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Opinion | 40 years on, China dispels the myths of economic growth

  • Éloi Laurent says China’s economic miracle, the greatest development experiment in human history, defies the expectation that growth will reduce inequality, usher in political liberalism, and protect the environment

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An exhibition in Hong Kong marks the 40th anniversary of China’s reform and opening up. The series of ‘modernisations’ initiated by Deng Xiaoping transformed one of the world’s least-developed countries into a leading economic power. But growth has not decreased inequality, or increased happiness for most. Photo: EPA-EFE

Forty years ago, on December 29, 1978, the 11th Central Committee of the Communist Party of China released the official communique from its third plenary session, launching the greatest economic-growth experiment in human history.

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In newspeak understandable to Communist Party insiders, the country’s leaders, channelling the wishes of Deng Xiaoping, announced a series of unprecedented “modernisations” that would transform one of the world’s least-developed countries into a leading economic power. 

In 2014, China overtook the United States as the world’s largest economy (based on purchasing power parity). Its per capita gross domestic product, 40 times lower than that of the US in 1980, has grown by a factor of 58, and is now just 3.4 times lower (according to IMF data). In effect, around 15 per cent of humanity has experienced 10 per cent average income growth every year for four decades.

But China’s dizzying rise has also dispelled three leading myths about the impact of economic growth. The first is that growth reduces inequality and increases happiness.

In 1955, the economist Simon Kuznets hypothesised that income inequality would increase sharply and then decline – in the pattern of an inverted “U” or a bell – as countries underwent economic development. Given the pace of China’s economic growth since 1978, its experience refutes this claim more powerfully than any other case.

China, after all, is now one of the world’s most unequal countries. For the past 10 years, its Gini coefficient has hovered around 0.5, up from around 0.3 in 1980 (a coefficient of 1 means a single individual owns everything). In fact, the relationship between growth and inequality over time has followed a peculiar pattern: China’s Gini coefficient has increased with growth, and decreased when growth has slowed.

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