Transition to a socialist market economy

Economies rarely undergo a complete sea-change in a short period but the People’s Republic of China (PRC) (Zhonghua renmín gongheguo), which we subsequently refer to as ‘China’, did indeed move from ‘plan’ (jihua) to ‘market’ (shichang), from a centralized ‘command economy’ to a decentralized ‘market socialist’ one, in less than a decade, after the death of Mao Zedong in 1976 (Naughton 1996; 2007). With the demise of the old ruling group came a set of major reforms (gaige) in the institutional and organizational environments which Chinese enterprises faced. ¹ After 1978, the new leader, Deng Xiaoping, launched his own ‘Economic Reforms’. The World Bank, of which China became a member in 1980, wanted China to optimize ‘resource allocation’ and ‘factor productivity’ in what it saw as the country’s highly inefficient economy, with loss-making state-owned enterprises (SOEs) at its core. As a result, China began evolving, gradually but inexorably, into a market-driven economy, in less time than anyone in the chaotic years of the ‘Cultural Revolution’ (wen ge) might have conceivably imagined. In the train of Deng’s reforms, a change in the management paradigm was soon to follow.