Because it was a catching up nation, artificially held back by ill-conceived policies which hit the exponential growth curve.
China is not your standard run of the mill small developing country: it is the world most populous country, which has a territory that is easy to defend, has excellent agricultural land, controls the water reserves of the Tibetan Plateau; it is ethnically quite homogeneous (92% Han) and is well placed for shipping. Most importantly, China has been one of the wealthiest and most cultured nations for millennia.
China has always been a regional Hegemon and one of the wealthiest nations. The correct question to ask is not why China is successful now, but why it found itself to be a backward and comparatively poor country in the 20th century.
According to the CCP, the average Chinese on the street or the Chinese education system, the answer is straightforward: Western subjugation and plundering through the Century of Humiliation following the Opium Wars.
However, this is not supported by evidence.
China´s comparative decline started before the Opium Wars, stagnated during the early ROC era and finally touched the lowest point in its history under Mao´s rule.
The Qing Dynasty was the wealthiest nation on earth and the undisputed regional hegemon. It saw all neighboring nations as vassal states and saw any other nation as inferior, including the British Empire. Just to understand how xenophobic the Qing dynasty was let us just consider three things: teaching Chinese to foreigners was punishable by death, foreigners were not allowed to live in China with the exception of a few eunuchs at the service of the imperial court (they could never return home) and the only port of trade/relations was Canton.
However not everything was well within the Empire: there were three main factor financially draining the Imperial coffers and disrupting social order: corruption was rampant, continuous rebellions and uprisings were widespread and a deeply flowed monetary policy (in particular the variable exchange rate between silver, and copper). The combined effect was that despite China being the single country with the biggest monetary inflow, the Imperial finances were in a deep crisis.
The British Empire tried to deepen exchange with China for generations. Only three delegations were admitted over one century and all three were humiliated. The brits offered to China all the best of Western Technology (from clocks to cannons) asking in exchange for more ports of entry and freer trade.
The attitude of the Qing Emperor is best understood by citing the Emperor himself, in a letter to King George: “we possess all things. I set no value on objects strange or ingenious, and have no use for your country's manufactures.” “You, O King, from afar have yearned after the blessings of our civilisation, and in your eagerness to come into touch with our converting influence have sent an Embassy across the sea bearing a memorial. I have already taken note of your respectful spirit of submission”.
But the Emperor was wrong on two points: even China without those “ingenious manufactures” would be left behind, and the British Empire had no intention to show submission but demanded to be treated as equal.
The rapid increase in wealth due to industrialization allowed Western nations to increase their GDP per Capita exponentially while China stagnated. The narrative that China was comparatively poor because of the opium wars if disproven by two simple observations; First, the trend of Western economies growing exponentially started way before the opium wars, with GDP per capita being higher in the British Empire, USA and Portugal at the beginning of the 19th Century, 80 years before the opium wars. Second, there was no abrupt change in the trends nor in the wealth of China after the opium wars. In terms of total GDP China continued to be the wealthiest country throughout the 19th century, later surpassed only by the USA up to the 1930s.
After the fall of the Qing Dynasty and the establishment of the ROC, China did start to slowly industrialize, yet only in the coastal areas. Countrywide, total GDP per capita stagnated due to the offset of the increasing population. In real terms, what happened was an extreme widening of the wealth gap between the relatively prosperous coastal cities and the poor interior.
Thank WWII hit, hard.
The Chinese Civil war hit even harder.
The combined Effect of WWII and the civil war destroyed China´s industrial base and caused massive brain drain. The former due to the physical destruction of assets. The latter due to the Communist persecution of the “elites”. While the former condition was shared by many countries, Germany in particular, data shows that that was a conditions countries could recover quite quickly from. What however hampered China´s rebound was the latter: sending university graduates to collectivized farms while putting peasants in control of state affairs turned out not to be the best of policies.
However, by the end of the Chinese Civil War China´s comparative DGP per capita did not yet hit rock bottom. That came after the Great Leap Forward (Backwards would have been a more fitting name). While during that period, nearly all Western countries were experiencing an economic miracle, with sustained exponential economic growth. China´s GDP, on the other hand continued to stagnate and also experienced a recession. Communist restrictions and central planning held the Chinese economy hostage. When a country stagnates while the rest of the world grows exponentially the result is that you are left comparatively poor. To compound the issue China also experienced an exponential population growth. The result was that GDP per capita in China was lower in the 1960 than in the 1930. Just the Great leap caused China to fall from being the fifth largest economy by GDP PPP in 1959 to ninth place in 1962.
What economic data show, is that just the great leap caused China a greater fall in comparative wealth than the century of humiliation, WWII and the Chinese civil war combined. Even worse, is that the famine caused by the Great Leap also resulted as many deaths as the two conflicts combined. China did not decrease the export of grains during the famine: the CCP choose to starve those people, as did Stalin to the Ukrainians starved in 1932-33 and the British Empire to the Bengals in 1770. Let that sink in.
The idea that it was Communist regulation causing China to be poor is corroborated by a simple fact: as soon as communist restrictions started to be lifted under Deng and private enterprise allowed, the Chinese economy immediately started to grow exponentially.
The CCP “story” is that wise leadership and sound expenditure in infrastructure caused the exponential growth. Yet once again economic data show a different story: exponential growth of the Chinese economy started as soon as restrictions were lifted, by historic terms virtually overnight. However, Chinese expenditure on infrastructure only started to substantially increase a decade later. It is thus safe to state that it is not the CCP that lifted millions out of poverty: millions of Chinese people lifted themselves out of poverty once the CCP lifted the restrictions that kept them there.
That is not to say that the CCP did not make sound policy choices since then. On the contrary: since Deng´s reforms China has indeed implemented sound strategies and infrastructure projects which have allowed the Chinese business potential to flourish. It has also wisely used international regulations and leverages to its advantage and ensured technology transfer to Chinese industry, re-investing much of revenues in research and new infrastructure. The performance of the CCP, in economic policy, in the period 1980-2008 was remarkable and perceptive although not always ethical. The legendary trading abilities of the Chinese, universal literacy and sound public investment combined have powered the exponential catch-up growth of China.
Why only till 2008? Because politics and economics started to work against each other after the global sub-prime crisis. Over the last decade two factor shave been working against sustained economic growth in China: a global economic slow-down and China starting to reach the mature stage of exponential growth.
The issue is that Chinese politics have been accustomed to high growth numbers and used them, indirectly, as a measure of effective government. One might almost state that the CCP got addicted to high growth rate. The issue is that after the exponential phase of economic growth, the growth rate is bound to decrease no matter how good the government is. The failure to recognize, or accept, this simple economic reality led to a disastrous monetary policy: trying to artificially inflate DGP growth through subsidized debt, especially in public owned or controlled companies. This caused and explosion of Chinese total debt, with a debt increase rate higher than GDP: in other words a net negative ROI and net economic stagnation. In just a decade China has brought the total debt figure to about 300% of GDP, the highest of any developing economy and very high also for a mature economy. This is going to be a massive challenge to correct.
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