South-Western College Publishing - Economics  
China's Rise to Economic Power
Subject Chinese Economy
Topic Comparative Economic Systems
Key Words

Economic Growth, Capitalism, Central Planning

News Story

In the 1980's, a small Asian country, Japan, made its rise to world economic power. Now, a couple of decades later another Asian country is making a bid to become a world economic leader. China is slowly taking steps towards becoming more capitalistic than many observers would have expected only a few years ago.

The nation's manufacturing companies have been so successful at producing and exporting low-priced goods that they are building wealth at a remarkable pace. Much of that wealth is being used to scour the world in search of energy resources, with a bid to buy an American oil company, Unocal, being one of the latest ventures. Many believe the rise of the Chinese economy may be greater than that of Japan and may at some point rival the United States in economic power.

"It's going to be like the Arabs in the 70's and the Japanese in the 80's - we were worried they'd buy everything," said William Belchere, the chief Asia economist for Macquarie Securities in Hong Kong. However, unlike those previous challenges, which soon faded, "longer-term," he added, China will "be a much bigger force."

In the true spirit of specialization and trade, the Chinese economy has risen rapidly by using foreign expertise and investment. An example is the Guangzhou airport that has a terminal designed by an American company, boarding gates supplied by a Danish company, and an air traffic control tower engineered by a company from Singapore.

Unlike the confrontations that occurred in the 1980's when low-priced Japanese goods poured into the U.S, cooperative ventures like the airport signal that China has American corporate comrades with a stake in helping generate Chinese economic growth. Asian experts say China does not face the same limitations that ultimately stymied Japan and led to economic stagnation. With its huge population, China is developing a large and diverse economy, including a large domestic market as well as an industry base both capable and willing to produce and export low priced goods around the globe.

"The economy is much more flexible, adaptable than Japan's," said Liang Hong, an economist in Hong Kong for Goldman Sachs. "Being a continental economy is an advantage because it has competition within."

In the end, the ability of China to surpass Japan's rise to economic power may be dependent upon how smoothly China makes the transition from central planning to capitalism.

Questions
1.

Discuss the importance of a strong domestic economy to China's rise in economic power.

2. Use a production possibilities curve model to explain economic growth.
3. Discuss the differences between central planning and capitalism.
Source Keith Bradsher, "China Economy Rising at Pace to Rival U.S.," The New York Times Online, June 28, 2005.

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