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Sustainable Growth in China

Chinese economic growth in the past few decades has been truly remarkable. Gross Domestic Product (GDP) growth per annum on average reached 9.4% in the period 1978 to 2002, the total GDP in 1998 was 6.4 times the GDP in 1978 . Official stats may overstate growth by understating inflation but growth of at least 6% a year is still quite impressive. Prior to 1949, GDP per head was no higher than in 1820 and between 1949 and 1978, growth was only around 2.3% per capita per annum . China’s Gross National Product (GNP) grew 7.2% annually from 1978 to 1990, averaging 9.7% per capita from 1982 to 1988 and was among the best in the world . However, “past growth is a poor predictor of future performance” and the considerable volatility in China’s economic growth has prompted the question whether this growth is genuinely sustainable. China’s high savings rate, its advantages as a developing country, as well as its disciplined and literate labour force should prove its critics wrong. However, there are other underlying factors which determine the sustainability of growth such as the type of growth, the state of the environment and the transition of the economy from planned to market. China’s growth may not appear to be as sustainable when these factors are also taken into account.

The Chinese economy has some of the highest saving rates in the world, it averaged 37% of GDP between 1978 and 1995 . The stable and high savings rate supports vigorous rates of investment and capital accumulation – crucial for economic growth. Households currently contribute half of total savings. The rapid rise in GDP per capita has reduced the level of subsistence consumption. Rising aspirations have led to people saving a greater proportion of their income. E...

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...as individual economies, the twenty fastest-growing economies in the world between 1978 and 1995 would have been Chinese . China’s high savings rate will ensure continued increase in investment, its status as a developing country will ensure its ability to take advantage of available technology developed by advanced economies and improvements in the quality of human capital will ensure sustained rises in productivity. Despite the current lacklustre effort by the government to minimise environmental damage, there has been relative improvements. In addition, as China transforms fully into a market economy, its capability for sustainable growth will no doubt improve. In conclusion, the current rapid growth in the Chinese economy is sustainable to a great extent. Sustainable growth is significant as it is crucial for the survival of the Chinese economy in the long run.
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