Canada’s Benefit from a Transitioning Chinese Economy

Topics: Planned economy, Mixed economy, Market economy Pages: 6 (1838 words) Published: December 5, 2012
The Communist ruled nation China has always been known for its cheap labour and sometimes questionable living standards. In 1978, China began the transition from a planned market economy to a more capitalistic, free market economy. Ever since then, numerous reform policies have been implemented and Liou (2010) says that these policies lead to an:

Increase economic growth and improve the quality of public life. These policies have promoted private business development in China and have gradually changed the Chinese system from a totally government-controlled planning system to a market-oriented capitalist system. ( p. 3)

China’s reform is a 2 stage process, with the first stage spanning form 1978 to 1993 and the second stage spanning from 1994 to the present day. While the reform has be ongoing for nearly 35 years, the bulk of major events occurred in the earlier stages. China kept it’s basic institutional framework but dramatically changed resource allocation and the relationship between government and business. With a change in resource distribution, the nations GDP, and living standards all dramatically improved. Qian and Wu (2000) say that:

During this period, China's GDP grew at an average annual rate of about 9 percent, or 7.5 percent on a per capita basis. The living standard of ordinary Chinese people improved significantly. The per person living space has doubled in urban areas and more than doubled in rural areas, and total household bank deposits, measured against the GDP, increased from less than 6 percent in 1978 to more than 40 percent in 1993. The number of people living in absolute poverty was substantially reduced from over 250 million to less than 100 million in this period as well. (p.4)

Not only did these reforms improve national GDP and living conditions, but also eliminated shortage of resources by properly distributing them, solving a common problem with all planned economies. Other nations such as Hungary made significant changes and resulted in drastic overall improvements, yet due to the problem of shortage, the new economic structure reached a developmental stand still and eventually the transition failed.

While the steps China is taking is constantly moving them closer towards a capitalist market, it is still a long road ahead. There is no precedent or model to which experts can predict how long or how successful China’s transition to a free market economy will be, simply because no other nation under Communist rule has made a successful transition. While China still faces many difficult challenges, there are still many opportunities for the Chinese economy to flourish and aid to a successful transition. Qian and Wu stress that is it essential for “China to make a quantum leap in the next decade in its transition to a modern market economy.” (Qian and Wu, 2000, p. 5) With a successful transition to a free-market economy, Canada lies in wait to reap the benefits. Based on liberal assumptions, Canada will benefit from an increase in trade, a more diversified economy, and by discovering new Chinese investors by using the Canadian financial model.

Trade with China has dramatically increased over the past decade, accounting for $42.1 billion and 5% of Canada total international trade. (Khondaker, 2007, para. 1) In 1997, China was Canada’s fourth largest trading partner, and over a six year period China eventually emerged as Canada’s second largest trading partner, overtaking the U.K. and Japan . This is largely in part to a reforming Chinese economy and is evident proof that China’s economy is continuing to grow and strengthen. This is supported by Khondaker statement that imports from China were five times higher in 2006 than in 1997 while exports to the country tripled. (Khondaker, 2007, para. 1)

A constant two-way trade of commodities including wood pulp, organic chemicals, nickel articles, copper, including electrical and other machinery,...
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