ABSTRACT
The rise of China is a major episode in world economic history. From the late 1970s, China pursued market-oriented reforms and open policy. During the past two decades, China experienced extraordinary growth. Since 1978, GDP growth rates have averaged 10 per cent a year, and 10.7 per cent in the 1990s, rivalling the record achieved by Japan and the ‘Four Tigers’ (South Korea, Singapore and Hong Kong and Taiwan province of China) in their fast growing period. In a short span of time, China has experienced three historic transforma-
tions simultaneously. First, China is undergoing economic transition from a planned economy to a market economy. Second, China is undergoing economic development from a traditional agricultural economy to an industrialized economy. Third, China is changing from autarky to an important player in the arena of world economy and politics. China’s experience provides an ideal laboratory for economic research. The study of the Chinese economy can not only shed light on the causes and process of this massive growth surge, but also enrich our understanding of policy reform and institutional changes. With China’s growth occurring at a bewildering speed and arising from
complex processes, it is not surprising that there has been much debate among economists over the basic interpretation of China’s success. While some scholars tell us about ‘the China Miracle’ (Lin et al. 1996), others claim ‘Growth without Miracle’ (Garnaut and Huang 2001). The experimentalist school highly praises China’s gradual, piecemeal reform and believes the hybrid institutions (such as township and village enterprises, or TVEs) reflect the distinctive Chinese social and cultural background and are a genuine innovation of the Chinese political leaders. The convergence school, on the other hand, believes that the institutional infrastructure that China needs for long-term growth has to converge with the best international practices in advanced economies (Sachs and Woo 2000). China’s explosive growth challenges many widely accepted tenants of policy
analysis. Private ownership, democracy, and the rule of law, which are seen by new classical economists as necessary to economic development, were notably
absent, at least at the earliest stage of China’s reform. China is just like a student who never does his homework, but always outperforms his classmates in examinations. Why is the story of China unique? Is China showcasing a new type of economic system that is different from both socialism and the market economy but is superior to both in stimulating economic performance, or are China’s experiments mainly the product of political constraints rather than economic optimization? Do we have the confidence to say that past success can guarantee future prosperity? What are the major challenges and constraints that China is facing? This chapter does not aim to answer all these questions, but provides a
survey and a preliminary analysis of China’s economic reform. The next section provides a brief overview of China’s economic development from 1949 to the present. The chapter then analyses the economic reform of the early 1980s. The planned economy was not sustainable because the government found it increasingly difficult to keep a high growth rate and attain the goal of full employment. The reform took a gradualist approach and the rise of the non-state sector made a major contribution to China’s growth. The chapter then discusses the formation of the triangle of the state-owned
banks, the state-owned enterprises (SOEs), and the government. We believe the equilibrium and dynamics among these three key players can largely explain the path and pattern of economic reform during the 1980s and 1990s. The chapter then provides another factor to explain China’s economic reform, namely, the central-local relationship. The competition and tension between central and local government has a tradition of thousands of years in China and still plays an important role in the formation and evolution of China’s economic system. The chapter then looks to the future and summarizes the remaining tasks
for China to accomplish in the near future in order to sustain high economic growth and social stability. We argue that China is facing an internal and external imbalance and that a favourable policy package should help to maintain macroeconomic stability in the short term as well as pave the way for sustainable growth in the future. The chapter finally tries to identify the key elements for a successful reform in China in the twenty-first century – what should be the strategic triggers for the reform, whether the current institutions are supportive of the reform, and how to find a potential institution which can act as a facilitator and coordinator for the reform.
