The extraordinary economic performance of China between the onset of the reform era
in the early 1980s and the global financial crisis was mainly driven by export-led economic
growth model, which was supported by high productivity of labour-intensive manufactures, low wages, and export-stimulating policies. The export-led model reached its peak in the decade between 2001 and 2011, where exports as a share of China’s GDP increased from 20% in 2001 to a height of 36% in 2006.
High price competitiveness of Chinese products pushed many other manufacturers of consumer products (from Europe, Japan, and the US to some extent) out of the foreign markets, providing high export revenues to Chinese enterprises (mainly, stateowned ones), which were partly reinvested to productive capacities and partly accumulated in the form of international reserves.
The global financial crisis has changed the global environment dramatically. Exports
as a percentage of GDP dropped abruptly, falling by 25% during the 2011 crisis.This fall was
due to a sharp decline in external demand from markets in Europe, North America, and Japan.
In 2001–2011, the cost of labour in China increased relative to other Asian economies, such as Vietnam, resulting in an increase of Chinese investment towards lower-cost Asian economies. With China’s working-age population as a proportion of the general population peaking in 2012, the country was facing further increases in the cost of labour.
The sharp drop in foreign demand revealed vulnerabilities of traditional economic-growth
model – its extremely high dependence on global environment. Excessive supply led to economic slowdown from the previous double-digit rates, lowering even paces of international reserves accumulation and rising deflationary pressure. Despite the subsequent revival of foreign demand, its quality and consumers’ preferences have changed.
Low-cost advantages have given place to innovativeness and quality of produced goods, their adaptability to streamlined manufacture. Rapid development of information and communication technologies pushed demand for services and network commodities, resulting in new challenges as well as new forms and instruments of global competition.
It became obvious that the China’s economy entered a critical stage of its development.
It needed to integrate into new reality, diversify its economic growth sources, adopt structural reforms, as well as find new instruments and mechanisms of their implementation in order to transform into a higher-value knowledge and technology-based economy.