China’s Growth Miracle and Development Strategy Since the 1980s. 

By Dr Kalim Siddiqui 

I. Introduction 

Over the past four decades, China has undergone a remarkable economic transformation, often called a “Growth Miracle.” In less than two generations, it has evolved from a low-income, agrarian society into a productive, manufacturing-driven, middle-income nation. During this period, improvements in income, education, and healthcare have been substantial. Since 1978, economic reforms have lifted hundreds of millions of Chinese citizens out of poverty, leading to a rapid enhancement in living standards—an achievement unparalleled in human history. The World Bank study (2013) estimates that these changes have moved over 800 million people out of poverty. 

This article provides an overview of China’s economic development since 1978, examining the political economy of its growth, its global implications, and the extent of its economic progress. Understanding China’s unique developmental path is especially critical for international business, given its rapid ascent as an industrial powerhouse and one of the world’s largest consumer markets, with significant impacts on the global economy. China’s modernization was orchestrated and supported by the Communist Party of China, distinguished by two notable aspects: First, unlike other developing economies, including Russia, China managed its transition from a planned to a mixed-market economy without substantial economic disruption, while maintaining high growth rates. Second, China’s gradual approach to deregulation has avoided the entrenched interest-group politics that have often hindered similar efforts elsewhere. (He and Wang, 2024) 

China’s pro-market reforms, initiated in 1978, included significant changes to agriculture and rural sectors, notably the de-collectivization of agriculture. The country opened to foreign investment, allowed individuals to start businesses, and lifted price controls in 1985. While these reforms were gradual, and privatization was limited to some state-owned industries, the government retained control over key strategic sectors. As regulations eased, market forces of supply and demand played a larger role in shaping the economy. (Siddiqui, 2015)  

These reforms attracted foreign investment and promoted international trade. The primary drivers of growth were large-scale capital investments—stemming from both foreign capital and domestic savings—and rapid productivity gains. These factors worked in tandem, as economic reforms enhanced efficiency, boosted output, and created resources for reinvestment. (Siddiqui, 2024) 

Mainstream economists highlight productivity gains (i.e., increased efficiency) as another major factor in China’s economic expansion. Productivity improvements were achieved largely through reallocating resources to more productive uses, especially in sectors previously under strict government control, such as agriculture and trade. Rural reforms increased agricultural output, enabling many farmers to migrate to cities, where they found better opportunities in manufacturing. Decentralization encouraged private enterprises and individuals to pursue new opportunities outside the state sector. Additionally, exposure to competitive forces in the export sector and foreign investment introduced new technologies and management practices, significantly enhancing efficiency. 

II. Modernization and Global Capitalism 

Modernization, in recent history, often refers to the transformation of a society from an agrarian base to a technologically advanced, industrialized economy with high productivity. Under capitalism, this process began with Britain’s Industrial Revolution in the late 18th century, when capitalists hired wage labour to produce goods and services. Over time, these industries evolved into large-scale mechanized enterprises, producing goods for broader markets. Driven by the capitalist imperative to control resources and expand markets, improvements in transportation and communication helped broaden trade networks and stimulate global trade. However, the worldwide expansion of capitalism has not always yielded positive outcomes for all communities. (Siddiqui, 2020a) 

Britain’s path to industrialization, for instance, relied heavily on exploiting its colonies, from which it accumulated “surplus” wealth to reinvest in its own industries. While capitalism has undeniably led to the development of modern infrastructure and expanded markets, it has also been linked to widespread poverty, crime, and even slavery. The bourgeoisie, or capitalist class, has historically exploited workers while amassing considerable profits. Beyond the core capitalist countries, the pursuit of raw materials and markets for surplus goods often turned many regions into colonies or semi-colonies, frequently through coercion, reducing these areas to targets of exploitation and control. 

Historically, China, too, endured foreign military interventions that led to significant political and social upheaval during the late Qing dynasty. European powers, along with Russia and Japan, seized Chinese territories, subjecting the country to what is now known as the “Century of Humiliation” (1839–1949). This period began with Britain’s invasion of China in 1839 to open Chinese ports for the opium trade, marking the start of the First Opium War (1839–1842). This conflict stemmed from the illegal opium trade, which had escalated sharply since the 1820s. The Second Opium War (1856–1860) saw British and French forces invade China again, culminating in the plundering and burning of Beijing’s Summer Palace in 1860. Japan also attacked China in the 1910s and again in the 1930s, occupying large portions of Chinese territory. These interventions triggered widespread civil strife and suffering within China throughout the 19th century, resulting in the deaths of tens of millions of Chinese people. (Siddiqui, 2020b) 

III. Opening of China’s Market to Foreign Investors 

In the mid-1970s, Western economies faced stagflation, partly due to declining profit rates as former colonies gained independence, driving up raw material prices and reducing profit margins. The opening of China’s market offered Western economies an opportunity to export capital and technology to a low-wage economy, with hopes of restoring profitability. Additionally, during the 1980s, the United States grappled with a balance of payments crisis, exacerbated by Japan’s high productivity growth and export boom. In response, the U.S. pressured Japan to sign the Plaza Accord in 1985, which led to a significant appreciation of the yen. This shift incentivized Japanese companies to invest and produce overseas, particularly in China. (Siddiqui, 2009a) 

When the Communist Party came to power in 1949, China was one of the world’s poorest nations, plagued by widespread illiteracy, poverty, and malnutrition. Soon after, the government enacted radical land reforms, dismantling land monopolies and fostering rural equality, which led to an increase in agricultural output. Compulsory primary education and rural healthcare initiatives were also introduced, laying the groundwork for China’s modernization. In 1978, under the leadership of Deng Xiaoping, China began gradually opening its economy to foreign investment, marking the start of a new era of economic transformation. (He and Wang, 2024) 

IV. Industrialization in China 

In its early stages of industrialization, China imposed high tariffs on imports, recognizing this as a necessary step to foster its nascent industries. However, these high tariffs were kept in place only temporarily—not to protect weak or uncompetitive companies but to attract foreign industries and technology to China. The aim was to create favourable conditions for technology transfer and modernization. (He and Wang, 2024) This policy of encouraging domestic industries to modernize and become internationally competitive, even after tariffs were removed, has been one of China’s most effective industrial strategies in recent times. (Jian and Nie, 2024) 

During the height of the Cold War, as the United States sought to counterbalance the Soviet Union, Henry Kissinger made a secret visit to Beijing in 1971, paving the way for President Nixon’s historic visit in 1972. These groundbreaking diplomatic efforts encouraged China to gradually open its markets to foreign capital and trade. In doing so, China negotiated favourable terms with foreign corporations, gaining access to advanced technology and business expertise. The United States further solidified this economic opening by granting China most-favoured-nation status in 1980, spurring a significant surge in capital inflows and exports (See Figures 1 and 2). (Siddiqui, 2019a) 

The influx of foreign capital enabled China to rapidly accumulate capital, which allowed the country to establish a modern industrial base in a relatively short period. (UNCTAD, 2023) The Chinese government actively promoted foreign investment in manufacturing. As Yu (2024:42) notes, “The Chinese government has implemented policies to support domestic capital, welcome foreign investment, and commit to restoring intellectual property rights in international trade negotiations, despite their monopolistic nature. At the same time, the government has not reinstated private land ownership or permitted landlords to reclaim authority. Public ownership remains central to the economy, with the state-owned sector playing a leading role in policy implementation, thereby providing stability and regulatory oversight in domestic economic development.” 

Figure 1: Foreign Capital Inflows into China between 1990 and 2022. 

Figure 2: China’s Exports of Goods and Services (% of GDP), 1960-2023. 

V. China’s Economic Resilience and High Savings Rate 

When the 1997 financial crisis struck East Asian economies, China remained largely insulated, thanks to its relatively closed financial sector. This insulation helped China maintain economic stability, enabling both domestic and foreign businesses to expand their global market share, while other East Asian countries faced economic setbacks and scaled back from international markets. (Siddiqui, 2009b) 

Historically, China has maintained a high savings rate. When economic reforms began in 1978, domestic savings represented 32% of GDP, much of which stemmed from the profits of State-Owned Enterprises (SOEs). These savings were directed by the central government into domestic investments. Subsequent reforms, including the decentralization of production, boosted household and corporate savings, sustaining China’s high domestic investment levels. 

Between 1980 and 2010, China’s domestic savings rose steadily, supporting an exceptionally high savings rate (see Figure 3), which the government channelled into investments—particularly after the 2008 global financial crisis. As global demand declined and exports faltered, China pivoted inward, focusing on domestic investments to stimulate employment. (Siddiqui, 2009c) It is projected that China’s average investment growth will remain around 10%, with private consumption growth at 9%, government expenditure growth at 12%, and net exports growth at -1%. By 2023, following gradual structural changes, China’s GDP composition was expected to be approximately 40% investment, 42% private consumption, 15% government expenditure, and 3% net exports. (Wolf, 2023) 

Figure 3: China’s Investments and Savings as a % of GDP, 1980-2028. 

Figure 4: Gross Saving Rate of the World’s Major Economies as a % of GDP in 2023. 

In 2023, China’s share stood at about 18.75%. China also maintains the world’s highest gross savings rate (see Figure 4), which peaked at 52% of GDP in 2008. Even in 2019, when COVID-19 struck, China’s gross savings rate remained robust at 44%, with nearly a fifth of these substantial savings contributing to the current account surplus.  

VI. China’s Remarkable Economic Transformation and Future Challenges 

According to World Bank data, the percentage of Chinese people living below the poverty line dropped from 80% in 1978 to just 9% by 2013. While China’s per capita GDP was comparable to India’s in 1978, it had risen to more than five times higher than India’s by 2022. Over the last 44 years, an unprecedented number of Chinese citizens have witnessed substantial improvements in living conditions. To eradicate poverty by 2021, the Chinese government launched targeted initiatives in 2014, identifying 100 million people below the poverty line and implementing programs to improve their incomes. (World Bank, 2024) 

China’s average life expectancy in 1978 was 64 years—remarkable compared to India’s 51 years, although still lower than the U.S. at 73 years. By 2023, life expectancy had risen to 77 years in both China and the U.S. China’s infant mortality rate also dropped significantly, from 37 deaths per 1,000 live births in 1978 to just 5.4 per 1,000 in 2023, surpassing the U.S. rate of 5.7 per 1,000. China experienced an unprecedented period of steady growth over four decades, culminating in substantial gains in per capita income (See Figure 5). (Wolf, 2023) 

However, sustaining rapid economic growth is becoming increasingly challenging. China currently accounts for 15% of global exports, and, as noted in a World Bank report, its dominance in various sectors may face resistance from trading partners. To mitigate a potential medium-term growth slowdown, China will need to focus on economic diversification and expanding its domestic market. (World Bank, 2024) 

Figure 5: China’s Gross Domestic Product (GDP) Per Capita at current prices, 1985-2029. 

Figure 6. China’s Economic Growth in the 21st Century, 2000–2023. 

Figure 7. Comparison of Economic Aggregates of China and the United States in the 21st Century, 2000–2023. 

Table 1: The GDP Growth of the Chinese and US (in trillions of US$) between 2014 and 2023.  

China’s economic growth has been remarkable, reaching a peak of 14.2% in 2007. Although the global economy was later disrupted by the COVID-19 pandemic, China’s growth rate remained consistently faster than that of the United States, as illustrated in Figures 6 and 7. Today, China plays a pivotal role in the global economy, contributing over 10% of international trade, approximately 18% of global GDP (at market exchange rates), around 16% of world oil demand, and more than a quarter of the world’s broad money supply. 

Despite both the U.S. and China experiencing GDP growth, China’s rate has been significantly higher (see Table 1). The Figure 7 indicates China’s share in global GDP, adjusted for purchasing-power-parity, up to 2023, with projections through 2029. (World Bank, 2024) This rapid expansion has substantially increased China’s share of global output, propelling the country to middle-income status. Alongside economic growth, China has made significant strides in education, healthcare, social welfare, housing, and overall living standards. 

VII. Conclusion 

China’s economic transformation began in 1978 with reforms in the agricultural sector, incentivizing rural households to boost agricultural output. These reforms later expanded to the urban industrial sector, introducing policies like the dual-price system, which reduced supply shortages, and opening select sectors to private businesses in a competitive, market-led environment. The Communist Party initiated these pro-market reforms, gradually expanding foreign investment opportunities across sectors. By liberalizing trade in the 1980s and welcoming foreign capital, technology, and access to Western markets, China leveraged its vast labour resources for rapid economic growth. This shift to an open-door policy marked the beginning of China’s era of high growth. 

A crucial aspect of China’s rise has been its impressive trade expansion. Since 1980, China’s exports and imports have grown at an annual rate of 15%, outpacing the global average of 7%. For instance, trade with the U.S. surged from $5 billion in 1980 to $670 billion in 2022, making China the U.S.’s largest merchandise trading partner and its largest source of imports. (World Bank, 2024) Many U.S. companies have operations in China, benefiting from its competitive labour costs and access to its booming market. China’s remarkable growth from 1978 to 2010, averaging around 10% annually, has indeed justified the “Chinese economic miracle.” As a key driver of global growth, China has contributed nearly a third of worldwide growth over the past four decades. Policies of “reform and opening up” have gradually integrated China into the global economy, with the country’s competitive wages, infrastructure, and government support policy playing a crucial role. Additionally, China’s entry into the WTO in 2001 facilitated global market access and accelerated technology transfer. 

China’s rise from a developing nation to a global economic power in just four decades is remarkable. From 1980 to 2018, its GDP grew at an average annual rate of over 10%. The World Bank study (2024) highlights China’s “fastest sustained expansion by a major economy in history,” which has lifted over 800 million people out of poverty. Today, China is the world’s top economy in purchasing power parity (PPP) terms and leads in value-added manufacturing, merchandise trade, and foreign exchange reserves. 

Since the 1990s, China’s growth, averaging over 9% annually, has garnered extensive interest from economists. By 2010, China became the world’s second-largest economy by nominal GDP, and by 2016, it surpassed the U.S. in GDP (PPP). Over this period, nearly 800 million people have been lifted out of poverty, with significant improvements in healthcare, education, and social services. 

Yet, China’s rise has raised concerns in the U.S., with accusations of unfair trade practices, currency undervaluation, subsidies to Chinese producers, and inadequate protection of intellectual property rights (IPR) that allegedly impact American jobs and competitiveness in IP-intensive industries. In response, the U.S. has recently implemented high-tech restrictions to curb China’s economic rise. (Siddiqui, 2018) 

China has become a prominent global player, especially in infrastructure and economic policy. Its Belt and Road Initiative (BRI) is an ambitious project financing infrastructure across Asia, Europe, Africa, and beyond. If successful, the BRI could significantly expand China’s influence, especially in the Global South, and create new markets for Chinese exports and investments. (Siddiqui, 2019b) 

Looking forward, China faces several challenges that could hinder its future growth, including its heavy reliance on fixed investment and exports, a weak banking sector, widening income disparities, and significant environmental concerns. Expanding social safety nets, promoting cleaner industries, and curbing official corruption are critical reforms that could sustain China’s growth trajectory. The success of these reforms will likely determine whether China can maintain its rapid growth or face a gradual slowdown.

About the Author

Dr Kalim Siddiqui is an economist specialising in International Political Economy, Development Economics, International Trade, and International Economics. His work, which combines elements of international political economy and development economics, economic policy, economic history and international trade, often challenges prevailing orthodoxy about which policies promote overall development in less-developed countries. Kalim teaches international economics at the Department of Accounting, Finance and Economics, University of Huddersfield, UK. He has taught economics since 1989 at various universities in Norway and the UK. 

References 

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