Economic growth is a measure of the rate of change in the amount of an economy’s output. It is a key factor in the determination of a nation’s economy and is caused by increase in demand, interest rates, labour and productivity. Liberalisation on the other hand is making less strict, the laws of a certain system. On the account of economic reform in China that commenced in 1978, the Chinese economy has risen exponentially at a rate of 9.6 percent for over twenty years (Wong 1). A large proportion of the country’s economic output was run by the state which set its production goals, controlled prices and allocated resources throughout most of the economy. Causes The Chinese government took part in large scale investment to support industrialisation and capital during the 1960s and 1970s (Morrison 3). Due to this, by 1978 about three-fourths of industrial production amounted from centrally controlled state-owned enterprises. Since 1978, China has become the second fastest growing economy in the world after the United States Hassan (2011). After the introduction of economic reforms in 1978 following many years of state control of all productive assets by the states, China started showing great improvement. It even encouraged the formation of private businesses, rural enterprises, liberalised foreign trade and investment and education of the working population. These reforms aided in the rise of the economy due to the introduction of profit incentives to rural enterprises, farms, private businesses and foreign trade.

By encouraging foreign investment, the Chinese government increased economic transformation. According to Hu and Khan (2003), cumulative foreign investment, in existence before 1978, reached nearly US$ 100 billion in 1994, yearly inflows rose from less than 1 percent of the total fixed investment in 1979 to 18 percent in 1994. The foreign money earned from foreign investment has contributed to the construction of industries, creation of employment, linking China to some of the leading foreign markets and resulted in important exchange of technology.

Trade was one of the major contributing factors of China’s economic growth with the Chinese government expanding the role of the markets in the private sector. The putting in place of market factors into the economy by improved incentive system and efficiency in allocation of resources contributed to the success. An example is the success of rural reforms and industrialisation of the rural areas. Reforms in the agricultural sector during 1978-1984 were the most successful market reform aside from being the first one. In these seven years grain output is said to have increased by over 100 million tons thus solving hunger and malnutrition problems. The rapid growth in rural income enabled the reduction of urban-rural income inequality enabling farmers to abandon traditional agriculture and engaged in non-farm production. Foreign investment has also resulted in the increase in total investment (Feng and Zang, 2000). Furthermore, it has shown great proficiency in the provision of finance thus helping in the promotion of growth leading to technology transfer, increase in labour force, management improvement, promotion of competition and exports’ increase. According to Sun (1998), foreign investment accounts for 17 percent of China’s Gross Domestic Product (GDP) growth from 1983 to 1995. Foreign investment is thus considered to be the key factor for the exponential growth of China’s economy (Lin and Shu 148). Capital accumulation has played a role in the increasing economy of the Chinese through capital assets such as construction of new factories, acquisition of machinery and improvement in communication systems. Also, the number of workers increased thus increasing the driving force hence the economic boom in the country. According to an IMF study, from 1952 to 1978, capital accumulation accounted for 65 percent of China’s output growth, with labour input and productivity accounting for 18 percent and 17 percent respectively.

Previous research on economic development suggests a significant rise in capital investment in economic growth with capital investment also playing a portion of the country’s economic growth (weekly pulse, 2011) and making the country more productive. All these attribute to better technology, machinery and increased investment in infrastructure thus raising more output. Through liberalisation, the Chinese government allowed farmers to own and sell their produce in the private sector. Due to this, the farmers were able to set their own production goals, sell products at competitive prices and retain earnings for future investment. Furthermore, more room for private ownership of production was available with the privately owned businesses creating employment, developing high demand consumer products and earning foreign currency through foreign trade. Also, the establishment of special economic zones along the coast with the main aim of attracting foreign investors who wished to take advantage of the labour costs in China positively, stimulated high technology imports to China and encouraged exports out of the country (Morisson, 2006). According to Holz (2008), the economic reforms that showed much significance occurred at the start of 1990s, with price controls withdrawal and the freeing of internal trade and foreign investments. The rapid growth in the agricultural sector developed new types of production, motivated by the high returns to be gained from such investments through profits. Due to this incorporation of agricultural factors in the economy, efficient resource allocation was established and an improved incentive system captured. One of the main cited examples to explain this is the success of the rural reform like the decollectivization of agriculture and the setting up of rural industries

Conclusion Other than showing vast economic growth in the country, China is the world’s fastest growing major economy with growth rates averaging 10 percent over the past 30 years (weekly pulse 2011). Also, according to the weekly pulse 2011, the People’s Republic of China (PRC) is the world’s second largest economy after the United States. The increase in Chinese’s economic growth has also led to a positive change in the improvement of its people’s living standards and raised them from extreme poverty in which they were in. A part of the country’s economic output was under the state that set its production goals, controlled its prices and also allocated resources.

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