China Economy: Government Role in Economic Stimulus

Beijing, 21 Nov. China can implement economic policy a lot easier and faster than other large economies like the US, Japan, or European economies can due to its central, communist structure. This makes it easier to dictate the country’s direction in times of economic need or crisis, without the back-and-forth debates and indecision seen elsewhere.

Beijing, 21 Nov. China can implement economic policy a lot easier and faster than other large economies like the US, Japan, or European economies can due to its central, communist structure. This makes it easier to dictate the country’s direction in times of economic need or crisis, without the back-and-forth debates and indecision seen elsewhere.

In the US, the action taken in the wake of the financial crisis was slow, full of heated debate and just highlighted the uncertainty of both lawmakers and financial institutions – think how consumers felt. Of course, democracies are nice, and it is healthy to view all angles of an issue and stress-test each one instead of blindly jump into how to spend $700 billion.

China’s ability to implement instant, blanket law might be nice at times too, but has resulted in exactly what happens in most communist and dictatorial governments: restrictions of freedom of press, religion, political beliefs and other violations of basic human rights, as viewed by the west. China is like a big kid on the playground that doesn’t quite fit in with the cool crowd and nobody really trusts – just don’t make him mad. As a result, China seems to be constantly vying to earn the trust of the world.

Ever since China’s free market reforms began in 1978, the nation has gradually and successfully emerged as a global economic power. China phased out old communist standards, such as collectivized agriculture and a lack of autonomy for state enterprises. Reforms in the financial system, privatization, and relaxation in FDI followed with this liberalization.

It has been done slowly and carefully to avoid any of the shocks associated with overnight changes in an economic system. Massive and sudden introduction of foreign funds and a total relaxation of policy would obviously have spelled disaster. China even started (much before 1978) with 5-year plans, as seen also in India. These are remnants of Soviet-style development strategies.

Throughout this massive growth period, the Communist Party has sought to portray a climate of progress, stability, and an overall smooth transition into the market economy China is becoming. And without bipartisan debate or dispute, it has been very easy to project whatever figures to the world it wanted.

Indeed, GDP growth in China has been impressive in the past years. China’s robust financial system, high per-capita savings, and export-led, manufacturing-based economy have contributed to its growth and long-term potential. Between 1990 and 2004 the Chinese economy grew at an average annual rate of 10%. This is despite the many bureaucratic and unproductive state-owned enterprises which weigh it down, as well as the masses of non-performing (unpaid) loans the financial system has to absorb.

While the government has far less say in the economy now than it did in communist times, it still guides the nation’s economic development