question_answer

Describe in brief the crisis China faced before ending political and economic isolation.

Answer:

At the time of the inception of Chinese economy in 1949, after the communist revolution under Mao, Chinese economy was modeled on Soviet Model. China even broke off its link with the capitalist world. For this reason, it had to rely on Soviet help and its own resources for a brief period. The model adopted was creation of state-controlled heavy industries funded by the capital accumulated from agriculture. Since China needed foreign exchange to buy technology and goods from the world market, it substituted imports by domestic goods.

This model led China to use its own resources and establish an industrial-economic model that did not exist before. China assured social welfare and employment to all citizens. Further, it moved ahead by assuring health and education for all. China moved ahead of all developing states with a growth rate of 5-6%. However, the 2-3% annual growth rate of population meant that the growth rate did not match the increasing needs of population. Agriculture did not provide surplus for industry. Thus, just like Soviet economy, China also faced severe economic crises due to minimal trade and low per capita income. The crises led Chinese to review their policy in 1970s. In 1972, it ended its economic and political isolation by establishing close relations with the USA.