Chinese Economics
The social values and history have shaped and formed the economical developments
and the current environment of business in the People\'s Republic of China. They
have determined the patterns for negotiation and the Chinese perceptions of
business, and their feelings towards westerners. The implicit and explicit rules
that the Chinese society has on the development of businesses, and the economy
in general, are very important issues for any person going into China to
understand and consider. In order to achieve a successful partnership between

Chinese and Western cultures it is essential to have a basic understanding of
history and cultural developments that have shaped the current environment of
business. The three pillars of China are economy, culture, and society. Economy

The Chinese economy has been formed as a result of centuries of history and
development, which reflect the philosophy of China and its current economical
position. China started as a mainly agricultural based society with the
subsistence group; the family. For more than 2000 years the Chinese economy
operated under a type of feudal system; land was concentrated in the hands of a
relatively small group of landowners whose income depended on rents from their
peasant tenants. Agricultural taxes levied by the imperial government and crop
yields subject to drought and floods kept agriculture relatively underdeveloped
and organized in small units with the use of primitive methods for basic
subsistence. The conclusion of the Opium War of 1840 formally initiated a period
of Western penetration of China from the coastal treaty ports. Railroads and
highways were constructed, and some industrial development began. Such activity
had little impact, however, on the overall Chinese economy. In effect, China was
carved up into a number of competing colonial spheres of influence. Japan, which
tried to attach China to its East Asia prosperity Sphere, was able to create
only isolated nodes of a modern economy. The Chinese Communist party emerged in
the 1920s in the midst of a mounting economic crisis caused by foreign
intervention and increased landlord influence in the countryside. For more than
two decades, it expanded its control over large rural areas by introducing an
agrarian program based on the control of rent and usury, and by giving power to
peasant associations. On October 1, 1949, the Communist party successfully
established a unified national government and economy on the mainland for the
first time since the end of the imperial period in 1912. From 1949 to 1952 the
emphasis was on halting inflation and ending food shortages and unemployment.

The new government initiated a land reform program that redistributed land to

300 million poor peasants into cooperative farms. In 1958 the rural people\'s
communes were established, and these dominated agriculture in China until the
early 1980s. The commune was based on the collective ownership of all land and
major tools by its members, who produced mainly to meet state planning targets
and who were rewarded according to the work they performed, although basic
necessities were guaranteed to all members. In the urban-industrial sector,
state ownership of property and of industrial and commercial enterprises was
gradually extended. Industry grew steadily from heavy investment under the first
five-year plan, and the state-owned sector achieved an overwhelming importance.

The second five-year plan was introduced in 1958, trying to get China ahead into
industrialization. This program was characterized by large investments in heavy
industry and the establishment of small-scale versions of such industries as
steel refining. The program, however, caused great disruptions in economic
management and in rational economic growth, and in 1960 the program had to be
abandoned. The Chinese economy then entered a period of readjustment, but by

1965 production in many fields again approached the level of the late 1950s. The
third five-year plan began in 1966, but both agricultural and industrial
production were severely curtailed by the effects of the Cultural Revolution; a
fourth five-year plan was introduced in 1971 as the economy began its recovery.

After eliminating the vestiges of the Cultural Revolution in 1976, China\'s
leaders decided to move at a faster pace on all economic fronts to make up for
the loss suffered in the preceding ten years. A fifth five-year program began in

1976 but was interrupted in 1978, when the Four-Modernization program was
launched. It included the modernization of agriculture, industry, national
defense, and science and technology. A ten-year plan for 1976-85 stressed
improvement in economic management and a larger role for private and
collectively owned (as opposed to state-owned) enterprises. This program was
superseded by a more modest ten-year plan for 1981-90, but efforts to attract

Western technology and investment continued, as did a program of incentives to
increase agricultural production.