How early foundations fueled China's modern growth

Editor's note: Zhang Yu, a special commentator on current affairs for CGTN, is the director of the Economic and Trade Research Office at the National Academy of Economic Strategy of the Chinese Academy of Social Sciences. The article reflects the author's views and not necessarily those of CGTN.

Over the past 75 years, China has seen unprecedented growth in its economic, technological, and military strength, as well as its comprehensive national power. The rapid development of China underscores the success of reform and opening-up, yet the early efforts in establishing a socialist system and laying a strong political and economic foundation should not be overlooked. In fact, the periods before and after the launch of the policy are distinct but interconnected.

Big trees have deep roots

In July 2024, Foxconn Group, which had previously moved parts of its supply chain on the Chinese mainland to places like India and Vietnam, announced a 1 billion yuan ($141 million) investment in its new headquarters in Zhengzhou, Henan Province in central China. At the same time, Apple is planning to relocate some of its manufacturing back to China and include major Chinese companies like BYD and Luxshare Precision in the iPhone 16 supply chain. Despite U.S. rhetoric around "decoupling," overseas capital continues to pour into China, highlighting the enduring vitality of China's reform and opening-up.

Since 1978, China has transformed itself from a less developed country to the world's largest industrial and trading nation through market reforms and integration into the global manufacturing network.

Throughout this journey, China has weathered the pains of institutional reform, the global financial crisis, the COVID-19 pandemic and other challenges. Even with demographic shifts and pressures from the West, China has remained a hub for global manufacturing and innovation.

In contrast, both Latin America countries, which established market-oriented economic institutions and opened their doors ahead of China, and Eastern European countries, which embraced more thorough economic transitions, experienced only brief periods of growth before falling into stagnation.

Why has China's reform and opening-up succeeded where others faltered? The answer may be found in the strong groundwork laid down in the early days of the People's Republic.

A comprehensive industrial system

One of the key reasons foreign enterprises continue to invest in China is its comprehensive industrial system and vast domestic market.

Take French automotive parts maker EFI as an example. Over 90 percent of its products manufactured in China are supplied to Chinese companies, while 80 percent of the electric motors and 100 percent of the magnets needed for manufacturing come from local Chinese suppliers. The strength of China's supply chain, coupled with a mature market, gives companies like EFI the confidence to deepen and widen their presence in the country.

This industrial cluster advantage traces back to China's early industrialization efforts. Since 1949, the government has concentrated its resources, though limited at that time, on the industrial sector and managed to rebuild the national economy from the ruins of war and achieved rapid growth in industrial production. Between 1949 and 1952, China's industrial output surged from 14 billion yuan ($1.97 billion) to 34.3 billion yuan ($4.84 billion), an average annual growth rate of 34.8 percent.

With financial, technical, and equipment assistance from the Soviet Union and Eastern European countries, China built nearly a thousand industrial projects during its First Five-Year Plan. These projects helped China form the early framework of an independent industrial system and lay the initial foundation for socialist industrialization.

The establishment of China's industrial system not only laid the foundation for the country's economic takeoff at the start of the reform and opening-up by absorbing capacity from international industrial transfers, but also planted the seeds for the continuous expansion and development of its industrial ecosystem in the years that followed.

Highly skilled workforce

When reform and opening-up started, China was not the lowest-cost labor market. Under open market conditions, business location decisions are more sensitive to comprehensive costs, which include workers' knowledge, skills, and productivity. China's labor cost advantage was the result of its early efforts to improve the quality of its workforce.

After 1949, China launched massive literacy campaigns and developed both primary and higher education. By 1982, the country's illiteracy rate had dropped to 22.81 percent, down from around 80 percent in 1949. A disciplined and educated workforce became the backbone of China's manufacturing competitiveness and remains a key driver of long-term industrial vitality, even as the demographic dividend fades.

Efficient governance

Since 1978, China has built the world's largest high-speed rail and highway networks, and completed national infrastructure projects such as the Three Gorges Dam, South-to-North Water Diversion, West-to-East Gas Pipeline, and West-to-East Electricity Transmission. The country has also made significant strides in cutting-edge fields like aviation, aerospace, semiconductors, and quantum computing.

These advancements have laid a foundation for further deepening reforms and expanding openness. Such achievements rest on the governance capabilities honed since 1949. The merit of China's system, i.e. pooling resources to accomplish major undertakings, continues to serve as a critical accelerator and a stabilizer in the ongoing reform and opening-up process.

Amidst the uncertainties of international geopolitics, efficient governance is becoming a key component of a country's competitive positioning. Despite the disruptions caused by the COVID-19 pandemic, China was one of the few nations to maintain the normal order of production, with its import and export volume reaching a record $6.05 trillion in 2021, surpassing the $6 trillion mark for the first time.

Behind this achievement lies China's strong primary-level governance and mobilization system –another valuable legacy from the early socialist period.

Evolving policies in changing circumstances

China has achieved in a few decades what took developed countries centuries. Without the reform and opening-up policy, this progress would not have been possible. However, without the socialist revolution and development that preceded it, reform and opening-up would have faced significant challenges. At each stage, China has made strategic decisions in response to changing circumstances.

In 1949, China's electricity generation capacity was 4.308 billion kilowatt-hours, around 1/69th that of the United States. China's railway network spanned 21,800 kilometers, less than half the length of India's. Compared to Japan, which had been "almost leveled" by the Second World War, China's per capita production of caustic soda was only 1/70th, steel 1/140th, and chemical fertilizer 1/700th. That was all on the plate of the new People's Republic.

For the then so weak an economy, fully embracing market competition and opening up entirely would have inevitably reduced it to an "economic colony" of developed countries, i.e. a site for them to dump commodities and plunder resources.

It was not until the late 1970s that China truly had the foundations necessary for meaningful reform and opening-up. Internally, after 30 years of exploration, China had largely established a socialist system and solidified its political foundation. Industrialization, infrastructure, and workforce quality had seen significant improvement, laying the groundwork for fully participating in the international division of labor.

In the meantime, China's socialist development during those first 30 years also revealed challenges such as bureaucratic rigidity and a lack of dynamism. This had created a strong internal demand for reform.

Externally, the thaw in Sino-American relations improved China's international environment. Meanwhile, the globalization of production by multinational corporations triggered a wave of industrial relocation. New developed economies, such as those of Japan and South Korea, faced internal pressures to transfer marginal industries. This created a rare opportunity for China to absorb international capital and integrate into the global production and division of labor system.

Under the favorable internal and external environments, the advent of the reform and opening-up policy in 1978 naturally became a key turning point in China's socialist development cause.

The historical stages before and after reform and opening-up are distinct yet interconnected. Although their development strategies and paths differ, they are united by the CPC's practical exploration of socialist development and a consistent foundation in terms of core principles and ideological spirit.

China's institutional innovation and openness was not a sudden leap in 1978. Rather, it has been deeply rooted in decades of foundational work and will advance further. Staying committed to the basic goals and principles of socialism while adjusting institutions and policies to meet the needs of productive forces and the international environment have been the driving force behind China's rapid development over the past 75 years. As China continues to adapt to global challenges and advance the socialist cause, these deep roots remain the source of its strength.

(If you want to contribute and have specific expertise, please contact us at opinions@cgtn.com. Follow @thouse_opinions on X, formerly Twitter, to discover the latest commentaries in the CGTN Opinion Section.)