Connect with us

Markets

The People’s Republic of China: 70 Years of Economic History

Published

on

View a high-resolution version of this graphic here.

70 Years of China’s Economic Growth in One Chart

Chart: 70 Years of China’s Economic Growth

View a high-resolution version of this graphic here.

From agrarian economy to global superpower in half a century—China’s transformation has been an economic success story unlike any other.

Today, China is the world’s second largest economy, making up 16% of $86 trillion global GDP in nominal terms. If you adjust numbers for purchasing power parity (PPP), the Chinese economy has already been the world’s largest since 2014.

The upward trajectory over the last 70 years has been filled with watershed moments, strategic directives, and shocking tragedies — and all of this can be traced back to the founding of the People’s Republic of China (PRC) on October 1st, 1949.

How the PRC Came to Be

The Chinese Civil War (1927–1949) between the Republic of China (ROC) and the Communist Party of China (CPC) caused a fractal split in the nation’s leadership. The CPC emerged victorious, and mainland China was established as the PRC.

Communist leader Mao Zedong set out a few chief goals for the PRC: to overhaul land ownership, to reduce social inequality, and to restore the economy after decades of war. The first State Planning Commission and China’s first 5-year plan were introduced to achieve these goals.

Today’s timely chart looks back on seven decades of notable events and policies that helped shape the country China has become. The base data draws from a graphic by Bert Hofman, the World Bank’s Country Director for China and other Asia-Pacific regions.

The Mao Era: 1949–1977

Mao Zedong’s tenure as Chairman of the PRC triggered sweeping changes for the country.

1953–1957: First 5-Year Plan
The program’s aim was to boost China’s industrialization. Steel production grew four-fold in four years, from 1.3 million tonnes to 5.2 million tonnes. Agricultural output also rose, but it couldn’t keep pace with industrial production.

1958–1962: Great Leap Forward
The campaign emphasized China’s agrarian-to-industrial transformation, via a communal farming system. However, the plan failed—causing an economic breakdown and the deaths of tens of millions in the Great Chinese Famine.

1959–1962: Lushan Conference and 7,000 Cadres meeting
Top leaders in the Chinese Communist Party (CCP) met to create detailed policy frameworks for the PRC’s future.

1966–1976: Great Proletarian Cultural Revolution
Mao Zedong attempted to regain power and support after the failures of the Great Leap Forward. However, this was another plan that backfired, causing millions more deaths by violence and again crippling the Chinese economy.

1971: Joined the United Nations
The PRC replaced the ROC (Taiwan) as a permanent member of the United Nations. This addition also made it one of only five members of the UN Security Council—including the UK, the U.S., France, and Russia.

1972: President Nixon’s visit
After 25 years of radio silence, Richard Nixon was the first sitting U.S. President to step foot into the PRC. This helped re-establish diplomatic relations between the two nations.

1976–1977: Mao Zedong Death, and “Two Whatevers”
After Mao Zedong’s passing, the interim government promised to “resolutely uphold whatever policy decisions Chairman Mao made, and unswervingly follow whatever instructions Chairman Mao gave.”

1979: “One-Child Policy”
The government enacted an aggressive birth-planning program to control the size of the country’s population, which it viewed as growing too fast.

A Wave of Socio-Economic Reforms: 1980-1999

From 1980 onward, China worked on opening up its markets to the outside world, and closing the inequality gap.

1980–1984: Special Economic Zones (SEZs) established
Several cities were designated SEZs, and provided with measures such as tax incentives to attract foreign investment. Today, the economies of cities like Shenzhen have grown to rival the GDPs of entire countries.

1981: National Household Responsibility System implemented
In the Mao era, quotas were set on how many goods farmers could produce, shifting the responsibility of profits to local managers instead. This rapidly increased the standard of living, and the quota system spread from agriculture into other sectors.

1989: Coastal Development Strategy
Post-Mao leadership saw the coastal region as the potential “catalyst” for the entire country’s modernization.

1989–1991: Post-Tiananmen retrenchment
Early 1980s economic reforms had mixed results, and the growing anxiety eventually culminated in a series of protests. After tanks rolled into Tiananmen Square in 1989, the government “retrenched” itself by initially attempting to roll back economic reforms and liberalization. The country’s annual growth plunged from 8.6% between 1979-1989 to 6.5% between 1989-1991.

1990–1991: Shanghai and Shenzhen stock exchanges open
Combined, the Shanghai (SSE) and Shenzhen (SZSE) stock exchanges are worth over $8.5 trillion in total market capitalization today.

1994: Shandong Huaneng lists on the NYSE
The power company was the first PRC enterprise to list on the NYSE. This added a new N-shares group to the existing Chinese capital market options of A-shares, B-shares, and H-shares.

1994–1996: National “8-7” Poverty Reduction Plan
China successfully lifted over 400 million poor people out of poverty between 1981 and 2002 through this endeavor.

1996: “Grasp the Large, Let Go of the Small”
Efforts were made to downsize the state sector. Policy makers were urged to maintain control over state-owned enterprises to “grasp the large”. Meanwhile, the central government was encouraged to relinquish control over smaller SOEs, or “let go of the small”.

1997: Urban Dibao (低保)
China’s social safety net went through restructuring from 1993, and became a nationwide program after strong success in Shanghai.

1997-1999: Hong Kong and Macao handover, Asian Financial Crisis
China was largely unscathed by the regional financial crisis, thanks to the RMB (¥) currency’s non-convertibility. Meanwhile, the PRC regained sovereignty of Hong Kong and Macau back from the UK and Portugal, respectively.

1999: Western Development Strategy
The “Open Up the West” program built out 6 provinces, 5 autonomous regions, and 1 municipality—each becoming integral to the Chinese economy.

Turn of the Century: 2000-present

China’s entry to the World Trade Organization, and the Qualified Foreign Institutional Investor (QFII) program – which let foreign investors participate in the PRC’s stock exchanges – contributed to the country’s economic growth.

Source: CNBC

2006: Medium-term Plan for Scientific Development
The PRC State Council’s 15-year plan outlines that 2.5% or more of national GDP should be devoted to research and development by 2020.

2008-2009: Global Financial Crisis
The PRC experienced only a mild economic slowdown during the crisis. The country’s GDP growth in 2007 was a staggering 14.2%, but this dropped to 9.7% and 9.5% respectively in the two years following.

2013: Belt and Road Initiative
China’s ambitious plans to develop road, rail, and sea routes across 152 countries is scheduled for completion by 2049—in time for the PRC’s 100th anniversary. More than $900 billion is budgeted for these infrastructure projects.

2015: Made in China 2025
The PRC refuses to be the world’s “factory” any longer. In response, it will invest nearly $300 billion to boost its manufacturing capabilities in high-tech fields like pharmaceuticals, aerospace, and robotics.

Despite the recent ongoing trade dispute with the U.S. and an increasingly aging population, the Chinese growth story seems destined to continue on.

China Paving the Way?

The 70th anniversary of the PRC offers a moment to reflect on the country’s journey from humble beginnings to a powerhouse on the world stage.

Because of China’s economic success, more and more countries see China as an example to emulate, a model of development that could mean moving from rags to riches within a generation.

Bert Hofman, World Bank

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Comments

Markets

How the S&P 500 Performed During Major Market Crashes

How does the COVID-19 market crash compare to previous financial crises? We navigate different contextual factors impacting crashes.

Published

on

How the S&P 500 Performed During Major Market Crashes

Like spectacular market peaks, market crashes have been a persistent feature of the S&P 500 throughout time.

Still, the forces underpinning each rise and fall are often less clear. Take the COVID-19 crash, for example. Despite lagging economic growth and historic unemployment levels, the S&P 500 bounced back 47% in just five months, in a stunning reversal.

Drawing data from Macrotrends, the above infographic compares six historic market crashes—examining the length of their recoveries and the contextual factors influencing their durations.

The Big Picture

How does the current COVID-19 crash of 2020 stack up against previous market crashes?

TitleStart — End DateDuration (Trading Days)% Drop
Black Tuesday / Great Crash*Sep 16, 1929 — Sept 22, 1954300 months (7,256 days)-86%
Nixon Shock / OPEC Oil EmbargoJan 11, 1973 — Jul 17, 198090 months (1,899 days)-48%
Black Monday**Oct 13, 1987 — May 15, 198919 months (402 days)-29%
Dot Com BubbleMar 24, 2000 — May 30, 200786 months (1,808 days)-49%
Global Financial CrisisOct 9, 2007 — Mar 28, 201365 months (1,379 days)-57%
COVID-19 Crash***Feb 19, 2020 — Ongoing5 months+ (117+ days)-34%

Price returns, based on nominal prices
*Black Tuesday occurred about a month after the market peak on Oct 29, 1929
**The market hit a peak on Oct 13th, prior to Black Monday on Oct 19,1987
***As of market close Aug 4, 2020

By far, the longest recovery of this list followed the devastation of Black Tuesday, while the shortest was Black Monday of 1987—where it took 19 months for the market to fully recover.

Let’s take a closer look at each market crash to navigate the economic climate at the time.

After the Fall

What were some factors that can help provide context into the crash?

1929: Black Tuesday / Great Crash

Following Black Tuesday in 1929, the U.S. stock market took 7,256 days—equal to about 25 years—to fully recover from peak to peak. In response to the market crisis, a coalition of banks bought blocks of shares, but with negligible effects. In turn, investors fled the market.

Meanwhile, the Federal Reserve Board rose the discount lending rate to 6%. As a result, borrowing costs climbed for consumers, businesses, and the central banks themselves. The tightening of rates led to unintended consequences, with the economy capitulating into the Great Depression. Of course, factors that contributed to its prolonged recovery have been debated, but these are just a few of the actions that had implications at the time.

1973: Nixon Shock / OPEC Oil Embargo

The Nixon Shock corresponded with a series of economic measures in response to high inflation. Soaring inflation devastated stocks, consuming real returns on capital. Around the same time, the oil embargo also occurred, with OPEC member countries halting oil exports to the U.S. and its allies, causing a severe spike in oil prices. It took seven years for the S&P 500 to return to its previous peak.

1987: Black Monday

While the exact cause of the 1987 crash has been debated, key factors include both the advent of computerized trading systems and overvalued markets.

To curtail the impact of the crash, former Federal Reserve chairman Alan Greenspan aggressively slashed interest rates, repeatedly promising to take great lengths to stabilize the market. The S&P took under two years to recover.

2000: Dot Com Bubble

To curb the stratospheric rise of U.S. tech stocks, the Federal Reserve raised interest rates five times in eight months, sending the markets into a tailspin. Virtually $5 trillion in market value evaporated.

However, a number of well-known companies survived, including eBay and Amazon. At the time, Amazon’s stock price cratered from $107 to $11 while eBay lost 75% of its market value. Meanwhile, a number of Dot Com flops included Pets.com, WorldCom, and FreeInternet.com.

2007: Global Financial Crisis

Relaxed credit policies, the proliferation of subprime mortgages, credit default swaps, and commercial mortgage-backed securities were all factors behind the market turmoil of 2007. As banks carved out risky loans packaged in opaque tranches of debt, risk in the market accelerated.

Similar to 1987, the Federal Reserve initiated a number of rescue actions. Interest rates were brought down to historical levels and $498 billion in bailouts were injected into the financial system. Crisis-related bailouts extended to Fannie Mae and Freddie Mac, the Troubled Asset Relief Program (TARP), the Federal Housing Administration, and others.

2020: COVID-19 Crash

In 2020, historic fiscal stimulus measures along with trillions in Fed financing have factored heavily in its swift reversal. The result has been one of the steepest rallies in S&P 500 history.

At the same time, the economy is mirroring Great Depression-level unemployment numbers, reaching 14.7% in April 2020. In short, this starkly exposes the sharp disconnect between the markets and broader economy.

Bearing Witness

History offers many lessons, and in this case, a view into the shape of a post-coronavirus market recovery.

Although the stock market is likely rallying off Fed liquidity, investor optimism, and the promise of potential vaccines, it’s interesting to note that the trajectory of this crash in some ways resembles the initial rebound shown during the Great Depression—which means we may not be out of the woods quite yet.

As the S&P 500 edges 2% shy of its February peak, could the market post a hastened recovery—or is a protracted downturn in the cards?

This graphic has been inspired by this Reddit post.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Markets

Ranked: The Best and Worst Pension Plans, by Country

As the global population ages, pension reform is more important than ever. Here’s a breakdown of how key countries rank in terms of pension plans.

Published

on

Ranked: Countries with the Best and Worst Pension Plans

The global population is aging—by 2050, one in six people will be over the age of 65.

As our aging population nears retirement and gets closer to cashing in their pensions, countries need to ensure their pension systems can withstand the extra strain.

This graphic uses data from the Melbourne Mercer Global Pension Index (MMGPI) to showcase which countries are best equipped to support their older citizens, and which ones aren’t.

The Breakdown

Each country’s pension system has been shaped by its own economic and historical context. This makes it difficult to draw precise comparisons between countries—yet there are certain universal elements that typically lead to adequate and stable support for older citizens.

MMGPI organized these universal elements into three sub-indexes:

  • Adequacy: The base-level of income, as well as the design of a region’s private pension system.
  • Sustainability: The state pension age, the level of advanced funding from government, and the level of government debt.
  • Integrity: Regulations and governance put in place to protect plan members.

These three measures were used to rank the pension system of 37 different countries, representing over 63% of the world’s population.

Here’s how each country ranked:

CountryOverall ValueAdequacySustainabilityIntegrity
Argentina39.543.131.944.4
Australia75.370.373.585.7
Austria53.968.222.974.4
Brazil55.971.827.769.8
Canada69.27061.878.2
Chile68.759.471.779.2
China48.760.536.746.5
Colombia58.461.44670.8
Denmark80.377.58282.2
Finland73.673.260.792.3
France60.279.14156.8
Germany66.178.344.976.4
Hong Kong61.954.554.586.9
India45.839.944.956.3
Indonesia52.246.747.667.5
Ireland67.381.544.676.3
Italy52.267.41974.5
Japan48.354.632.260.8
Korea49.847.552.649.6
Malaysia60.650.560.576.9
Mexico45.337.557.141.3
Netherlands8178.578.388.9
New Zealand70.170.961.580.7
Norway71.271.656.890.6
Peru58.56052.464.7
Philippines43.73955.534.7
Poland57.462.545.366
Saudi Arabia57.159.650.562.2
Singapore70.873.859.781.4
South Africa52.642.34678.4
Spain54.77026.969.1
Sweden72.367.57280.2
Switzerland66.757.665.483
Thailand39.435.838.846.1
Turkey42.242.627.162.8
UK64.46055.384
U.S.60.658.862.960.4

The Importance of Sustainability

While all three sub-indexes are important to consider when ranking a country’s pension system, sustainability is particularly significant in the modern context. This is because our global population is increasingly skewing older, meaning an influx of people will soon be cashing in their retirement funds. As a consequence, countries need to ensure their pension systems are sustainable over the long-term.

There are several factors that affect a pension system’s sustainability, including a region’s private pension system, the state pension age, and the balance between workers and retirees.

The country with the most sustainable pension system is Denmark. Not only does the country have a strong basic pension plan—it also has a mandatory occupational scheme, which means employers are obligated by law to provide pension plans for their employees.

Adequacy versus Sustainability

Several countries scored high on adequacy but ranked low when it came to sustainability. Here’s a comparison of both measures, and how each country scored:

Ireland took first place for adequacy, but scored relatively low on the sustainability front at 27th place. This can be partly explained by Ireland’s low level of occupational coverage. The country also has a rapidly aging population, which skews the ratio of workers to retirees. By 2050, Ireland’s worker to retiree ratio is estimated to go from 5:1 to 2:1.

Similar to Ireland, Spain ranks high in adequacy but places extremely low in sustainability.

There are several possible explanations for this—while occupational pension schemes exist, they are optional and participation is low. Spain also has a low fertility rate, which means their worker-to-retiree ratio is expected to decrease.

Steps Towards a Better System

All countries have room for improvement—even the highest-ranking ones. Some general recommendations from MMGPI on how to build a better pension system include:

  • Increasing the age of retirement: Helps maintain a more balanced worker-to-retiree ratio.
  • Enforcing mandatory occupational schemes: Makes employers obligated to provide pension plans for their employees.
  • Limiting access to benefits: Prevents people from dipping into their savings preemptively, thus preserving funds until retirement.
  • Establishing strong pension assets to fund future liabilities: Ideally, these assets are more than 100% of a country’s GDP.
  • Pension systems across the globe are under an increasing amount of pressure. It’s time for countries to take a hard look at their pension systems to make sure they’re ready to support their aging population.

    Subscribe to Visual Capitalist

    Thank you!
    Given email address is already subscribed, thank you!
    Please provide a valid email address.
    Please complete the CAPTCHA.
    Oops. Something went wrong. Please try again later.

Continue Reading

Subscribe

Join the 190,000+ subscribers who receive our daily email

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Popular