The fall of the last emperor leaves China's economy disorganized and chaotic. The weak Nationalist government appeals to the United States for funds but is turned down. The Soviet Union provides the first backing that will help the Nationalists drive out warlords and unify the nation.
After splitting with the Communists, Chiang looks to the West for new technologies, science, and medicine. During the "Nanjing Decade," the government invests in construction, modernizes transportation and communications systems, and begins to unify the currency system. Shanghai becomes the trading and financial center of Asia, with foreign tycoons and a thriving stock market.
Chiang Kai-shek and his wife appeal to the world for help in fighting Japan. In 1943 Mme. Chiang visits America to ask for money and supplies. Chiang threatens to sign a separate peace with Japan. The United States sends millions of dollars to the Chinese war effort, with no accounting required. Corruption is rampant as funds are handled by the inner circle of Chiang relatives and friends.
Nationalist financial policies are chaotic, with black market trading and corruption widespread. The currency system changes frequently, from paper money to gold yuan to silver dollars, even American dollars. Inflation rises to 100 percent. With famine in the North and floods in the South, the UN Relief Agency sends China millions of dollars in aid.
When the People's Republic of China (PRC) is established, peasants seize property and kill landlords. Nearly half of China's arable land is distributed to poor peasants. Foreign investment is seized, and private property is nationalized. China is nearly bankrupt, with all of the Central Bank and a huge number of art treasures now moved to Taiwan.
Agriculture is collectivized, and private property is abolished. The government sets quotas for how much grain peasants can keep and fixes low prices for the state portion. U.S.-led trade sanctions are imposed on China for its support of North Korea, pushing Beijing towards Moscow. In 1953 the first Soviet-style five-year plan is adopted, with an emphasis on heavy industry, especially steel.
In an effort to create steel that will speed China's industrialization, people melt woks, tools, and bed frames in backyard furnaces, but the steel they produce is useless. Ideologically zealous farmers over-report farm output. The state takes grain based on false figures, using it to pay off Soviet debt and feed cities. China's economy does not advance, and 30 million people starve to death.
Mao leaves the government in the hands of pragmatists after his disastrous Great Leap Forward, and they initiate programs of careful economic growth which do work. China becomes increasingly prosperous.
The Cultural Revolution is a time of intense internal confusion and isolation from the rest of the world. The economy is in shambles as all economic pragmatists are purged from the government.
Deng Xiaoping wrests power from Hua Guofeng and by 1978 outlines an ambitious program for economic reform, including dismantling the communes and allowing peasants to produce food for private sale. This "household responsibility system," designed in response to the drought in Anhui, produces bumper crops. An open-door trade and investment policy is introduced.
Special Economic Zones (SEZs) allow China to accept foreign capital and adopt foreign technologies in controlled phases. Massive construction projects and high wages lure people from all over China to the SEZs. In the countryside, the first markets in decades open to sell surplus produce. Small factories make goods that have been in short supply, fueling the national economy.
State-owned factories are inefficient and heavily subsidized by central government. Agricultural output is exploited to support the failing state-owned enterprises (SOEs), reducing profits for farmers. Rural unemployment increases as factories cannot absorb the population freed from collective farming. The economy enters a period of high-speed growth, with rampant inflation and corruption.
Workers in SOEs used to an "iron rice bowl" of jobs, housing, and benefits for life are encouraged to become entrepreneurs, but few dare. Workers watch inflation eat into their fixed wages, becoming angered by government profiteering and corruption. Deng's plans for price reform plans ignite a run on banks and panic buying. Changing course, he now advocates economic stabilization, not reform.
The Shanghai Stock Exchange is allowed to open, although it is described as an experiment. The Shenzhen exchange follows soon after.
Deng pushes SEZs to accelerate their reforms. China's economy booms, yet problems mount. Urban SOEs are losing money and draining capital from the state budget. Foreign companies do not invest inland, creating a large disparity in income between coastal regions and the rest of China. Millions are unemployed, and village factories often cannot pay their workers.
Zhu Rongji takes charge of the economy, heading the Central Bank and tightening regulatory controls over the stock and other markets. He tries to stem rising inflation after price rises soar more than 21 percent in 1994.
On July 1 Hong Kong is handed back to China after 150 years of British colonial rule. Beijing inherits one of the world's most vibrant capitalist economies and an international financial center. In September Jiang Zemin consolidates his power following Deng Xiaoping's death. The Party begins to focus on reform of SOEs through mergers, acquisitions, bankruptcies, and share issues.
By 1999, with 1.25 billion people and a GDP of $3,800 per capita, China's is the fastest growing economy in the world, and also the second largest after the U.S. But the country remains poor, lacking the monetary and fiscal controls to manage its vast economy. The government turns to banks to provide failing SOEs loans, but they are not repaid. The banking system is threatened.
After China joins the WTO, foreign investment surges to a record high. Strong growth masks internal disparities between cities and rural areas, coastal and interior regions. Cuts in tariffs and rules streamline business, but the huge state-owned sector remains deeply troubled and extremely hard to reform. In 2003 the spread of the deadly SARS virus has a severe impact on China's economy.
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