China is one the hottest economic destinations now, if you see the latest reports it is having a 9% GDP growth and an FDI inflow of $108.3 billion. The mammoth nation is growing too fast. Greenspan had a story to tell here about how china has slowed imparted capitalism into its political system by modifying it a bit !

The growth of nations like China and India which have huge populations have been on the slower side. They seem to have picked up only in the last decade. Investment Freedom, Financial Freedom and Property Rights are way below the average. If you see the turn of things which have had such an impact you need to go all the way back to the origin of the country. China started as a central planning state. Not to mention in such a situation, the market prices and what the market should be supplied with ( not considering the demand into picture ) is all decided by the state. Orders just flow in the hierarchical manner. In the process, the producers have to be in favor with the officials who are in direct contact with the market. And then comes corruption into picture. As the market forces grow stronger, they had to stop influencing the market which they did.

China took the first hit in the 1978 drought which has proven central planning to be less effective and immediate measures were to give the property rights of the farms to the producers. They have realized that property rights are a crucial part of the economy. It generates a monetary inflow by giving the owner a chance to sell the property at a higher prices which in turn generates cash flow and people are also free to borrow money on the property to invest it somewhere else. Imagine a drought has hit and the farmer needs capital for the next season, he is going to lend money on the property. This gives the producer the opportunity to move on. But Marxism says otherwise, state ownership on the property is always a good sign. State virtually holds all property rights which gives control over the producers and production and eventually a central control on the society’s ability to produce wealth. Eventually ownership has been replaced by regulation by economists for a better functionality of socialism.

Deng Xiaoping is the Chinese economic reformer who had a great impact on the Chinese economy for decades. He developed a theory which was known famously as Deng Xiaoping Theory and suggested that Mao Theory ( Marxian thought ) must be modified a bit to uphold the socio-economic conditions in china. He is also clearly against the Liberal state of the markets or free markets in general.

Later china went for major reforms on the currency exchange norms and trade regulations and what we see today is a sensitive balance between the political system and the economic system which they are ready to change if necessary. The Chinese export industry is the probably one of the best in the world. Next to it comes the rest of the similar Asian countries, Taiwan, Hong Kong, Korea etc. And one more serious problem they have been dealing with is the urbanization leading to decrease in the rural population. When industrial areas are paying better wages, there is no point in depending on the agricultural production which is heavily dependant on the most uncertain thing, weather. This is a problem with other developing nations as well. In such a situation if property rates, government spending and subsidies are not increased over time, there will be bigger problems to deal with in these nations. Chinese rural to urban population is at 1.4 % annually and it has also proven to increase the productivity of china. One more advantage with market economies is the disturbances in the markets are easily adjusted with the variable interest rates, but in china  the central banking system holds the interest rates and only modifies them in case if any disturbance has shown up. Adjusting anything at that point might also be counter productive. Chinese leaders are, i guess are busy thinking about these things as well.

But the problem with china remains as long as the party sticks to its philosophical roots when they are in such a strategic advantage compared to the rest of the world. Almost every one is out matched to its labor power ! Can the party compromise over time to Market Capitalism ? That would a serious change something only time can answer as of today !!!

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