The lessons of China’s transition to a market economy

China’s transition from a planned economy to a market economy began at the end of 1978. When China started the process, the government did not have a well-designed blueprint. The approach to reform can be characterized as piecemeal, partial, incremental, and often experimental. Some economists regard this approach as self-defeating (Murphy, Schleifer, and Vishny 1992). China’s average annual rate of GDP growth has been miraculous since the beginning of the transition (Lin et al. 1996) and is the most successful of the transition economies. Nevertheless, the Chinese economy has been troubled by an increasingly serious “boom and bust” cycle (see Figure 13.1).