Is Democracy a Pre-Condition in Economic Growth? A Perspective from the Rise of Modern China

In the past, many nations were falling short of sufficient food; people worked for long hours to attain a high standard of living. Maintaining high economic growth was the government officials’ major concern, while quality of life issues such as sufficient leisure time, were not considered important. In recent years, food supply and economic growth are no longer an important issue in developed countries. We have become more concerned with matters other than income. Human rights, democracy, equity, the meaning of life and dignity are gaining significance, as compared to increases in gross domestic product (GDP). Nevertheless, economic growth has remained an important issue worldwide, as it affects people’s living standards.

The Relationship between Democracy and Economic Growth

In general, democracy creates better opportunities for both economic growth and cultural progress than authoritarian regimes. While scholars such as Milton Friedman argued that a higher degree of rights fostered economic development (1962), and a wealth of other studies suggest that democracy promotes economic liberalization (Fidrmuc, 2001, Peev and Murller, 2012), and that democracy is preferable for long-term and sustainable growth (North, 1990, North, 1993, Olson, 2000), there is no consensus on the correlations between democracy and economic growth. When we focus on China, we may overthrow the argument as such: there are no democratic parties, no elections for government officials, etc. The strong economic growth, however, has continued for many years, and many Western countries are curious to know the reasons behind this. Without a doubt China’s story is valuable and inspiring for other developing countries, allowing them to study factors which drive economic growth.

Data Analytics in Google on Economic Growth in Mainland China

As one of the countries with the strongest economic growth, and the largest economy in the world, China’s economic phenomenon attracts not only the mainland Chinese themselves, as illustrated in Fig. 1, despite a drop in the number of Google searches from 2004 to 2015. Many Australians, Americans and British have had persistent interest in the economic growth in China during this period (the fact that other countries are not included in Fig. 2 indicates that the number of searches originating in them is too small to be included in the graph as compared to the top three nations). Residents of such urban centres, as London and Singapore show the strongest interests in economic growth in China (Fig. 3). Residents of Hong Kong, Singapore, Australia and India show the largest regional interest in Chinese GDP growth (Fig. 5).

China as an Economic Powerhouse: Pre-, During and Post-Financial Crisis

In recent years, many developing countries in Asia recorded high economic growth and have become global economic engines. China is no exception and has become the new powerhouse in global economic development during the pre- and post-global subprime financial crisis and eurozone debt crisis. The huge market demand affects the global economy through commodity trade and investments. Moreover, many industries benefit from cheaper production. Economic development is affected by different stakeholders outside the countries’ boundaries. As the changes in the outside world also affect local and regional industry, it has become more difficult to make any optimal decisions. In developing countries, they used to concern only the local parties, as it was believed that stronger governments can launch development programs more efficiently.

Chinese Style of Economic Reform

Since the Asian financial crisis in 1997, China’s economic growth rate has never fallen below 7.5 per cent and even reached as high as 14 per cent. China recorded a positive GDP growth rate of 7.7 per cent in 2014. The latest GDP record is US $9.24 trillion, making it the second largest in the world.[1]  In stark contrast, however, China records a decreasing trend in its democracy index.[2]

When there is an increase in economic freedom, the economy growth rate also increases. China adopts “Chinese style Socialism” which aims to increase economic growth, but at the same time economic reforms are initiated by the Government of China. The country also continues to play an important role in resource allocation. Although the Communist Party of China denies that they have applied market mechanism, many experts agree that China has opened its market.[3] To a certain extent, its economic growth cannot be separated from politics. The Government of China provides support to economic growth, having absolute power to intervene in particular trades and transactions.

The Paradox of Rapid Economic Growth in the Absence of Western Style of Democracy

The history of the late twentieth century provides a number of examples of political and economic reforms similar to those realized in East Germany after the fall of the Berlin Wall. Privatization and liberalization activities had been carried out there against a backdrop of a rapidly growing world economy. In a different vein, however, China enjoys its economic growth in the absence of liberalization reforms, and continues to play a major role in global economic development. From a political point of view, democracy embraces the idea of freedom, one major element of which is the freedom to elect governmental officials and thus influence the process of policy-making. Democratization in China would mean the disruption of the one-party system, and the appearance of political contestants. Meanwhile, the Communist Party of China is the only official governing body within their national boundaries, and the advantages of such a political arrangement lie in the fact that objections from the general public usually do not affect the decision-making process. Thus conclusions can be drawn relatively easily, and implemented in a reasonable period of time. Rapid construction of the 2008 Olympic game sites in Beijing is one vivid example. In view of economic growth policies, the same theory can be applied. Any thoughtful ideas can be put into practice in the blink of an eye in the absence of heated debates. Nevertheless, it does not mean that these political arrangements are flawless. Critics argue that Government officials may abuse their power since nobody can challenge their controversial policies. Yet at the moment, China’s economic growth is not conditioned by democratization. Will democracy be relevant to China’s future economic growth? Time will tell us the truth.


1 World Bank,World Development Indicators: Economy & Growth. Databank. Available from (accessed 16 March 2015).

2 Democracy index is a new index constructed by the Economist Intelligence Unit in response to the rising concern on democracy. See The Economist Intelligence Unit 2014. Democracy Index 2013: Democracy in limbo. Available from

3 Some economists even agree that China is promoting market mechanism. There are two famous works by William A. Byrd, that analyze Chinese market mechanism: Byrd, William A. (1987). The Impact of the Two-Tier Plan/Market System in Chinese Industry. Journal of Comparative Economics, vol. 11, No. 3 (September), p. 295 - 308, and Byrd, William A. (1991). The Market Mechanism and Economic Reforms in China, Armonk, N.Y.: M.E. Sharpe.


Byrd, William A. (1987). The impact of the two-tier plan/market system in Chinese industry. Journal of Comparative Economics, vol. 11, No. 3 (September), p. 295 - 308.

Byrd, William A. (1991). The Market Mechanism and Economic Reforms in China. Armonk, N.Y.: M.E. Sharpe.Fidrmuc, Jan (2001). Economic reform, growth and democracy during post-communist transition. William Davidson Institute Working Papers Series, No. 372. Ann Arbor, Michigan: William Davidson Institute at the University of Michigan.

Friedman, Milton, with the assistance of Rose D. Friedman (1962). Capitalism and Freedom. Chicago: The University of Chicago Press.

North, Douglass C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.

North, Douglass C. (1993). The Paradox of the West. Economics Working Paper Archive. St. Louis, Missouri: Washington University.

Olson, Mancur (2000). Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. New York: Basic books.

Peev, Evgeni, and Dennis C. Mueller (2012). Democracy, economic freedom and growth in transition economics. Kyklos, vol. 65, No. 3 (August), p. 371 - 407.

The Economist Intelligence Unit 2014. Democracy Index 2013: Democracy in limbo. Available from

World Bank (2015). World Development Indicators: Economy & Growth. Databank. Available from (accessed 16 March 2015).