An industrial plant, Beijing, 1986. PHOTO BY JOAN LEBOLD COHEN.
China is rapidly becoming an industrialized country. Since 1980 its gross domestic product has grown at an average rate of 10 percent annually, the highest in the world. China now ranks among world leaders in the output of steel, cement, coal, chemical fertilizers, and electronics.
China’s first attempts at modern industrialization occurred during the nineteenth century when the Qing dynasty (1644–1912) military leaders, who urged China to borrow technology from the West, initiated the Self-Strengthening Movement. The slogan voiced by one of the proponents of the movement, Feng Guifen (Feng Kuei-fen) (1809–1874), was “Learn the superior techniques of the barbarians in order to control the barbarians” (Mason 1997, 410). In light of the strong military influence, from 1861 until 1872 the emphasis was on manufacturing weapons. Later (1872–1894) the emphasis shifted from weapons to a broader range of products and from close central government control to control by regional authorities. The most conspicuous enterprises during that period were the China Merchants’ Steam Navigation Company and the Kaiping coal mines.
In time, because of bureaucratic inefficiencies, internal embezzlement, and corruption, most of the enterprises became economically unsuccessful. Scholars have argued that traditional society and traditional system of values contributed to the slow and uneven pace of industrialization from the end of the nineteenth century until 1916.
Wrapped up in political turmoil, civil war (1927–1950), the Japanese invasion and the subsequent War of Resistance against Japan (1937–1945), China was able to resume industrialization process only in 1953 with its first Five-Year Plan (1953–1957). During that plan the government prioritized rapid industrial development at the expense of agriculture. The privileged sectors included the iron and steel industries, electric power, coal, heavy engineering, construction materials, and chemicals. China’s Five-Year Plan followed the example of the Soviet model of industrialization with the goal of building a large-scale heavy industry production base. Chinese Communist Party (CCP) leader Mao Zedong, like Soviet leader Joseph Stalin, used agriculture as a resource for the development of industries. The Soviet Union helped China build plants with Soviet technical and financial assistance. In fact, prior to 1956, when the first truck was built by Changchun’s First Auto Works (FAW) in collaboration with the Soviet Union, China had almost no automotive manufacturing.
The next major campaign to industrialize was undertaken by the Chinese Communists between 1958 and early 1960 during the Great Leap Forward. The goal was to mobilize the population to solve China’s industrial and agricultural problems. Because of China’s vast labor resources, the labor-intensive method of industrialization rather than reliance on heavy machinery was chosen. Because the Great Leap Forward emphasized small-scale manufacturing, its most absurd manifestation was an imposition of small backyard steel furnaces in every village rather than construction of large steel plants. The Great Leap Forward was inherently deficient because of the prevalence of ideology over expertise, errors in implementation, and economic inefficiency of the commune-based small-scale production. As a result China’s agricultural sector was seriously damaged, and about 20 million people died of starvation between 1958 and 1962.
China’s modern industrialization is usually associated with the economic boom that began in 1978 with Chinese Communist Party General Chairman Deng Xiaoping’s reforms. The Four Modernizations program was announced in 1978 to facilitate progress and reform in the fields of agriculture, industry, science and technology, and national defense. China also introduced an open-door policy and invited foreign direct investment (FDI).
Focus on Agriculture
The first period of the reforms (1978–1984) focused on agriculture. One of the features of the agricultural transformation was the household responsibility system, which gave families permission to launch family cooperatives. The immediate focus on agricultural reform was pragmatic: to provide food for 1 billion-plus people. The success of the household responsibility system in the agricultural sector made two substantive contributions to reform in the manufacturing sector. First, the agricultural reform prompted farmers to be more productive. Surplus farmers migrated to the manufacturing sector and satisfied the labor demand. In 1980, 68.7 percent of employment was in the agricultural sector, declining to 46.9 percent in 2000. Second, farmers’ increased income boosted demand in manufactured products and allowed them to indulge in consumerism.
The second period (1984–1992) was characterized by the dismantlement of the Soviet-style centralized economic system and the shift toward a market-oriented system, usually termed “socialism with Chinese characteristics.” The third period of the transition (1992–1997) continued market-oriented reforms and intensive industrialization.
Since the early 1990s China has allowed foreign investors to manufacture and sell a wide range of goods in the domestic market and has authorized the establishment of wholly foreign-owned enterprises in some industries. China is now one of the world’s leading recipients of FDI. It received $60 billion in 2005. The inflow of FDI into China over the period of twenty-five years surpassed $623.8 billion in 2005. The first serious investments into the realization of the Four Modernizations were made by the Chinese in Hong Kong, Macao, Taiwan, and by ethnic Chinese from Singapore, Southeastern Asia, and the West. Following the Chinese, the West started to invest in China. Western investors are attracted by the huge Chinese market, cheap labor, flexible environmental regulations, closeness to raw materials, and low construction costs. The establishment of special economic zones (SEZs) created a valuable instrument of investment allocation. The zones represent favorable investment climate regimes that provide various incentives to foreign investors, including tax exemptions and developed infrastructure. SEZs rely on centrally conceived legislation and are administered by local authorities. SEZ is an umbrella term that emerged from the original four SEZs located in Guangdong Province (Shenzhen, Zhuhai, and Shantou) and Fujian Province (Xiamen). Currently forty-nine national-status zones are divided into several categories: national economic and technological development zones (ETDZ), national free trade zones (FTZ), national high-tech industrial development zones (HIDZ), national Taiwanese investment zones (TIZ), national border and economic cooperation zones (BECZ), national export processing zones (EPZ), and national tourist and holiday resorts (THR).
Because of the investment regimes created in special economic zones, the eastern and southeastern coastal areas of China account for about 60 percent of the national manufacturing output. However, many industries are situated in the interior of China, especially coal mining. China’s most important mineral resources are hydrocarbons, of which coal is the most abundant. Most coal deposits are located in the northern part of the country.
In March 1992 Deng Xiaoping announced that China should not be constrained by ideological and political arguments about which label the reforms should carry—socialism or capitalism—implying that the economic transition is not about the label but rather about the process. The famous saying, “It does not matter whether the cat is black or white as long as it catches mice,” is attributed to Deng Xiaoping and alludes to the new mixed system of economic organization that combined market and socialist elements. Another slogan of economic reforms in China, “To get rich is glorious,” encouraged entrepreneurship. The economic reforms are slow and gradual when compared with the Russian quick transformation of the 1990s that combined both pro-market economic reforms and pro-democracy political reforms.
Since 1980 the average annual rate of growth of China’s gross domestic product (GDP) has been 10 percent, the highest in the world. This period of accelerated growth in an industrializing country such as China is referred to as “catching up.” China’s industrial transformation was largely inspired by the experiences of the East Asian latecomer countries. Today China has the world’s fourth-largest economy in terms of GDP after the United States, Japan, and Germany.
Because of a trade surplus (China exports more than it imports), in 2006 China’s holdings of foreign-currency reserves, the yields of fast-growing exports, reached $1 trillion. Exports reached $762.3 billion in 2005. Major exports are electronics, machinery, apparel, furniture, and optical, photographic, and medical equipment. The main partners are the United States, Hong Kong, Japan, European Union, South Korea, and Singapore.
China’s industrial revolution over the past twenty-five years has allowed it to emerge as a leading industrial economy. At present China is referred to as the “world manufacturing base.” The manufacturing sector accounted for 52 percent of China’s GDP in 2003. As early as 1999 China ranked among world leaders in the output of steel, cement, coal, chemical fertilizers, and television sets.
Most heavy industries and products considered to be of national strategic interest remain state owned, but an increasing number of lighter and consumer-oriented manufacturing firms are private or are private-state joint ventures. At the beginning of the reforms China’s industrial policy focused more on marketization of the socialist economic system than on privatization of state-owned enterprises. The policy is changing now as more and more sectors are opening up to private investment.
Among industries the metallurgical and machine-building industries have received high priority and account for about two-fifths of the total gross value of industrial output. China is a major player in the global steel market with regard to consumption and production. China’s steel consumption constituted 32 percent of the world’s total in 2005, and annual crude steel production surpassed the combined output of Japan, United States, Korea, and Russia. Chemical and petrochemical industries also receive state attention. The growth of the chemical industry has placed China among the world’s leading producers of nitrogenous fertilizers.
The pace of industrialization quickened and diversified in the 1990s. China developed automobile, aircraft, and aerospace manufacturing. In addition, China expanded rapidly into the production of electronics, semiconductors, software, and precision equipment, often in cooperation with foreign firms. The consumer electronics sector has been especially successful.
The automotive sector is one of the pillar industries in China. At present China occupies third place after the United States and Japan among the fifteen largest motor vehicle-producing countries. According to the recent Five-Year Plan (2001–2005), the goal for the auto industry was the production of 1 million cars a year. In 2002, the automobile industry in China was reported to consist of thousands of vehicle manufacturers and auto parts makers, employing nearly 2 million workers. A prominent trait of the Chinese automotive sector since the industrial transformation in the 1980s is heavy reliance on borrowed technology. Until the end of the 1990s nearly all cars manufactured in China were produced by joint ventures. As the end of first decade of the twenty-first century approaches, every large world automaker has a presence in China. With China having the potential to become the world’s largest car market—China’s January 2009 auto sales surpassed those of the United States for the first time—no major car manufacturer can afford not to be operating in China. The presence of foreign automakers is usually an indicator of a developed network of local suppliers—component parts manufacturers. Foreign automakers form joint ventures with Chinese state-owned companies to produce cars for the domestic market and for export. The industry is dynamically developing: China’s auto exports hit a record of 340,000 units in 2006, more than double the figure for 2005; in 2007 the number of vehicles and chassis reached 612,700.
One of the keys of China’s industrial revolution is state support of science and technology (S&T) and applied research. Between 1994 and 1998 nationwide research and development (R&D) funding as a percentage of GDP was 0.6–0.7 percent. This indicator increased sharply to 0.83 percent in 1999 and 1.01 percent in 2000. Whereas most developed countries’ R&D percentages range between 2 and 2.5, China stands out as a heavy spender among developing countries. Mexico’s R&D spending, for example, ranged from 0.31 percent in 1994 to 0.4 percent in 1999, and India’s ranged from 0.81 percent to 0.86 percent in the same period. China’s government reported investing more than 57.6 billion RMB ($6.9 billion) in S&T in 2000, an increase of 4.8 percent over the previous year. The general directive of the S&T system is to enhance research implementation—the system encourages research institutes to launch commercial spin-offs based on successful applied research in their laboratories, especially in the high-tech sector.
Abundant Labor Force
One of China’s major resources is its abundant labor force. China’s population base of 1.33 billion people will continue to provide a labor supply at a relatively low wage rate for a long time. Consequently, the wage rate will go up, as it historically has in all mature industrialized economies.
Transportation is a key to an industrialization effort. Railway construction began in China at the end of the nineteenth century. Because railways can carry a large volume of goods over long distances, they are of special importance in China’s transportation system. Coal has long been the principal railway cargo. The increase in the production of petroleum and natural gas has made it necessary to build pipelines. Since the 1980s and especially since 1990 the emphasis had been on construction of highways. Thousands of miles of multilane express highways have been built in and around large cities to accommodate a vigorously increasing traffic. The road mileage has roughly doubled since the early 1980s. However, the increase in the motor vehicle fleet has grown more rapidly than road construction, especially in Beijing and Shanghai.
Since ancient times water transport has played a major role in moving goods. The Yangzi (Chang) River, the most important artery in China’s waterway network, accounts for almost half of the country’s waterway mileage. China has more than 125,000 kilometers of navigable inland waterways, the most extensive system of any country in the world.
In light of the impressive industrialization growth, China faces a number of challenges that can impede further development. One of the challenges is the resource and energy gap. China is generously endowed with raw materials, but, taking into account the accelerated development rate, these resources soon may be exhausted. At present China has reserves of 153 minerals, which positions China in third place in total global reserves. The country has abundant coal, oil, and natural gas deposits. However, the development of present resources does not keep up with the speed and growth of demand. Experts estimate that among the forty-five major minerals in China, only twenty-four will be able to meet demand in 2010, and only six will be able to meet demand in 2020. China will depend on the supply of gas and oil from abroad.
Another challenge is the deterioration of China’s environment as a side effect of intensive industrialization. In the absence of appropriate environmental protection policies, China’s human capital will be harmed. China faces a water shortage, which will have a dramatic impact on both industry and health care. Pollution, increasing desertification, and a growing population have put China’s annual per capita water availability at 2,200 tons, representing 25 percent of the world average. The volume of global air pollution will also increase as the billion-plus people in China begin to drive automobiles in massive numbers. If China’s number of motor vehicles per capita were comparable with the world average, its fleet would total 160 million, with 10 million new and replacement vehicles purchased each year.
Another development challenge facing China is the discrepancy in the contributions of the industries and services sectors to the GDP. Industry in China has surpassed the agriculture and services sectors in economic growth. Value-added shares of GDP in 2003 constituted 52 percent for industry, 33 percent for services, and only 15 percent for agriculture. No doubt China has emerged as a leading industrial economy. However, some argue that the fact that China’s growth in the manufacturing sector has failed to be matched by the growth in its services sector is an indication of underdevelopment. Industrial structure evolves from primary industry to the secondary and finally to the services sector. In many countries the manufacturing sector’s share within a country’s overall economy goes up at an early stage of economic development but declines when the country’s economic level approaches that of advanced countries. For example, the manufacturing sector’s share of GDP in advanced countries, including Japan and the United States, has fallen to about 20 percent in recent years. This decline shows that deindustrialization is occurring in most advanced countries in the world.
In 2002 Xu Kuangdi, president of the Chinese Academy of Engineering (CAE), declared that China would need about twenty years to become an industrialized country and another thirty or forty years to become a modernized country. China is now on the path to those two goals. Many analysts are calling for sustainable industrialization of China, which involves balanced economic and social development, better regional integration, and more attention to the environment.
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Butcher the donkey after it finished his job on the mill.
Xiè mò shā lǘ
Source: Aervitz, Irina. (2009). Industrialization. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 1159–1165. Great Barrington, MA: Berkshire Publishing.
A woman working at a heavy machinery plant in Beijing. PHOTO BY JOAN LEBOLD COHEN.
Industrial plants like this one in Beijing find a ready pool of skilled workers and a market for the goods they produce. PHOTO BY JOAN LEBOLD COHEN.
A worker in a watch-making factory, Shanghai. PHOTO BY JOAN LEBOLD COHEN.