Chinese Economy between WWI and WWII
Chinese Economy in 1911-1937
Historians confirm that the economic history of the modern China began in 1911 with the fall of Qing Dynasty. During those four decades, only Nanjing decade between 1927 and 1937 is considered a relatively peaceful period. Otherwise, the Chinese economy faced turbulent events including a small scale civil war and occupation of Manchuria by the Japanese forces. As soon as Qing dynasty disintegrated and not until Chiang Kai Shek managed to take control to implement economic reforms, China suffered heavily due to collapse of the central government resulting in various warlords proclaiming control over vast territories. After 1911, warlords had immense powers. Their appetite for money was insatiable which resulted in them printing more money than that was needed. These local chieftains would also levy heavy taxes on local population to generate funds for an otherwise fledgling economy. Experts argue that it was not the local criminal gangs that devastated Chinese economy but rampaging soldiers of warlord Army who would threaten local peasantry with dire consequences if their demands were not met (Ma, 2002).
Whereas these events may seem catastrophic, interestingly scholars also maintain that these so called sovereign, warlord provinces, became the paramount reason to the onset of industrialization. According to the prominent scholar of Chinese economic history, Debin Ma (2002), analysts like John Chang, Du Xuncheng and Thomas Rawski provided evidence of the rapid growth in the period between World War I and II. John Changs study on industrial output index of China revealed a healthy 10 growth. Similarly, calculations from Du Xuncheng suggest that nominal annual industrial investment by Chinese nationals from 1914-1925 was 11 times greater than a comparable time period of 1840-1911. Still, other somewhat controversial figures by Thomas Rawski proposed that per capita GDP growth between 1911 and 1936 can be compared to growth in contemporary Japan. These findings were presented at the Global Economic History Workshop at Istanbul in 2005 which further theorized that such growth figures can be explained by the influence of Western imperialist factors.
According to the theory, Western powers did not colonize China to full extent but relied on acquiring trading rights, leased territories and treaty ports thus offering substantial growth opportunities with very limited intervention from warlords. The treaty port cities of Shanghai, Canton, Tianjin and Wuhan are excellent examples of such a phenomenon. Shanghai in 1930 is a prime case of this phenomenon unfolding. At the time, it was a multinational hub of finance and business, reflecting tremendous growth. Historical accounts of areas around The Bund, Jiujiang Road and Suzhou Creek portray very high municipal standards. It is estimated that in 1933, Shanghai alone produced 40 of the national manufacturing output and absorbed 34 of the total direct investment including 67 in manufacturing. Shanghais industrial gross output value, according to various reputable indexes, expanded at a rate of 9.5 from 1895-1936. Comparative figures for Japan lapsed at 7.6 (Ma, p. 9). Historians also note that the effects of this development were not restricted to these port cities but spilled across neighboring regions which sometimes consisted of hundreds of square kilometers.
In this regard, economist have used exchange rate figures to reach at a conclusion that in 1933 lower Yangtze region of China, constituting thousands of kilometers, had a higher per capita income than the entire Chinese population as well as Korea and Japanese controlled Manchuria. Lower Yangtze regions had a value of 950 NDP as compared to 573, 680 and 690 for that of China, Korea and Manchuria, respectively. Although, these income figures were lesser than Japan and Taiwan but the another similar study concludes that the standard of living in Lower Yangtze must be similar to Japan in 1900 and 1910 due to much higher levels of industrial outputs as compared to rural China, in general (Allen, Robert, Jean Debin, 2007).
During Nanjing decade, from 1927 to 1937, president Chiang paved the way to address rural China problems by providing reforms such as rural reconstruction movement that aimed to change the Chinese countryside by introducing educational foundations, village projects and the establishment of special government zones. In 1931, against Japanese invasion of Manchuria, this movement was prominent in maintaining the stability across China. Another similar idea, New Life Movement, was aided by the wife of President that tried to bolster a Nation which was seemingly derailed by corruption, factionalism and opium addiction. Some of the rules included courtesy to neighbors, keeping streets clean and conversation of energy. It will not be an overstatement to suggest that Chinese domestic industry gained a significant advantage due to World War I because of a sudden demand of Chinese products and reduction of imports. In textile industry, this is evident by an increase in needle machines from 482,192 in 1913 to 647,570 in 1918 reaching up to 1,248,282. Likewise bread factories went up from 57 to 131 (Sun, 2000, p.1089).
Amid these development strides, the City states and their neighboring regions were better able to cope with disasters than rural China. For example, the Chinese economy suffered greatly due to the effects of great depression and Japanese invasion of Manchuria but despite these adverse economic conditions, Chinese GDP reached its peak in 1932 at 28.8 billion. In contrast, the rural income fell 57 percent from 1931 to 1934 as agricultural good from West were being dumped in China leading to fall in agricultural prices. Consider the import of 15 million bushels of grain in 1932 compared to less than a million in 1928 and 21 million bushels of rice in 1931 to 12 million in 1928 (p.1059-1071). Actually, these facts substantiate the fact that Chinese city states played a major role in the prosperity of its inhabitants and those of the nearby regions due to their dependence on industry rather than agriculture. Therefore, a comparison of living standards of China and Europe, between WW I and II, suggests that rate of growth in China did not decline but instead it could not keep up with rapid growth in Europe.
Chinese Economy in the Period 2003 - Present
Chinas growth since 2003 is evident by an increase in GDP which has swelled from 1.6 Trillion to 4.33 Trillion in 2008 and Purchasing power parity from 4,157K to 8,734 in 2009 (Google Public Data). Experts believe that a high growth rate is necessary to generate 15 million new jobs, annually. In 2003, Chinese Communist Party proposed wide ranging amendments to the constitution emphasizing the need to decrease income distribution, establishing stronger private property rights, reducing unemployment and protecting environment. Subsequently, these amendments were approved in 2004. Closer looks at these amendments reveal that they are strikingly similar to the reforms carried out during the early nineteenth century and periods between WWI and II. In nineteenth century China, as discussed there was a significant difference between income of rural China and major cities difficulty in establishing property rights and the introduction of New Life Movement to increase awareness of the environment.
The 11th five year program 2006-2010 is quite similar in intention, aimed at a harmonious society that would bridge the income gap among Chinese. This program also includes such environmental concerns as reducing energy intensity by 20, a value which is two times greater than its neighboring economy, India. Concerning inequality, China still needs to come in terms with the growing income gap between the coastal provinces and poor inland regions. Note that this was also a significant factor in 1920s where coastal towns such as Shanghai, Wuhan and Tianjin amassed wealth as compared to rural China. Presently, UN estimates that 135 million people in China live on less than 1 a day and 35 on less than 2 (China). According to the first economic survey of China, OECD suggested that income gap can only be reduced if Government makes it easier for people to move from countryside to cities and amend land rights. The debate on land rights is an ongoing process which runs tandem with property rights issue. OECD further notes that recent government policies had great impact on the buildup of private investment as more than 50 of Chinese GDP is now derived from privately controlled enterprises. However, it recommends that the amount of capital required to start a company remains high which can only be brought down by implementing new bankruptcy codes, revised company law and stronger protection of property rights. Although the current economic growth had significantly reduced the national debts but banks are still state owned, therefore, the future impacts of reforms in financial sectors remain a concern.
Responding to the global financial crisis of 2008-2009, the Chinese government has introduced a landmark Economic Stimulus Package of nearly 586 billion. World leaders have welcomed this package and declared that it would not only help China but also support the global efforts to evade the global recession. Key areas that will benefit from this package are housing, rural infrastructure, transportation, health and education, environment, industry, disaster rebuilding, income-building, tax cuts, and finance. To this date, transparency remains a cause of concern for investors in China. The corruption perception index puts China 79th out of 180 countries when most developed countries retain top 20 positions. The actual CPI score is 3.6 with a confidence level ranging from 3.0 and 4.2. Such statistics imply that modern China needs to overhaul its internal financial structure. Rebuilding efforts from destruction in Natural disasters such as the 2008 Chinese winter storm, Sichuan Earthquake and South China floods are a part of this stimulus plan.
Comparing this package to the progressive Nanjing decade under Chiang Kai Shek reveals that only health education, tax cuts and disaster rebuilding are new components which differentiate the way the contemporary Chinese government is dealing with economic problems in their respective eras. The induction of Hong Kong has also revitalized Chinese economy further as this colony supports nearly 33 of foreign capital flows to China. Although economic situation was never dire in the years leading to the Japanese invasion in 1937, China remained in the grip of the internal instability and the lack of the centralized government. Modern China has to deal with global financial crisis but it can be argued that circumstances are much better providing opportunity for current Chinese government to advance at a rate which may not have been possible in the Nanjing decade.