China Economic Development: How did China become the World’s Second-largest Economy?

Abstract

China’s transformation into the world’s second-largest economy is a remarkable feat driven by key reforms and strategic economic policies. This study examines the pivotal milestones of China’s journey, starting with Deng Xiaoping’s open-door policy in 1978, which marked a shift toward a market-oriented economy. The introduction of Special Economic Zones (SEZs) and policies promoting Foreign Direct Investment (FDI) accelerated industrialization and technological advancements, positioning China as a global manufacturing and trade hub. By employing a quantitative research design and analyzing secondary data, this study investigates the correlation between FDI inflows and China’s economic development, emphasizing their impact on GDP growth, employment generation, and technological innovation. 
The findings reveal that FDI has served as a critical catalyst in China’s economic expansion, providing capital, advanced technologies, and employment opportunities. China’s export-driven strategy and focus on high-tech industries further solidified its role in the global economy. However, the rapid growth was not without challenges, including regional inequalities, social disparities, and environmental degradation. These challenges highlight the need for comprehensive strategies to promote equitable growth and sustainable development. Despite its limitations, such as a reliance on secondary data and the exclusion of comparative analyses, this research offers valuable insights into China’s development trajectory. It underscores the importance of FDI in economic growth and provides lessons for other developing countries seeking to leverage foreign investment for sustained development. Future studies should explore the long-term sustainability of China’s growth model and the systemic barriers that may hinder its continued economic ascent.