China now: Return of the Dragon

Since the end of the American civil war in 1865, the economy of the USA underwent massive industrial expansion fuelled by rapid urbanisation and huge population growth - including the immigration of nearly 30 million Europeans. In 1872, American economy overtook Britain's to become the world's largest, a position it held until very recently before losing to the Chinese, which is worth $17.6 trillion compared to America's $17.4 trillion -- putting the USA in the second place for the first time in 142 years. According to the International Monetary Fund (IMF), that is not the only area where China has surpassed the United States. China also accounts for more total global trade, consumes more energy and manufactures more goods than the U.S.
So, in other words, the era of American economic dominance is rapidly ending.  Global economic power is making a dramatic shift to the east, and this is going to have huge implications for our future. It should be noted that the new IMF analysis is based on 'purchasing power parity' (PPP). But in terms of raw GDP (gross domestic product), the U.S. is still number one, at least for now.
China was world's leading trading nation up to the 18th century, until control of its ports and trade were taken over by imperial nations in Europe. The economic history of China stretches over thousands of years and has undergone alternating cycles of prosperity and decline. Its history is usually divided into three periods: the pre-imperial era, consisting of the era before the unification of Qin, the early imperial era from Qin to Song, and the late imperial era marked by the steep economic rise that occurred during the Song dynasty in 960 CE. The economy was further revolutionised during the time of Kublai Khan, founder of the Yuan dynasty (1271-1368) who introduced paper currency as the predominant circulating medium, extended the Grand Canal by connecting Yellow and Yangtze rivers which eased transportation between the south, now the hub of economic activity, and Beijing. This enhanced Beijing's status, it having formerly been a peripheral city, and was important to later regimes' decisions to have it remain the capital. But in the later course of the dynasty, over-spending by Kublai and his successor caused them to resort to high taxes and extensive state monopolisation of major sectors of the economy to fund their extravagant spending and military campaigns, which became a major burden on the Chinese economy.
Following the unrest in the late Yuan dynasty, the peasant Zhu Yuanzhang led a rebellion against them and founded the Ming dynasty. The economy of the Ming dynasty (1368-1664) was the largest in the world during that period. It is regarded as one of China's three golden ages, the other two being the Han and Song periods. The period was marked by the increasing political influence of the merchants, the gradual weakening of imperial rule and technological advances. By the middle of the Ming dynasty, powerful groups of wealthy merchants had replaced the state as the dominant mover behind Chinese industry. The Ming dynasty also engaged in trade with both Europe and Japan. Trade and commerce thrived in this liberalised economy and was aided by the construction of canals, roads, and bridges. The Ming government introduced a system of power-sharing between the emperor and the civil service. Investment, capital, and commerce were liberalised as technology advanced and the central state weakened, government manufacturing industries were privatised. The emergence of rural and urban markets where production was geared towards consumption was a key development in this era.
At the end of the Ming dynasty, China's last imperial dynasty, the Qing dynasty (1644-1912) was founded by the Jur'chens, later called the Manchus. In 1911, the Xinhai Revolution overthrew Manchu rule and established the Republic of China. The collapse of the Qing accelerated the decline of the Chinese economy and by the end of the Manchu Qing dynasty, China's development slowed, falling behind that of the West. Unable to take over the Chinese market through greater economic competitiveness, the British used their age old technique, precipitated internal rivalries and revolts in China and created an entire new class of corrupt brutal warlords to further destabilise and end China as a world power. Thus a new world era began; Britain led the world in the industrial revolution of the mid-18th century. Unlike China, Britain's industrial revolution and overseas expansion was driven by a military policy. China's global predominance was based on 'reciprocal benefits' with its trading partners, while Britain relied on mercenary armies of occupation, savage repression and a 'divide and conquer' policy to stimulate local rivalries. Britain's empire was built with resources seized from the colonies and through the massive militarisation of its economy.
SOCIALISM WITH CHINESE CHARACTERISTICS: Modern China's rise to world economic power, like its predecessor between 1100-1800, began in 1949 when the agrarian reform provided land, infrastructure, credits and technical assistance to hundreds of millions of landless and destitute peasants and landless rural workers. Through what is now called "human capital" and gigantic social mobilisation, the Communists built roads, airfields, bridges, canals and railroads as well as the basic industries, like coal, iron and steel, to form the backbone of the modern Chinese economy. Communist China's vast free educational and health systems created a healthy, literate and motivated work force.
But the real Chinese economic reform, which was started by Deng Xiaoping in December 1978, engineered a new type of socialist thinking called "Socialism with Chinese Characteristics" in the People's Republic of China. The goal of economic reform was to transform China's stagnant, impoverished economy into a market economy capable of generating strong economic growth and increasing the well-being of Chinese citizens.
Economic reforms began in 1978 and occurred in two stages. The first stage, in the late 1970s and early 1980s, involved the opening up of the country to foreign investment, and permission for entrepreneurs to start up businesses. The second stage of reform, in the late 1980s and 1990s, involved privatisation and contracting out of the state-owned industries and the lifting of price controls, protectionist policies, and regulations. The reforms raised economic efficiency and as a result, between 1978 and 1992, the output of state-owned enterprises declined from 56 per cent of national output to 40 per cent, while the share of collective enterprises rose from 42 to 50 per cent and that of private businesses and joint ventures rose from 2 to 10 per cent.
By encouraging the growth of rural enterprises and not focusing exclusively on the urban industrial sector, China has successfully moved millions of workers off farms into factories without creating an urban crisis. Economic control of various enterprises was given to provincial and local governments, which were generally allowed to operate and compete on free market principles, rather than under the direction and guidance of state planning. Economic reforms have transformed China into a major trading power. Chinese exports rose from $18 billion in 1980 to $969 billion in 2006, while imports over this period grew from $20 billion to $791 billion. China's foreign exchange reserves rose from $2.5 billion at the end of 1980 to $819 billion at the end of 2005. China's trade and investment reforms and incentives led to a surge in foreign direct investment (FDI), which has been a major source of China's capital growth. The cumulative level of FDI in China at the end of 2005 stood at about $633 billion. China's open-door policy has spurred foreign direct investment, creating more jobs and linking the Chinese economy with international markets.
Today, China holds the number one position in the world's economy and Nobel laureate Robert W. Fogel of the University of Chicago is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040 if the current trends continue.
(Source: Wikipedia, IMF report and various internet sites.)
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