Also, local municipalities and provinces were given the power to make investments in the industries that they considered as most profitable, an ability that was formerly limited to central government. This began internal investments and entrepreneurship in light manufacturing. The capitals invested in these developments were not government mandated, but were mostly drawn from the public banking system by beginner entrepreneurs. In addition to this, Deng’s economic reforms made provisions to prevent the state from indiscriminately reallocating business profits thereby making industries virtually independent of state interference.
The reforms also contradicted the earlier Maoist principle of self-reliance and protectionism. The PRC began to see the great economic potential of the international market and the advantage of their immense labour force could take in such an environment. Thus, light manufacturing was directed mainly to exporting ventures and the profits gathered were reinvested for heavier, more technologically advanced industries. The PRC also realized the value of its neighbours in terms of technological advancement.
The country purchased innovative machinery from Japan and the western countries in order to accelerate their modernization process up to the standards of foreign trade. Deng designated a series of special economic zones which accepted foreign companies and allowed market liberalization. Relying on export-led growth, the PRC entered foreign markets, accepted foreign business, and opened its doors to the market driven concepts of globalization and free trade.
In the early years following “The Big Push” when the PRC still adhered to strict Maoist principles, its gross industrial output was estimated at only 34. 9 billion yuan. This grew at a snail’s pace to about 41 billion by the 60s, a total growth of 16% in about ten years. This overall growth cannot be considered as bring uniform throughout the land, as progress was concentrated mainly on the bay areas and cities, leaving many rural parts of the country at an economic standstill for years.
During this time, several problems in economics prevented the PRC from gaining better ground in economic progress. The source of these problems was mainly the inherently limiting nature of its Maoist principles. Its protectionist nature limited economic interaction between the PRC and other countries, thereby denying the PRC of the bountiful potential of a foreign market in need and want of cheap products and even cheaper labour. It also made the country rely solely on its own means to sustain its economy.
Although the PRC has been able to achieve self-sustainability in the years prior to its drastic economic reforms, it has done so at the expense of its citizens’ quality of living and its country’s financial and technological progress. Little interaction with outside economies meant minimal exposure to advances in technology essential to modernizing a country’s processes of production. Also since common business practices of the government run industries adhered to the communistic ideal of equal returns, the employed had no tangible incentives to work harder and strive for progress.
This promoted a culture of mediocrity in the workplace both in the urban and rural areas. After Deng Xiaoping’s economic reforms in the late 70s, industrial growth shot up by 70%, surging ahead of other growing economies such as those of India and Thailand (Maurer-Fazio, 1999). The PRC remarkably maintained this growth throughout the 80s despite the turbulent times brought about by the Tiananmen protests. The agricultural and industrial progress doubled per capita of real income in rural regions, absorbing previously untapped labour in the countryside.
Foreign investment in the bay areas boosted modernization of production mechanisms and infrastructure. In the 90s, the PRC’s economic growth surged even further to as much as 175%. By 1993, investments soared way outside the state’s independent budget. The established Special Economic Zones (SEZs) created an influx of foreign capital that brought more jobs, technological innovations, and positive cultural exposure (Maurer-Fazio, 1999).
Five years after the turn of the millennium, China's National Bureau of Statistics recorded a 16.8% increase of nominal GDP which totalled to Rmb2,336. 3 billion (US$281. 9 billion). This placed only 10% of its massive population below the poverty line and made the PRC the 6th largest economy in the world. Just one year later, the PRC became the world’s 4th largest economy, overtaking both France and the United Kingdom. If current trends were to continue, it is predicted that the PRC would eventually overtake Germany by 2008, Japan by 2020 and the United States by 2040, placing the People’s Republic of China as the world’s largest economy.