How China explains its economic success

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Editor's note: The article is based on a report released by the Academic Center for Chinese Economic Practices and Thinking (ACCEPT) of China's Tsinghua University, entitled "Economic Lessons Learned from China's 40 Years of Reform and Opening-up." Views in this article are expressed by the report, and do not necessarily represent those of CGTN.

China's approach to achieving one of the most robust economies in the world has been far from conventional. While swarms of economic analysts and theorists outside the country have offered a vast array of feasible explanations for its miraculous economic growth, it is important to pay heed to how China perceives its own development – not only because China itself is in a better position to understand its own unique route to prosperity, but also because this understanding has implications for its future development strategy.

In December 2018, the Academic Center for Chinese Economic Practices and Thinking (ACCEPT) , a research center at one of China's top universities, Tsinghua University, held an international symposium where highly respected economists of both domestic and international fields gathered to discuss China's personal relationship with its growth over the course of the past 40 years.

Visitors sit in front of an artwork in the "Great Tides Surge Along the Pearl River: 40 Years of Reform and Opening-up in Guangdong" exhibition at the Museum of Contemporary Art & Planning Exhibition (MOCAPE) in Shenzhen, China, Dec. 14, 2018. /VCG Photo

After the event, ACCEPT released a report which is a result of nine months' of research and elaborates on the five economic lessons China and the rest of the developing world can draw from its momentous progression.

Those responsible for the extensive report believe China's development model has been unlike any other in modern history, with the most glaring difference being the government's stronghold over its economic activity at the start of the reform and opening-up policy.

Over the past 40 years, China has developed with the intent to deviate from the highly centralized planned economy. Its growth coincided with the state loosening its grip over the economy. The lesson learned may be useful for countries looking to China as an economic role model.

The report notes five things that can be learned from China's success story. Firstly, a nation's economic development is impossible without fresh enterprises actively participating in the economy. However, the entrepreneurs responsible for founding these enterprises need to be able to rely on a competent government's ability to foster these businesses via a competitive and responsive business environment.

In China's case, local governments have helped bolster local enterprises through various means. The incentives for the local governments to do so are based on calculations of political and economic returns.

A woman is seen standing in front of a painting of the Hong Kong-Zhuhai-Macao Bridge in the "HK Tugs at My Heartstrings: Art Exhibition to Mark 40 Years of Reform and Opening-Up Policy" in Hong Kong SAR, China, December 21, 2018. /VCG Photo

Politically, the promotion of officials in Chinese local governments largely depends on good economic performance which is inseparable from thriving enterprises. Economically, because a large amount of revenue for local governments comes from these local enterprises, they are incentivized to support these enterprises in an effort to increase revenue. Peering into the future, the report believes the government needs to create a good business environment that supports new enterprises' growth.

Second, quick conversion of land use is key to economic growth. In China, local governments have both the incentive and the authority to speed up this conversion. In most cases, they are the ones planning land use and negotiating with farmers before converting agricultural land to urban land. If a local government decided to build an industrial park, developers will directly acquire the right of land use from it, by either participating in auctions or purchasing the right from the government.

Third, an increase in residents' financial assets and financial stability plays a major role in economic development. The report points out that residents increasing their financial assets reduces the savings rate and injects more money into the market which, in China's experience, supports the manufacturing sector. It notes that in 1978, China's financial assets was 0.6 percent of its GDP, but this number made the steady climb to its current value of four times of GDP. At the same time, it is important that the government ensures financial stability as it helps reduce the concerns of tentative investors by reducing financial risk.

Fourth, the fundamental reason for China's success in globalization has been its employment of "learning." The report explains that as early as the 1980s Chinese enterprises set up joint ventures with companies of highly developed economies like Germany and the U.S. which greatly facilitated the emergence of the country's automotive industry.

However, opening up has not only produced opportunity but also triggered shock waves. To better cope with risks associated with globalization, the report suggests that the government should provide support for workers and enterprises as its done in its history.

Jack Ma, founder of Alibaba, at the conference commemorating the 40th anniversary of reform and opening-up at the Great Hall of the People in Beijing, China, December 18, 2018. /VCG Photo

Finally, the central government needs to be proactive in its macroeconomic management. The report points out that the Chinese central government has taken an active role in managing the macroeconomy. When the economy is under fire, the government forces poor performing companies out of the market. In doing this, it cleanses the economy of the grime that "clogs" the continuous growth the government intends. When the economy is overheating it postpones the approval of new projects and instructs commercial companies to reduce loans. This way the government can improve the management of its resources and the efficiency with which it uses them.

However, while the lessons learned from China's growth can be implemented into other growing economies, it is important for a nation to utilize its adaptability as China has. The most important lesson to take from China's economic climb is that a country has a choice based on its values as to whether it follows in the footsteps of another or clears a path of its own.

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