The Chinese Economy, Culture & Society

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.


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