L1-China&39;s Economic Conditions(5)

developing countries. The Chinese government hoped that gradual reform wouldsignificantly increase economic growth and raise living standards.

The Introduction of Economic Reforms

Beginning in 1979, China launched several economic reforms. The central governmentinitiated price and ownership incentives for farmers, which enabled them to sell a portion oftheir crops on the free market. In addition, the government established four special economiczones along the coast for the purpose of attracting foreign investment, boosting exports, andimporting high technology products into China. Additional reforms, which followed instages, sought to decentralize economic policymaking in several sectors, especially trade.Economic control of various enterprises was given to provincial and local governments,which were generally allowed to operate and compete on free market principles, rather thanunder the direction and guidance of state planning. Additional coastal regions and citieswere designated as open cities and development zones, which allowed them to experimentwith free market reforms and to offer tax and trade incentives to attract foreign investment.In addition, state price controls on a wide range of products were gradually eliminated.

China’s Economic Growth Since Reforms: 1979-2005

Since the introduction of economic reforms, China’s economy has grown substantiallyfaster than during the pre-reform period (see Table 1). In January 2006, China made majorrevisions to its GDP data for 1993-2004. The revisions indicated that, based on newestimates of growth in the service sector, the size of China’s economy and its GDP growthwere significantly higher than previously estimated. For example, real GDP growth in 2004had been originally measured at 9.5%, but the revised figure puts this rate at 10.1%. Overall,the size of the economy in 2004 was estimated to be nearly 17% higher than previouslythought. Based on these revisions, China’s average annual real GDP is estimated to havegrown by 9.6% between 1979 and 2005; it grew at by estimated 9.8% in 2005.