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China: awakening giant

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China: Awakening Giant - September 2003 - Dallas Fed China: Awakening Giant by W. Michael Cox and Jahyeong Koo Federal Reserve Bank of Dallas September 2003 The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. 1 China News Digest International, Inc. China: Awakening Giant China has had four distinct periods in its 4,000-year history. As far back as there’s data, and until the 16th cen- tury, China’s economy performed on par with countries elsewhere in the world. Figure 1 plots GDP per capita over the period from 1 to 1500 A.D. and shows that for over 1,000 years China’s economy outperformed that of Western Europe. Toward the end of the Ming Dynasty, however, and throughout the Ching dynasty, China stag- nated—its GDP per capita rising virtually nothing for over 300 years. Western Europe at this time enjoyed rapid eco- nomic development, riding the scientific revolution that began in the 11th century. Around the 19th century, growth in Western Europe skyrocketed, while China slipped into decline as it shunned progress and closed its doors to the outside world. China’s isolationism led eventually to inva- sion from Western and Japanese forces, driving the nation’s GDP per capita back down to levels seen 2,000 years earlier. Just a quarter century ago, China began to awaken from its 500-year sleep, and today it is rapidly catching up with the Western world. The year 1978 marks a turning point in China’s modern history, as Deng Xiaoping began to remake the economy around market principles. In 1978, China had the world’s ninth largest economy, with a GDP just one-eighth that of the United States and a third that of Japan (Figure 2). But by 2001, China had grown to the world’s second largest economy, with a national output over half that of the United States and 60 percent larger than Japan’s (Figure 3). 2 Figure 1: GDP per Capita: China and Western Europe: 1-1998 A.D. SOURCE

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