applied in China as the country prepares for the once in a decade leadership transition within the ruling Communist Party. The world’s second biggest economy has undergone a massive transformation within the last 10 year. From rapid urbanization and economic growth to social and political development, China has marked many milestones and firsts in the past decade, highlighting its significance on the global stage.

Reasons for China’s economic transitionCitizens of China have been experiencing low economic growth due to government’s rigid long-range plans culminating in either vast shortages or surpluses. Furthermore, China was also falling behind Western economies which had adopted the free market economic system due to the slow technological advancements. The huge bureaucracy was inefficient causing individual workers lacking the profit incentive to do their best and increase their technological level to boost the output. Other than that, bureaucracy also caused the firms to be not profit-oriented can thus firms had no incentive to adopt innovative production methods or to produce good quality goods and services. These were some of the factors for China’s economic transition.

Effects of China Economic TransitionEconomic Growth

Riding the wave of rapid economic expansion, China’s growth engine has remained strong over the past decade. China’s economy jumped from 5th largest in the world in 2002 to 2nd only to U.S by 2010. China have achieved an average annual gross domestic product growth of 10,6% since the last transition. China’s economic growth is good since the economic transition from planned economy system to the free market system. The economic transition has made a positive impact on China’s economy causing it to be a stronger and more successful country. Income Level

The economic development has led to rising incomes in Chine as worker demand higher wages t cope with soaring living costs. In a decade, the income of urban residents has rose to nearly 350% increase. This brings some advantages and disadvantages to the country. One of the disadvantages are firms will be looking for alternative manufacturing hubs in other countries to reduce their production costs by tapping into cheaper labor. This will then cause an increase in unemployment rate in China. The product production curve will move inwards due to unemployment of labor resources. Consumption

Consumers are spending a lot in the last decade. There has been a double digit growth, ranking the country to become one of the world’s biggest consumer markets. Rising incomes amid rapid urbanization are major reason behind China’s consumption boom. Businesses like luxury retailers, carmakers, hotel chains have been flocking to the world’s second largest economy to target Chinese consumers. In fact, Italian fashion house Prada, counts on China as its biggest market with 30% of its global sales. The luxury retailer has more than 19 stores in China and is planning to open up more. The consumption rate increased a lot due to the rise in incomes that demands luxury goods. Billionaire Growth

China’s billionaire count has surged in the past decade since the economic transition. At 2001, China had only one billionaire but the number had increases to 251 during 2012. The positive economic growth has increased the wealth of the citizens. This has also created an income gap between the employees. Thus, creating different classes of people in the country.

ConclusionIn evaluating China’s economic transition, there are advantages and disadvantages of the change from planned economy system to free marketeconomy system. There is always a weakness in every economic transition, therefore every economy needs to keep on improving to achieve a better economic system.