HOME

TheInfoList



OR:

The Chinese economic reform or reform and opening-up (), known in the West as the opening of China, is the program of
economic reforms An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the p ...
termed " Socialism with Chinese characteristics" and "
socialist market economy The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is a market economy with the predominance of public ownership and state-owned enterprises. Th ...
" in the
People's Republic of China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
(PRC). Led by
Deng Xiaoping Deng Xiaoping (22 August 1904 – 19 February 1997) was a Chinese revolutionary leader, military commander and statesman who served as the paramount leader of the People's Republic of China (PRC) from December 1978 to November 1989. After CC ...
, often credited as the "General Architect", the reforms were launched by
reformists Reformism is a political doctrine advocating the reform of an existing system or institution instead of its abolition and replacement. Within the socialist movement, reformism is the view that gradual changes through existing institutions can e ...
within the
Chinese Communist Party The Chinese Communist Party (CCP), officially the Communist Party of China (CPC), is the founding and One-party state, sole ruling party of the China, People's Republic of China (PRC). Under the leadership of Mao Zedong, the CCP emerged victoriou ...
(CCP) on December 18, 1978, during the "
Boluan Fanzheng Boluan Fanzheng () or Poluan Fancheng, was a History of the People's Republic of China (1976–1989)#Boluan Fanzheng and economic reform, period in the History of the People's Republic of China, history of People's Republic of China during which ...
" period. The reforms went into stagnation after the military crackdown on
1989 Tiananmen Square protests The Tiananmen Square protests, known in Chinese as the June Fourth Incident (), were student-led demonstrations held in Tiananmen Square, Beijing during 1989. In what is known as the Tiananmen Square Massacre, or in Chinese the June Fourth ...
, but were revived after Deng Xiaoping's Southern Tour in 1992. In 2010, China overtook Japan as the world's second-largest economy by
nominal GDP Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...
and in 2017 overtook the United States by becoming the world's largest economy by
GDP (PPP) GDP (PPP) means gross domestic product based on purchasing power parity. This article includes a list of countries by their forecast estimated GDP (PPP). Countries are sorted by GDP (PPP) forecast estimates from financial and statistical ...
. Prior to the reforms, the Chinese economy was dominated by
state ownership State ownership, also called government ownership and public ownership, is the ownership of an industry, asset, or enterprise by the state or a public body representing a community, as opposed to an individual or private party. Public ownershi ...
and central planning. From 1950 to 1973, Chinese real GDP per capita grew at a rate of 2.9% per year on average, albeit with major fluctuations stemming from the
Great Leap Forward The Great Leap Forward (Second Five Year Plan) of the People's Republic of China (PRC) was an economic and social campaign led by the Chinese Communist Party (CCP) from 1958 to 1962. CCP Chairman Mao Zedong launched the campaign to reconstruc ...
and the
Cultural Revolution The Cultural Revolution, formally known as the Great Proletarian Cultural Revolution, was a sociopolitical movement in the People's Republic of China (PRC) launched by Mao Zedong in 1966, and lasting until his death in 1976. Its stated goal ...
. This placed it near the middle of the Asian nations during the same period, with neighboring
capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...
countries such as Japan,
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
, Singapore and then rival
Chiang Kai-shek Chiang Kai-shek (31 October 1887 – 5 April 1975), also known as Chiang Chung-cheng and Jiang Jieshi, was a Chinese Nationalist politician, revolutionary, and military leader who served as the leader of the Republic of China (ROC) from 1928 ...
's
Republic of China Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the northeast ...
(ROC) outstripping mainland China's rate of growth. Starting in 1970, the economy entered into a period of stagnation, and after the death of
Mao Zedong Mao Zedong pronounced ; also romanised traditionally as Mao Tse-tung. (26 December 1893 – 9 September 1976), also known as Chairman Mao, was a Chinese communist revolutionary who was the founder of the People's Republic of China (PRC) ...
, the Communist Party leadership decided to abandon
Maoism Maoism, officially called Mao Zedong Thought by the Chinese Communist Party, is a variety of Marxism–Leninism that Mao Zedong developed to realise a socialist revolution in the agricultural, pre-industrial society of the Republic of Chi ...
and turn to market-oriented reforms to salvage the stagnant economy. The Communist Party authorities carried out the market reforms in two stages. The first stage, in the late 1970s and early 1980s, involved the de-
collectivization of agriculture Collective farming and communal farming are various types of, "agricultural production in which multiple farmers run their holdings as a joint enterprise". There are two broad types of communal farms: agricultural cooperatives, in which member- ...
, the opening up of the country to foreign investment, and permission for entrepreneurs to start businesses. However, a large percentage of industries remained state-owned. The second stage of reform, in the late 1980s and 1990s, involved the
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
and
contracting out Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
of much state-owned industry. The 1985 lifting of
price controls Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of good ...
was a major reform, and the lifting of
protectionist Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...
policies and regulations soon followed, although state monopolies in the
commanding heights of the economy In Marxian economics, the "commanding heights of the economy" are certain strategically important sectors of private industry. Some examples of industries considered to be part of the commanding heights include public utilities, natural resources, ...
such as
banking A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
and
petroleum Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crud ...
remained. In 2001, China joined the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and e ...
(WTO). Not long after, the
private sector The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government. Employment The ...
grew remarkably, accounting for as much as 70 percent of China's gross domestic product (GDP) by 2005. From 1978 until 2013, unprecedented growth occurred, with the economy increasing by 9.5% a year. The conservative
Hu Jintao Hu Jintao (born 21 December 1942) is a Chinese politician who served as the 16–17th general secretary of the Chinese Communist Party (CCP) from 2002 to 2012, the 6th president of the People's Republic of China (PRC) from 2003 to 2013, an ...
's
administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal ** Administrative assistant, Administrative Assistant, traditionally known as a Secretary, or also known as an admini ...
regulated and controlled the economy more heavily after 2005, reversing some reforms. On the other hand, a parallel set of political reforms were launched by Deng in 1980, which also inspired the then
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen national ...
's
Glasnost ''Glasnost'' (; russian: link=no, гласность, ) has several general and specific meanings – a policy of maximum openness in the activities of state institutions and freedom of information, the inadmissibility of hushing up problems, ...
and
Perestroika ''Perestroika'' (; russian: links=no, перестройка, p=pʲɪrʲɪˈstrojkə, a=ru-perestroika.ogg) was a political movement for reform within the Communist Party of the Soviet Union (CPSU) during the late 1980s widely associated wit ...
, but eventually ended in 1989 due to the crackdown on
Tiananmen Square protests The Tiananmen Square protests, known in Chinese as the June Fourth Incident (), were student-led demonstrations held in Tiananmen Square, Beijing during 1989. In what is known as the Tiananmen Square Massacre, or in Chinese the June Fourth ...
, halting further political liberalization. The success of China's economic policies and the manner of their implementation resulted in immense changes in Chinese society in the last 40 years, including greatly decreased poverty while both average incomes and
income inequality There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of we ...
have increased, leading to a backlash led by the
New Left The New Left was a broad political movement mainly in the 1960s and 1970s consisting of activists in the Western world who campaigned for a broad range of social issues such as civil and political rights, environmentalism, feminism, gay rights, g ...
. In the academic scene, scholars have debated the reason for the success of the Chinese "dual-track" economy, and have compared it to attempts to reform socialism in the
Eastern Bloc The Eastern Bloc, also known as the Communist Bloc and the Soviet Bloc, was the group of socialist states of Central and Eastern Europe, East Asia, Southeast Asia, Africa, and Latin America under the influence of the Soviet Union that existed du ...
and the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen national ...
; as well as to the growth of other developing economies. Additionally, these series of reforms have led to China's rise as a
world power A great power is a sovereign state that is recognized as having the ability and expertise to exert its influence on a global scale. Great powers characteristically possess military and economic strength, as well as diplomatic and soft power inf ...
and a shift of international
geopolitical Geopolitics (from Greek γῆ ''gê'' "earth, land" and πολιτική ''politikḗ'' "politics") is the study of the effects of Earth's geography (human and physical) on politics and international relations. While geopolitics usually refers to ...
interests especially in matters relating to the
political status of Taiwan The controversy surrounding the political status of Taiwan or the Taiwan issue is a result of World War II, the second phase of the Chinese Civil War (1945–1949), and the Cold War. The basic issue hinges on who the islands of Taiwan, Peng ...
. However, matters such as
corruption Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain. Corruption m ...
,
pollution Pollution is the introduction of contaminants into the natural environment that cause adverse change. Pollution can take the form of any substance (solid, liquid, or gas) or energy (such as radioactivity, heat, sound, or light). Pollutants, the ...
and a rapidly aging population remain serious issues that the Chinese government has to tackle. Some analysts have said that the reform era has been scaled down or ended during the
leadership Leadership, both as a research area and as a practical skill, encompasses the ability of an individual, group or organization to "lead", influence or guide other individuals, teams, or entire organizations. The word "leadership" often gets view ...
of current
CCP General Secretary The general secretary of the Chinese Communist Party () is the Party leader, head of the Chinese Communist Party (CCP), the One-party state, sole ruling party of the China, People's Republic of China (PRC). Since 1989, the CCP general secr ...
Xi Jinping Xi Jinping ( ; ; ; born 15 June 1953) is a Chinese politician who has served as the general secretary of the Chinese Communist Party (CCP) and chairman of the Central Military Commission (CMC), and thus as the paramount leader of China, s ...
, citing that Xi has reasserted state control over different aspects of Chinese society, including the economy.


Course of reforms


Origin

In September 1976,
Mao Zedong Mao Zedong pronounced ; also romanised traditionally as Mao Tse-tung. (26 December 1893 – 9 September 1976), also known as Chairman Mao, was a Chinese communist revolutionary who was the founder of the People's Republic of China (PRC) ...
died, and in October,
Hua Guofeng Hua Guofeng (; born Su Zhu; 16 February 1921 – 20 August 2008), alternatively spelled as Hua Kuo-feng, was a Chinese politician who served as Chairman of the Chinese Communist Party and Premier of the People's Republic of China. The design ...
together with
Ye Jianying Ye Jianying (; 28 April 1897 – 22 October 1986) was a Chinese Communist revolutionary leader and politician, one of the founding Ten Marshals of the People's Republic of China. He was the top military leader in the 1976 coup that overthrew ...
and
Wang Dongxing Wang Dongxing (; 9 January 1916 – 21 August 2015) was a Chinese military commander and politician, famous for being the chief of Mao Zedong's personal bodyguard force, the 9th Bureau of the Ministry of Public Security (which included the ''8 ...
arrested the
Gang of Four The Gang of Four () was a Maoist political faction composed of four Chinese Communist Party (CCP) officials. They came to prominence during the Cultural Revolution (1966–1976) and were later charged with a series of treasonous crimes. The gang ...
, putting an end to the
Cultural Revolution The Cultural Revolution, formally known as the Great Proletarian Cultural Revolution, was a sociopolitical movement in the People's Republic of China (PRC) launched by Mao Zedong in 1966, and lasting until his death in 1976. Its stated goal ...
. Hua's break with Cultural Revolution era economic policies weas consistent with the 1975 reform agenda of
Deng Xiaoping Deng Xiaoping (22 August 1904 – 19 February 1997) was a Chinese revolutionary leader, military commander and statesman who served as the paramount leader of the People's Republic of China (PRC) from December 1978 to November 1989. After CC ...
. Hua made national economic development a matter of the highest priority and emphasized the need to achieve "liberation of productive forces." He "combined Soviet-style big push industrialization with an opening up to the capitalist world" and under his leadership, China opened its first
Special Economic Zone A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increas ...
and launched major efforts to attract foreign direct investment. Economic reforms began in earnest during the "
Boluan Fanzheng Boluan Fanzheng () or Poluan Fancheng, was a History of the People's Republic of China (1976–1989)#Boluan Fanzheng and economic reform, period in the History of the People's Republic of China, history of People's Republic of China during which ...
" period, especially after Deng and his reformist allies rose to power with Deng replacing Hua Guofeng as the
paramount leader Paramount leader () is an informal term for the most important political figure in the People's Republic of China (PRC). The paramount leader typically controls the Chinese Communist Party (CCP) and the People's Liberation Army (PLA), often hol ...
in December 1978. By the time Deng took power, there was widespread support among the elite for economic reforms. As the ''de facto'' leader, Deng's policies faced opposition from party conservatives but were extremely successful in increasing the country's wealth.


1979–1984

In 1979, Deng Xiaoping emphasized the goal of "
Four Modernizations The Four Modernizations (simplified Chinese: 四个现代化; traditional Chinese: 四個現代化) were goals first set forth by Deng Xiaoping to strengthen the fields of agriculture, industry, defense, and science and technology in China. Th ...
" and further proposed the idea of " xiaokang", or "
moderately prosperous society Moderately prosperous society or Xiaokang society (), is a Chinese term, originally of Confucianism, used to describe a society composed of a functional middle-class. In December 1979, Deng Xiaoping, then paramount leader of China, first propos ...
". The achievements of
Lee Kuan Yew Lee Kuan Yew (16 September 1923 – 23 March 2015), born Harry Lee Kuan Yew, often referred to by his initials LKY, was a Singaporean lawyer and statesman who served as Prime Minister of Singapore between 1959 and 1990, and Secretary-General o ...
to create an economic superpower in
Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, borde ...
had a profound effect on the Communist leadership in China. Leaders in China made a major effort, especially under Deng Xiaoping, to emulate his policies of economic growth, entrepreneurship, and subtle suppression of dissent. Over the years, more than 22,000 Chinese officials were sent to Singapore to study its methods. Deng's first reforms began in agriculture, a sector long mismanaged by the Chinese Communist Party. By the late 1970s, food supplies and production had become so deficient that government officials were warning that China was about to repeat the " disaster of 1959", the famines which killed tens of millions during the
Great Leap Forward The Great Leap Forward (Second Five Year Plan) of the People's Republic of China (PRC) was an economic and social campaign led by the Chinese Communist Party (CCP) from 1958 to 1962. CCP Chairman Mao Zedong launched the campaign to reconstruc ...
. Deng responded by decollectivizing agriculture and emphasizing the
household-responsibility system The household responsibility system ( zh, s=家庭联产承包责任制, t=家庭聯產承包責任制, p=jiātíng liánchǎn chéngbāo zérènzhì), or contract responsibility system, was a practice in China, first adopted in agriculture in 1979 ...
, which divided the land of the
People's commune The people's commune () was the highest of three administrative levels in rural areas of the People's Republic of China during the period from 1958 to 1983, until they were replaced by townships. Communes, the largest collective units, were div ...
s into private plots. Under the new policy, peasants were able to exercise formal control of their land as long as they sold a contracted portion of their crops to the government. This move increased agricultural production by 25 percent between 1975 and 1985, setting a precedent for privatizing other parts of the economy. The bottom-up approach of the reforms promoted by Deng, in contrast to the top-down approach of the
Perestroika ''Perestroika'' (; russian: links=no, перестройка, p=pʲɪrʲɪˈstrojkə, a=ru-perestroika.ogg) was a political movement for reform within the Communist Party of the Soviet Union (CPSU) during the late 1980s widely associated wit ...
in the Soviet Union, is considered an important factor contributing to the success of China's economic transition. Reforms were also implemented in urban industry to increase productivity. A dual-price system was introduced, in which (State-owned enterprise reform 1979) state-owned industries were allowed to sell any production above the plan quota, and commodities were sold at both plan and market prices, allowing citizens to avoid the
shortages In economics, a shortage or excess demand is a situation in which the demand for a product or service exceeds its supply in a market. It is the opposite of an excess supply (surplus). Definitions In a perfect market (one that matches ...
of the Maoist era. Moreover, the adoption of Industrial Responsibility System 1980s further promote the development of state-owned enterprise by allowing individuals or groups to manage the enterprise by contract. Private businesses were allowed to operate for the first time since the Communist takeover, and they gradually began to make up a greater percentage of industrial output. Price flexibility was also increased, expanding the service sector. At the same time, in December 1978, Deng announced a new policy, the
Open Door Policy The Open Door Policy () is the United States diplomatic policy established in the late 19th and early 20th century that called for a system of equal trade and investment and to guarantee the territorial integrity of Qing China. The policy wa ...
, to open the door to foreign businesses that wanted to set up in China. For the first time since the
Kuomintang The Kuomintang (KMT), also referred to as the Guomindang (GMD), the Nationalist Party of China (NPC) or the Chinese Nationalist Party (CNP), is a major political party in the Republic of China, initially on the Chinese mainland and in Tai ...
era, the country was opened to foreign investment. Deng created a series of
Special Economic Zones A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increas ...
, including
Shenzhen Shenzhen (; ; ; ), also historically known as Sham Chun, is a major sub-provincial city and one of the special economic zones of China. The city is located on the east bank of the Pearl River estuary on the central coast of southern province ...
,
Zhuhai Zhuhai (, ; Yale: ''Jyūhói''), also known as Chuhai is a prefecture-level city located on the west bank of Pearl River estuary on the central coast of southern Guangdong province, People's Republic of China, on the southeastern edge of Pearl ...
and
Xiamen Xiamen ( , ; ), also known as Amoy (, from Hokkien pronunciation ), is a sub-provincial city in southeastern Fujian, People's Republic of China, beside the Taiwan Strait. It is divided into six districts: Huli, Siming, Jimei, Tong'an, ...
, for foreign investment that were relatively free of the bureaucratic regulations and interventions that hampered economic growth. These regions became engines of growth for the national economy. On January 31, 1979, the
Shekou Industrial Zone Shekou () is an area at the southern tip of Nanshan District, Shenzhen, Guangdong Province, China. It faces Yuen Long, Hong Kong across the Shenzhen Bay. It has been designated as a Free Trade Zone by the government, alongside Qianhai, Hengq ...
of Shenzhen was founded, becoming the first experimental area in China to "open up". Under the leadership of
Yuan Geng Yuan Geng (; 23 April 1917 – 31 January 2016), born Ouyang Rushan, was a Chinese guerrilla fighter, war hero, spy, policy visionary, and serial entrepreneur on behalf of the Chinese state. He was an early proponent of China's reform and openin ...
, the "Shekou model" of development was gradually formed, embodied in its famous slogan ''
Time is Money, Efficiency is Life Time is the continued sequence of existence and events that occurs in an apparently irreversible succession from the past, through the present, into the future. It is a component quantity of various measurements used to sequence events, to c ...
'', which then widely spread to other parts of China. In January 1984, Deng Xiaoping made his first inspection tour to Shenzhen and Zhuhai, praising the "
Shenzhen speed The Shenzhen speed (simplified Chinese: 深圳速度; traditional Chinese: 深圳速度) was a term originally used during the early stages of Chinese economic reform to describe the fast construction of Guomao Building in Shenzhen, China. Being ...
" of development as well as the success of the special economics zones. Besides Deng Xiaoping himself, important high-ranking reformists who helped carry out the reforms include
Hu Yaobang Hu Yaobang (; 20 November 1915 – 15 April 1989) was a high-ranking official of the People's Republic of China. He held the top office of the Chinese Communist Party (CCP) from 1981 to 1987, first as Chairman from 1981 to 1982, then as Gene ...
, then
General Secretary of Chinese Communist Party The general secretary of the Chinese Communist Party () is the Party leader, head of the Chinese Communist Party (CCP), the One-party state, sole ruling party of the China, People's Republic of China (PRC). Since 1989, the CCP general secr ...
, and
Zhao Ziyang Zhao Ziyang ( zh, 赵紫阳; pronounced , 17 October 1919 – 17 January 2005) was a Chinese politician. He was the third premier of the People's Republic of China from 1980 to 1987, vice chairman of the Chinese Communist Party (CCP) from 198 ...
, then
Premier of the People's Republic of China The premier of the State Council of the People's Republic of China, commonly called the premier of China and sometimes also referred to as the prime minister, is the head of government of China and leader of the State Council. The premier is ...
. Other leaders who favored Deng's reforms include
Xi Zhongxun Xi Zhongxun (15 October 1913 – 24 May 2002) was a Chinese communist revolutionary and a subsequent political official in the People's Republic of China. He is considered to be among the first and second generation of Chinese leadership. ...
(the father of
Xi Jinping Xi Jinping ( ; ; ; born 15 June 1953) is a Chinese politician who has served as the general secretary of the Chinese Communist Party (CCP) and chairman of the Central Military Commission (CMC), and thus as the paramount leader of China, s ...
),
Wan Li Wan Li (1 December 1916 – 15 July 2015) was a Chinese Communist revolutionary and politician. During a long administrative career in the People's Republic of China, he served successively as Vice Premier, Chairman of the Standing Committee of ...
,
Hu Qili Hu Qili (; born 6 October 1929) is a former high-ranking politician of the Chinese Communist Party (CCP). He was a member of the CCP Politburo Standing Committee and a member of its Secretariat between 1987 and 1989. In 1989, he was purged becaus ...
and others. Another influential leader was
Chen Yun Chen Yun (, pronounced ; 13 June 1905 – 10 April 1995) was one of the most influential leaders of the People's Republic of China during the 1980s and 1990s and one of the major architects and important policy makers for the Reform and op ...
, regarded by some as the second most powerful person in China after Deng with more conservative ideology of the reforms. Though Deng Xiaoping is credited as the architect of modern China's economic reforms, Chen was more directly involved in the details of its planning and construction, and led a force that opposed many of the reforms from Deng's side. The two sides struggled over the general direction of the reforms until Chen died in 1995. A key feature of Chen's ideas was to use the market to allocate resources, within the scope of an overall plan. Some reforms of the early 1980s were, in effect, the implementation of a program that Chen had outlined in the mid-1950s. Chen called this the "birdcage economy (鸟笼经济/鳥籠經濟)". According to Chen, "the cage is the plan, and it may be large or small. But within the cage the bird
he economy He or HE may refer to: Language * He (pronoun), an English pronoun * He (kana), the romanization of the Japanese kana へ * He (letter), the fifth letter of many Semitic alphabets * He (Cyrillic), a letter of the Cyrillic script called ''He'' ...
is free to fly as he wishes." Chen and some other conservative leaders including
Li Xiannian Li Xiannian (pronounced ; 23 June 1909 – 21 June 1992) was a Chinese Communist military and political leader, President of the People's Republic of China (''de jure'' head of state) from 1983 to 1988 under Paramount Leader Deng Xiaoping and ...
never visited
Shenzhen Shenzhen (; ; ; ), also historically known as Sham Chun, is a major sub-provincial city and one of the special economic zones of China. The city is located on the east bank of the Pearl River estuary on the central coast of southern province ...
, the leading
special economic zone A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increas ...
championed by Deng.


1984–1993

During this period, Deng Xiaoping's policies continued beyond the initial reforms. Controls on private businesses and government intervention continued to decrease, notably in the agrifood sector which saw relaxation of
price controls Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of good ...
in 1985 and the establishment of the
household responsibility system The household responsibility system ( zh, s=家庭联产承包责任制, t=家庭聯產承包責任制, p=jiātíng liánchǎn chéngbāo zérènzhì), or contract responsibility system, was a practice in China, first adopted in agriculture in 1979 ...
, and there was small-scale privatization of state enterprises which had become unviable. A notable development was the
decentralization Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group. Conce ...
of state control, leaving local provincial leaders to experiment with ways to increase economic growth and privatize the state sector.
Township and village enterprises Township and Village Enterprises (TVEs, ) are market-oriented public enterprises under the purview of local governments based in townships and villages in China. History The State Council of the People's Republic of China first officially use ...
, firms nominally owned by local governments but effectively private, began to gain market share at the expense of the state sector. With the help of
Yuan Geng Yuan Geng (; 23 April 1917 – 31 January 2016), born Ouyang Rushan, was a Chinese guerrilla fighter, war hero, spy, policy visionary, and serial entrepreneur on behalf of the Chinese state. He was an early proponent of China's reform and openin ...
, the first
joint-stock A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are ...
commercial bank A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit. It can also refer to a bank, or a division of a large bank, which deals with cor ...
in China, the
China Merchants Bank China Merchants Bank (CMB) () is a Chinese bank headquartered in Futian District, Shenzhen, Guangdong, China. Founded in 1987, it is the first share-holding commercial bank wholly owned by corporate legal entities in China. CMB has over five hund ...
, and the first joint-stock insurance company in China, the
Ping An Insurance Ping An Insurance known also as Ping An of China (), full name Ping An Insurance (Group) Company of China, Ltd. is a Chinese holding conglomerate whose subsidiaries provide insurance, banking, asset management, financial, healthcare services. Th ...
, were both established in
Shekou Shekou () is an area at the southern tip of Nanshan District, Shenzhen, Nanshan District, Shenzhen, Guangdong, Guangdong Province, China. It faces Yuen Long, Hong Kong across the Deep Bay, China, Shenzhen Bay. It has been designated as a free-t ...
. In May 1984, fourteen coastal cities in China including Shanghai,
Guangzhou Guangzhou (, ; ; or ; ), also known as Canton () and alternatively romanized as Kwongchow or Kwangchow, is the capital and largest city of Guangdong province in southern China. Located on the Pearl River about north-northwest of Hong Kon ...
and
Tianjin Tianjin (; ; Mandarin: ), alternately romanized as Tientsin (), is a municipality and a coastal metropolis in Northern China on the shore of the Bohai Sea. It is one of the nine national central cities in Mainland China, with a total popul ...
were named " Open Coastal Cities (沿海开放城市)". A significant economic debate during this period concerned the approach to price liberalization and whether China should adopt an approach consistent with
shock therapy Electroconvulsive therapy (ECT) is a psychiatric treatment where a generalized seizure (without muscular convulsions) is electrically induced to manage refractory mental disorders.Rudorfer, MV, Henry, ME, Sackeim, HA (2003)"Electroconvulsive the ...
-- sudden price liberalization – or a more gradual approach. But in 1986, the latter approach won out. "Confronted with the diverse, authoritative warnings about the unforeseeable risks of imposing the shock of price reform and the uncertainty about its benefits," Premier
Zhao Ziyang Zhao Ziyang ( zh, 赵紫阳; pronounced , 17 October 1919 – 17 January 2005) was a Chinese politician. He was the third premier of the People's Republic of China from 1980 to 1987, vice chairman of the Chinese Communist Party (CCP) from 198 ...
and the leadership ultimately rejected shock price reform. Zhao had accepted the argument that the basic concern in economic reform was energizing enterprises. By late summer, what started under the rubric of "coordinated comprehensive package reform" had been diluted to an adjustment in the price of steel (although its price was both important had carried symbolic weight) as well as partial tax and financial reform. Radical price reform again became a focus in 1988, and this time led to spiraling inflation (the first time it had done so since the 1940s) as well as a backlash that included local protests, bank runs, and panic buying. The Chinese leadership halted these price liberalization plans in fall 1988 and instead focused on austerity, price reform, and retrenchment. Corruption and increased inflation increased discontent, contributing to the
Tiananmen Square protests of 1989 The Tiananmen Square protests, known in Chinese as the June Fourth Incident (), were student-led demonstrations held in Tiananmen Square, Beijing during 1989. In what is known as the Tiananmen Square Massacre, or in Chinese the June Fourth ...
and a conservative backlash after that event which ousted several key reformers and threatened to reverse many of Deng's reforms. The events of 1988 and 1989 led to the imprisonment or exile of many reformist officials. However, Deng stood by his reforms and in 1992, he affirmed the need to continue reforms in his southern tour. Thanks to his encouragement, in November 1990 the
Shanghai Stock Exchange The Shanghai Stock Exchange (SSE) is a stock exchange based in the city of Shanghai, China. It is one of the three stock exchanges operating independently in mainland China, the others being the Beijing Stock Exchange and the Shenzhen Stock Exc ...
was reopened after being closed by Mao 40 years earlier, while the
Shenzhen Stock Exchange The Shenzhen Stock Exchange (SZSE; ) is a stock exchange based in the city of Shenzhen, in the People's Republic of China. It is one of three stock exchanges operating independently in Mainland China, the others being the Beijing Stock Excha ...
was also founded in December 1990. In contrast to the approach of Deng, conservative elders led by
Chen Yun Chen Yun (, pronounced ; 13 June 1905 – 10 April 1995) was one of the most influential leaders of the People's Republic of China during the 1980s and 1990s and one of the major architects and important policy makers for the Reform and op ...
called to strike a balance between too much laissez-faire market economy and retaining state control over key areas of the economy. Chen Yun helped preserve the economy by preventing policies that would have damaged the interests of special interest groups in the government bureaucracy. Although the economy grew quickly during this period, economic troubles in the inefficient
state sector The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, infra ...
increased. Heavy losses had to be made up by state revenues and acted as a drain upon the economy. Inflation became problematic in 1985, 1988 and 1992. Privatizations began to accelerate after 1992, and the
private sector The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government. Employment The ...
grew as a percentage of GDP. China's government slowly expanded recognition of the private economy, first as a "complement" to the state sector (1988) and then as an "important component" (1999) of the
socialist market economy The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is a market economy with the predominance of public ownership and state-owned enterprises. Th ...
.


1993–2005

In the 1990s, Deng allowed many radical reforms to be carried out. In 1993, the
National People's Congress The National People's Congress of the People's Republic of China (NPC; ), or simply the National People's Congress, is constitutionally the supreme state authority and the national legislature of the People's Republic of China. With 2, ...
adopted the landmark Corporation Law. It provides that in
state owned enterprises A state-owned enterprise (SOE) is a government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn profit for the government ...
, the state is no more than an investor and controller of stock and assets. Pursuant to the Corporation Law, private and foreign investment in such enterprises must be below 49%. The law also permitted state firms to declare bankruptcy in the event of business failure. In the beginning, Chen supported Deng, carried out and implemented many of the influential reforms that made a generation of Chinese richer. But later, Chen realized that the state still needed an active iron hand involvement in the market to prevent the private sector from becoming untamable. Chen's criticism of Deng's later economic reforms was widely influential within the Communist Party and was reflected in the policies of China's leaders after Deng. Chen's theories supported the efforts of
Jiang Zemin Jiang Zemin (17 August 1926 – 30 November 2022) was a Chinese politician who served as general secretary of the Chinese Communist Party (CCP) from 1989 to 2002, as chairman of the Central Military Commission from 1989 to 2004, and as pres ...
and
Hu Jintao Hu Jintao (born 21 December 1942) is a Chinese politician who served as the 16–17th general secretary of the Chinese Communist Party (CCP) from 2002 to 2012, the 6th president of the People's Republic of China (PRC) from 2003 to 2013, an ...
to use state power to provide boundaries for the operation of the market, and to mediate the damage that capitalism can do to those who find it difficult to benefit from the free market. Chen's notion of the CPC as a "ruling party" was central to the redefinition of the role of the Party in Jiang Zemin's
Three Represents The Three Represents or the important thought of Three Represents is a guiding socio-political theory within China credited to then-general secretary of the Chinese Communist Party (CCP), Jiang Zemin, which was ratified at the Sixteenth Party ...
. In 2005, on the occasion of the hundredth anniversary of Chen's birth, the Party press published, over the course of several weeks, the proceedings of a symposium discussing Chen's contributions to CCP history, theory and practice. Although Deng died in 1997, reforms continued under his handpicked successors,
Jiang Zemin Jiang Zemin (17 August 1926 – 30 November 2022) was a Chinese politician who served as general secretary of the Chinese Communist Party (CCP) from 1989 to 2002, as chairman of the Central Military Commission from 1989 to 2004, and as pres ...
and
Zhu Rongji Zhu Rongji (; IPA: ; born 23 October 1928) is a retired Chinese politician who served as Premier of the People's Republic of China from 1998 to 2003 and CCP Politburo Standing Committee member from 1992 to 2002 along with the Chinese Communist ...
, who were ardent reformers who also abided by Chen Yun advice to keep the reforms steady and keep the state still in charge of key areas. In 1997 and 1998, large-scale
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
occurred, in which all state enterprises, except a few large monopolies, were liquidated and their assets sold to private investors. Between 2001 and 2004, the number of state-owned enterprises decreased by 48 percent. During the same period, Jiang and Zhu also reduced
tariffs A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and polic ...
,
trade barriers Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency. Most trade barriers work ...
, and
regulations Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. For ...
; reformed the banking system; dismantled much of the Mao-era social welfare system; forced the Chinese army (PLA) to divest itself of military-run businesses; reduced inflation; and joined the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and e ...
. These moves invoked discontent among some groups, especially laid-off workers of state enterprises that had been privatized. The domestic private sector first exceeded 50% of GDP in 2005 and has further expanded since. Also in 2005, China was able to surpass
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north ...
as the largest economy in Asia. However, some state monopolies still remained, such as in petroleum and banking.


2005–2012

Hu Jintao Hu Jintao (born 21 December 1942) is a Chinese politician who served as the 16–17th general secretary of the Chinese Communist Party (CCP) from 2002 to 2012, the 6th president of the People's Republic of China (PRC) from 2003 to 2013, an ...
and his conservative
administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal ** Administrative assistant, Administrative Assistant, traditionally known as a Secretary, or also known as an admini ...
began to reverse some of Deng Xiaoping's reforms in 2005. Observers note that the government adopted more egalitarian and populist policies. It increased subsidies and control over the health care sector, halted privatization, and adopted a loose monetary policy, which led to the formation of a U.S.-style property bubble in which property prices tripled. The privileged state sector was the primary recipient of government investment, which, under the new administration, promoted the rise of large "national champions" which could compete with large foreign corporations. China would finally surpass Japan's economy in 2010.


2012–2020

Under Party general secretary
Xi Jinping Xi Jinping ( ; ; ; born 15 June 1953) is a Chinese politician who has served as the general secretary of the Chinese Communist Party (CCP) and chairman of the Central Military Commission (CMC), and thus as the paramount leader of China, s ...
and his
administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal ** Administrative assistant, Administrative Assistant, traditionally known as a Secretary, or also known as an admini ...
, the CCP has sought numerous reforms. Some of these had increased control over state-owned and private enterprises, at least 288 firms have revised their corporate charters to allow the Communist Party greater influence in corporate management, and to reflect the party line. This trend also includes Hong Kong listed firms, who have traditionally downplayed their party links, but are now "redrafting bylaws to formally establish party committees that previously existed only at the group level." In other dimensions, according to
Ray Dalio Raymond Thomas Dalio (born August 8, 1949) is an American billionaire investor and hedge fund manager, who has served as co-chief investment officer of the world's largest hedge fund, Bridgewater Associates, since 1985. He founded Bridgewater in ...
, the Xi era has also been marked by economic opening, greater market-oriented decision-making and discontinuation of support for poorly-managed state-owned enterprises.


2020–present

On 21 July 2020, general secretary of the Chinese Communist Party, Xi Jinping made a speech to a group of public and private business leaders at the entrepreneur forum in Beijing. Xi emphasized that "We must gradually form a new development pattern with the domestic internal circulation as the main body and the domestic and international dual circulations mutually promoting each other." Since then "internal circulation" became a hot word in China. Some Chinese worry that the emphasis of "internal circulation" signals returning to 1960s-era seclusion, and ending of Chinese economic reform. In September 2020, the CCP announced that it would strengthen United Front work in the private sector by establishing more party committees in the regional federations of industry and commerce (FIC), and by arranging a special liaison between FIC and the CCP. The Xi Jinping era had considerably different economic objectives, in line with two campaigns, ''
Made in China 2025 Made in China 2025 ()Made in China 2025
. CSIS, June 1, 2015.
(MIC25, MIC 2025, or ...
'' and ''China Standards 2035'' which sought to scale up and displace US dominance in various high-tech sectors. This is alongside more aggressive pursuit of trade policies, in line with an outlook that sees China move towards taking a more active role in writing the rules of trade. Xi Jinping and the Chinese Communist Party have undertaken a course of reforms to "combat what the Communist Party considers undesirable economic and social elements". Xi wants to rein hyper-rich entrepreneurs, narrow the country's stubborn wealth gap and promote "common prosperity."" Reforms have included outlawing crypto-currency mining and trading, banning for-profit education, and banning the IPO's and hindering the growth of large firms owned by newly minted Chinese billionaires.


Effects of the reforms


Economic performance

After three decades of reform, China's economy experienced one of the world's biggest booms. Agriculture and light industry have largely been privatized, while the state still retains control over some heavy industries. Despite the dominance of state ownership in finance, telecommunications, petroleum and other important sectors of the economy, private entrepreneurs continue to expand into sectors formerly reserved for public enterprise. Prices have also been liberalized. China's economic growth since the reform has been very rapid, exceeding the
East Asian Tigers The Four Asian Tigers (also known as the Four Asian Dragons or Four Little Dragons in Chinese and Korean) are the developed East Asian economies of Hong Kong, Singapore, South Korea, and Taiwan. Between the early 1960s and 1990s, they underwent ra ...
. Since the beginning of Deng Xiaoping's reforms, China's GDP has risen tenfold.''China has socialist market economy in place'' (People's Daily Online, 2005). The increase in
total factor productivity In economics, total-factor productivity (TFP), also called multi-factor productivity, is usually measured as the ratio of aggregate output (e.g., GDP) to aggregate inputs. Under some simplifying assumptions about the production technology, growt ...
(TFP) was the most important factor, with productivity accounting for 40.1% of the GDP increase, compared with a decline of 13.2% for the period 1957 to 1978—the height of Maoist policies. For the period 1978–2005, Chinese GDP per capita increased from 2.7% to 15.7% of U.S. GDP per capita, and from 53.7% to 188.5% of Indian GDP per capita. Per capita incomes grew at 6.6% a year. Average wages rose sixfold between 1978 and 2005, while absolute poverty declined from 41% of the population to 5% from 1978 to 2001. Some scholars believed that China's economic growth has been understated, due to large sectors of the economy not being counted.


Impact on world growth

China is widely seen as an engine of world and regional growth. Surges in Chinese demand account for 50, 44 and 66 percent of export growth of the Hong Kong SAR of China, Japan and Taiwan respectively, and China's trade deficit with the rest of East Asia helped to revive the economies of Japan and Southeast Asia. Asian leaders view China's economic growth as an "engine of growth for all Asia".


Effect on inequality

Although the economic reforms has caused significant economic growth in China, it has also caused increased inequality, resulting in backlash and an attempt at pushing back the reforms by the
Chinese New Left The Chinese New Left () is a term used in the People's Republic of China to describe a diverse range of left-wing political philosophies that emerged in the 1990s that are critical of the economic reforms instituted under Deng Xiaoping, which ...
faction. Despite rapid economic growth which has virtually eliminated poverty in urban China and reduced it greatly in rural regions and the fact that living standards for everyone in China have drastically increased in comparison to the pre-reform era, the Gini coefficient of China is estimated to be above 0.45, comparable to some Latin American countries such as
Argentina Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the second-largest country in South America after Brazil, th ...
and Mexico as well as the United States. Increased inequality is attributed to the gradual withdrawal of the
welfare state A welfare state is a form of government in which the state (or a well-established network of social institutions) protects and promotes the economic and social well-being of its citizens, based upon the principles of equal opportunity, equitabl ...
system in China and differences between coastal and interior provinces, the latter being burdened by a larger state sector. Some Western scholars have suggested that reviving the welfare state and instituting a re-distributive
income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
system is needed to relieve inequality, while some Chinese economists have suggested that privatizing state monopolies and distributing the proceeds to the population can reduce inequality.Weiyin, Zhang
"Completely bury Keynesianism"
, (February 17, 2009)


Reforms in specific sectors


Agriculture

During the pre-reform period, Chinese agricultural performance was extremely poor and food shortages were common. After Deng Xiaoping implemented the
household responsibility system The household responsibility system ( zh, s=家庭联产承包责任制, t=家庭聯產承包責任制, p=jiātíng liánchǎn chéngbāo zérènzhì), or contract responsibility system, was a practice in China, first adopted in agriculture in 1979 ...
, agricultural output increased by 8.2% a year, compared with 2.7% in the pre-reform period, despite a decrease in the area of land used.
Food prices Food prices refer to the average price level for food across countries, regions and on a global scale. Food prices have an impact on producers and consumers of food. Price levels depend on the food production process, including food marketing an ...
fell nearly 50%, while agricultural incomes rose.
Zhao Ziyang Zhao Ziyang ( zh, 赵紫阳; pronounced , 17 October 1919 – 17 January 2005) was a Chinese politician. He was the third premier of the People's Republic of China from 1980 to 1987, vice chairman of the Chinese Communist Party (CCP) from 198 ...
wrote in his memoirs that in the years following the household contracting system, "the energy that was unleashed … was magical, beyond what anyone could have imagined. A problem thought to be unsolvable had worked itself out in just a few years time … 1984, farmers actually had more grain than they could sell. The state grain storehouses were stacked full from the annual procurement program." A fundamental transformation was the economy's growing adoption of
cash crop A cash crop or profit crop is an Agriculture, agricultural crop which is grown to sell for profit. It is typically purchased by parties separate from a farm. The term is used to differentiate marketed crops from staple crop (or "subsistence crop") ...
s instead of just growing rice and grain. Vegetable and meat production increased to the point that Chinese agricultural production was adding the equivalent of California's vegetable industry every two years. Growth in the sector slowed after 1984, with agriculture falling from 40% of GDP to 16%; however, increases in agricultural productivity allowed workers to be released for work in industry and services, while simultaneously increasing agricultural production. Trade in agriculture was also liberalized and China became an exporter of food, a great contrast to its previous famines and shortages.


Industry

In the pre-reform period, industry was largely stagnant and the socialist system presented few incentives for improvements in quality and productivity. With the introduction of the dual-price system and greater autonomy for enterprise managers, productivity increased greatly in the early 1980s. Foreign enterprises and newly formed
Township and Village Enterprises Township and Village Enterprises (TVEs, ) are market-oriented public enterprises under the purview of local governments based in townships and villages in China. History The State Council of the People's Republic of China first officially use ...
, owned by local government and often de facto private firms, competed successfully with state-owned enterprises. By the 1990s, large-scale privatizations reduced the market share of both the Township and Village Enterprises and state-owned enterprises and increased the private sector's market share. The state sector's share of industrial output dropped from 81% in 1980 to 15% in 2005. Foreign capital controls much of Chinese industry and plays an important role. From virtually an industrial backwater in 1978, China is now the world's biggest producer of concrete, steel, ships and textiles, and has the world's largest automobile market. Chinese steel output quadrupled between 1980 and 2000, and from 2000 to 2006 rose from 128.5 million tons to 418.8 million tons, one-third of global production. Labor productivity at some Chinese steel firms exceeds Western productivity. From 1975 to 1992, China's automobile production rose from 139,800 to 1.1 million, rising to 9.35 million in 2008. Light industries such as textiles saw an even greater increase, due to reduced government interference. Chinese textile exports increased from 4.6% of world exports in 1980 to 24.1% in 2005. Textile output increased 18-fold over the same period. This increase in production is largely the result of the removal of barriers to entry and increased competition; the number of industrial firms rose from 377,300 in 1980 to nearly 8 million in 1990 and 1996; the 2004 economic census, which excluded enterprises with annual sales below RMB 5 million, counted 1.33 million manufacturing firms, with
Jiangsu Jiangsu (; ; pinyin: Jiāngsū, Postal romanization, alternatively romanized as Kiangsu or Chiangsu) is an Eastern China, eastern coastal Provinces of the People's Republic of China, province of the China, People's Republic of China. It is o ...
and
Zhejiang Zhejiang ( or , ; , also romanized as Chekiang) is an eastern, coastal province of the People's Republic of China. Its capital and largest city is Hangzhou, and other notable cities include Ningbo and Wenzhou. Zhejiang is bordered by Jiang ...
reporting more firms than the nationwide total for 1980. Compared to other East Asian industrial growth spurts, China's industrial performance exceeded Japan's but remained behind
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
and
Taiwan Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the nort ...
's economies.


Trade and foreign investment

Some scholars assert that China has maintained a high degree of openness that is unusual among the other large and populous nations, with competition from foreign goods in almost every sector of the economy. Foreign investment helped to greatly increase quality, knowledge and standards, especially in heavy industry. China's experience supports the assertion that
globalization Globalization, or globalisation (Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 20t ...
greatly increases wealth for poor countries. Throughout the reform period, the government reduced tariffs and other trade barriers, with the overall tariff rate falling from 56% to 15%. By 2001, less than 40% of imports were subject to tariffs and only 9 percent of import were subject to licensing and import quotas. Even during the early reform era, protectionist policies were often circumvented by smuggling. When China joined the WTO, it agreed to considerably harsher conditions than other developing countries. Trade has increased from under 10% of GDP to 64% of GDP over the same period. China is considered the most open large country; by 2005, China's average statutory tariff on industrial products was 8.9%. The average was 30.9% for Argentina, 27.0% for Brazil, 32.4% for India, and 36.9% for Indonesia. China's trade surplus is considered by some in the United States as threatening American jobs. In the 2000s, the Bush administration pursued protectionist policies such as tariffs and quotas to limit the import of Chinese goods. Some scholars argue that China's growing trade surplus is the result of industries in more developed Asian countries moving to China, and not a new phenomenon. China's trade policy, which allows producers to avoid paying the
Value Added Tax A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end ...
(VAT) for exports and undervaluation of the currency since 2002, has resulted in an overdeveloped export sector and distortion of the economy overall, a result that could hamper future growth. Foreign investment was also liberalized upon Deng's ascension.
Special Economic Zone A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increas ...
s (SEZs) were created in the early 1980s to attract foreign capital by exempting them from taxes and regulations. This experiment was successful and SEZs were expanded to cover the whole Chinese coast. Although FDI fell briefly after the 1989 student protests, it increased again to 160 billion by 2004.


Services

In the 1990s, the financial sector was liberalized. After China joined the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and e ...
(WTO), the service sector was considerably liberalized and foreign investment was allowed; restrictions on retail, wholesale and distribution ended. Banking, financial services, insurance and telecommunications were also opened up to foreign investment. China's banking sector is dominated by four large state-owned banks, which are largely inefficient and monopolistic. China's largest bank,
ICBC Industrial and Commercial Bank of China Limited (ICBC; ) is a Chinese multinational bank. Founded as a limited company on 1 January 1984, ICBC is a state-owned commercial bank. With capital provided by the Ministry of Finance of China, the b ...
, is the largest bank in the world. The financial sector is widely seen as a drag on the economy due to the inefficient state management. Non-performing loans, mostly made to local governments and unprofitable state-owned enterprises for political purposes, especially the political goal of keeping unemployment low, are a big drain on the financial system and economy, reaching over 22% of GDP by 2000, with a drop to 6.3% by 2006 due to government recapitalization of these banks. In 2006, the total amount of
non-performing loan A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Non-performing loans represent a major challenge for the banking sector, as it reduces the profitability of banks, and ...
s was estimated at $160 billion. Observers recommend privatization of the banking system to solve this problem, a move that was partially carried out when the four banks were floated on the stock market. China's financial markets, the
Shanghai Stock Exchange The Shanghai Stock Exchange (SSE) is a stock exchange based in the city of Shanghai, China. It is one of the three stock exchanges operating independently in mainland China, the others being the Beijing Stock Exchange and the Shenzhen Stock Exc ...
and
Shenzhen Stock Exchange The Shenzhen Stock Exchange (SZSE; ) is a stock exchange based in the city of Shenzhen, in the People's Republic of China. It is one of three stock exchanges operating independently in Mainland China, the others being the Beijing Stock Excha ...
, are relatively ineffective at raising capital, as they comprise only 11% of GDP. Due to the weakness of the banks, firms raise most of their capital through an informal, nonstandard financial sector developed during the 1980s and 1990s, consisting largely of underground businesses and private banks. Internal finance is the most important method successful firms use to fund their activities. By the 1980s much emphasis was placed on the role of advertising in meeting the modernization goals being promoted by Deng. Lip service was still paid to old Maoist ideals of egalitarianism, but it did not inhibit the growth of consumerism.


Government finances

In the pre-reform era, government was funded by profits from state-owned enterprises, much like the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen national ...
. As the state sector fell in importance and profitability, government revenues, especially that of the central government in Beijing, fell substantially and the government relied on a confused system of inventory taxes. Government revenues fell from 35% of GDP to 11% of GDP in the mid-1990s, excluding revenue from state-owned enterprises, with the central government's budget at just 3% of GDP. The tax system was reformed in 1994 when inventory taxes were unified into a single VAT of 17% on all manufacturing, repair, and assembly activities and an
excise tax file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
on 11 items, with the VAT becoming the main income source, accounting for half of government revenue. The 1994 reform also increased the central government's share of revenues, increasing it to 9% of GDP.


Academic studies


Reasons for success

Scholars have proposed a number of theories to explain China's successful transition from a planned to a
socialist market economy The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is a market economy with the predominance of public ownership and state-owned enterprises. Th ...
. This occurred despite unfavorable factors such as the troublesome legacies of socialism, considerable erosion of the work ethic, decades of anti-market propaganda, and the "lost generation" whose education disintegrated amid the disruption of the
Cultural Revolution The Cultural Revolution, formally known as the Great Proletarian Cultural Revolution, was a sociopolitical movement in the People's Republic of China (PRC) launched by Mao Zedong in 1966, and lasting until his death in 1976. Its stated goal ...
. One notable theory is that decentralization of state authority allowed local leaders to experiment with various ways to privatize the state sector and energize the economy. Although Deng was not the originator of many of the reforms, he approved them. Another theory focuses on internal incentives within the Chinese government, in which officials presiding over areas of high economic growth were more likely to be promoted. This made local and provincial governments "hungry for investment," who competed to reduce regulations and
barrier A barrier or barricade is a physical structure which blocks or impedes something. Barrier may also refer to: Places * Barrier, Kentucky, a community in the United States * Barrier, Voerendaal, a place in the municipality of Voerendaal, Netherl ...
s to investment to boost both economic growth and their careers. Such reforms were possible because Deng cultivated pro-market followers in the government.
Herman Kahn Herman Kahn (February 15, 1922 – July 7, 1983) was a founder of the Hudson Institute and one of the preeminent futurists of the latter part of the twentieth century. He originally came to prominence as a military strategist and systems theori ...
argued that Confucian ethic was playing a "similar but more spectacular role in the modernization of East Asia than the
Protestant ethic The Protestant work ethic, also known as the Calvinist work ethic or the Puritan work ethic, is a work ethic concept in theology, sociology, economics and history which emphasizes that diligence, discipline, and frugality are a result of a perso ...
played in Europe". Taken together, Yuen Yuen Ang argues in ''Foreign Affairs'' that political reforms took place with economic reforms under Deng, except the former did not take Western forms. She writes, "To be sure, Deng's reforms emphasized brute capital accumulation rather than holistic development, which led to environmental degradation, inequality, and other social problems. Still they undoubtedly kicked China's growth machine into gear by making the bureaucracy results oriented, fiercely competitive, and responsive to business needs, qualities that are normally associated with democracies." But this only applies to the Deng era. Ang notes that since 2012, when Xi Jinping took over, the new leader has reversed Deng's political reforms and limits to power, "just as political freedoms have become imperative for continued economic growth." China's success is also due to the export-led growth strategy used successfully by the
Four Asian Tigers The Four Asian Tigers (also known as the Four Asian Dragons or Four Little Dragons in Chinese and Korean) are the developed East Asian economies of Hong Kong, Singapore, South Korea, and Taiwan. Between the early 1960s and 1990s, they underwent ra ...
beginning with Japan in the 1960s–1970s and other
newly industrialized countries The category of newly industrialized country (NIC), newly industrialized economy (NIE) or middle income country is a socioeconomic classification applied to several countries around the world by political scientists and economists. They represent ...
. In 2001, China joined the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and e ...
(WTO). As of 2006, over 400 of the
Fortune 500 companies The ''Fortune'' 500 is an annual list compiled and published by ''Fortune'' magazine that ranks 500 of the largest United States corporations by total revenue for their respective fiscal years. The list includes publicly held companies, along w ...
had entered the
Chinese market The People's Republic of China has an upper middle income developing mixed socialist market economy that incorporates economic planning through industrial policies and strategic five-year plans. —Xu, Chenggang. "The Fundamental Instituti ...
, while at the same time a considerable number of Chinese companies had opened their markets outside of China. Foreign aids to China, including those from Hong Kong, Macau and Taiwan, also played an important role. Since the beginning of opening, China has received a significant amount of aid from major
developed countries A developed country (or industrialized country, high-income country, more economically developed country (MEDC), advanced country) is a sovereign state that has a high quality of life, developed economy and advanced technological infrastruct ...
such as the United States, Japan, Germany, France and the United Kingdom. For instance, through its
Official Development Assistance Official development assistance (ODA) is a category used by the Development Assistance Committee (DAC) of the OECD, Organisation for Economic Co-operation and Development (OECD) to measure aid, foreign aid. The DAC first adopted the concept in ...
(ODA), Japan had offered China various forms of assistance worth 3.65 trillion
Yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the e ...
as of 2018. On the other hand, the assistance from the U.S. reached a total of US$556 million as of 2012, and has "helped
Tibetan Tibetan may mean: * of, from, or related to Tibet * Tibetan people, an ethnic group * Tibetan language: ** Classical Tibetan, the classical language used also as a contemporary written standard ** Standard Tibetan, the most widely used spoken dial ...
communities improve livelihoods, promote sustainable development and environmental conservation, and preserve cultural traditions...also supports targeted programs that strengthen cooperation on combatting the spread of
HIV/AIDS Human immunodeficiency virus infection and acquired immunodeficiency syndrome (HIV/AIDS) is a spectrum of conditions caused by infection with the human immunodeficiency virus (HIV), a retrovirus. Following initial infection an individual ...
and other pandemic and emerging diseases as well as
rule of law The rule of law is the political philosophy that all citizens and institutions within a country, state, or community are accountable to the same laws, including lawmakers and leaders. The rule of law is defined in the ''Encyclopedia Britannica ...
programs." In contrast to the neoliberal view which emphasizes benefits from decentralization, increased privatization, and globalization, Professor Lin Chun concludes that studies have demonstrated pre-reform period factors that are at least as compelling factors in China's success. Those factors include strong "human capital" accumulated through decades of state investments in basic needs including health care and public education, state and rural collective ownership of land, the public sector's retaining of strategic industries, government sponsorship of trade and technology transfers, and public spending. The collapse of the Soviet Bloc and centrally planned economies in 1989 provided renewed impetus for China to further reform its economy through different policies to avoid a similar fate. China also wanted to avoid the Russian ad-hoc experiments with market capitalism under Boris Yeltsin resulting in the rise of powerful oligarchs, corruption, and the loss of state revenue which exacerbated economic disparity.
Cultural Revolution The Cultural Revolution, formally known as the Great Proletarian Cultural Revolution, was a sociopolitical movement in the People's Republic of China (PRC) launched by Mao Zedong in 1966, and lasting until his death in 1976. Its stated goal ...
contributes to China's economic growth in long run. According to
Mancur Olson Mançur Lloyd Olson Jr. (; January 22, 1932 – February 19, 1998) was an American economist and political scientist who taught at the University of Maryland, College Park. His most influential contributions were in institutional economics, and i ...
, Cultural Revolution attacked the very administrators and managers on which Chinese economy depended, and the immediate result was instability and administrative chaos in short run. A longer-run result was that there were not nearly as many well-entrenched
interest group Advocacy groups, also known as interest groups, special interest groups, lobbying groups or pressure groups use various forms of advocacy in order to influence public opinion and ultimately policy. They play an important role in the developm ...
s as in the Soviet Union and the European communist states, so when
Deng Xiaoping Deng Xiaoping (22 August 1904 – 19 February 1997) was a Chinese revolutionary leader, military commander and statesman who served as the paramount leader of the People's Republic of China (PRC) from December 1978 to November 1989. After CC ...
and the other pragmatists take power, there were few
interest group Advocacy groups, also known as interest groups, special interest groups, lobbying groups or pressure groups use various forms of advocacy in order to influence public opinion and ultimately policy. They play an important role in the developm ...
s whose lobbying could undermine Deng's market-oriented reforms, because the Cultural Revolution had destroyed the narrowly entrenched interests with a stake in the ''status quo''.


Comparison to other developing economies

China's transition from a
planned economy A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, part ...
to a
socialist market economy The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is a market economy with the predominance of public ownership and state-owned enterprises. Th ...
has often been compared with economies in Eastern Europe that are undergoing a similar transition. China's performance has been praised for avoiding the major shocks and inflation that plagued the
Eastern Bloc The Eastern Bloc, also known as the Communist Bloc and the Soviet Bloc, was the group of socialist states of Central and Eastern Europe, East Asia, Southeast Asia, Africa, and Latin America under the influence of the Soviet Union that existed du ...
. The Eastern bloc economies saw declines of 13% to 65% in GDP at the beginning of reforms, while Chinese growth has been very strong since the beginning of reform. China also managed to avoid the hyperinflation of 200 to 1,000% that Eastern Europe experienced. This success is attributed to the gradualist and decentralized approach of the Chinese government, which allowed market institutions to develop to the point where they could replace state planning. This contrasts with the "big bang" approach of Eastern Europe, where the state-owned sector was rapidly privatized with employee buyouts, but retained much of the earlier, inefficient management. Other factors thought to account for the differences are the greater urbanization of the
CIS Cis or cis- may refer to: Places * Cis, Trentino, in Italy * In Poland: ** Cis, Świętokrzyskie Voivodeship, south-central ** Cis, Warmian-Masurian Voivodeship, north Math, science and biology * cis (mathematics) (cis(''θ'')), a trigonome ...
economies and differences in social welfare and other institutions. Another argument is that, in the Eastern European economies, political change is sometimes seen to have made gradualist reforms impossible, so the shocks and inflation were unavoidable. China's economic growth has been compared with other developing countries, such as Brazil, Mexico, and India. GDP growth in China outstrips all other developing countries, with only India after 1990 coming close to China's experience. Scholars believe that high rates of investments, especially increases in capital invested per worker, have contributed to China's superior economic performance. China's relatively free economy, with less government intervention and regulation, is cited by scholars as an important factor in China's superior performance compared to other
developing countries A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
.


Criticism and development issues

The government retains monopolies in several sectors, such as petroleum and banking. The recent reversal of some reforms have left some observers dubbing 2008 the "third anniversary of the end of reforms". Nevertheless, observers believe that China's economy can continue growing at rates of 6–8 percent until 2025, though a reduction in state intervention is considered by some to be necessary for sustained growth. However, it has been reported over the years that the GDP figures and other economic data from the Chinese government may be inflated or manipulated otherwise. Officials from central government have admitted that local economic statistics are sometimes falsified, to meet the economic growth targets for personal promotion of local officials, for example. Despite reducing poverty and increasing China's wealth, Deng's reforms have been criticized by the
Chinese New Left The Chinese New Left () is a term used in the People's Republic of China to describe a diverse range of left-wing political philosophies that emerged in the 1990s that are critical of the economic reforms instituted under Deng Xiaoping, which ...
for increasing inequality and allowing private entrepreneurs to purchase state assets at reduced prices. These accusations were especially intense during the Lang-Gu dispute, in which New Left academic Larry Lang accused entrepreneur Gu Sujung of usurping state assets, after which Gu was imprisoned. The Hu-Wen Administration adopted some New Left policies, such as halting privatizations and increasing the state sector's importance in the economy, and Keynesian policies that have been criticized by some Chinese economists who advocate a policy of deregulation, tax cuts and privatization. Other criticisms focus on the effects of rapid industrialization on public health and the environment. However, scholars believe that public health issues are unlikely to become major obstacles to the growth of China's economy during the coming decades, and studies have shown that air quality and other environmental measures in China are better than those in developed countries, such as the United States and Japan, at the same level of development. The economic reforms were accompanied with a series of political reforms in the 1980s, supported by Deng Xiaoping. However, many of the planned political reforms ended after the 1989 Tiananmen Square massacre. Lack of political reform contributed to the serious corruption issue in China. In addition, real state bubble,
pollution Pollution is the introduction of contaminants into the natural environment that cause adverse change. Pollution can take the form of any substance (solid, liquid, or gas) or energy (such as radioactivity, heat, sound, or light). Pollutants, the ...
and
population crisis Overcrowding or crowding is the condition where more people are located within a given space than is considered tolerable from a safety and health perspective. Safety and health perspectives depend on current environments and on local cultural n ...
are among the most serious development issues in China. For instance, China is the largest CO2 emitter in the world. On the other hand, since the late 1970s, Deng and other senior leaders including
Chen Yun Chen Yun (, pronounced ; 13 June 1905 – 10 April 1995) was one of the most influential leaders of the People's Republic of China during the 1980s and 1990s and one of the major architects and important policy makers for the Reform and op ...
and
Li Xiannian Li Xiannian (pronounced ; 23 June 1909 – 21 June 1992) was a Chinese Communist military and political leader, President of the People's Republic of China (''de jure'' head of state) from 1983 to 1988 under Paramount Leader Deng Xiaoping and ...
supported the "
one-child policy The term one-child policy () refers to a population planning initiative in China implemented between 1980 and 2015 to curb the country's population growth by restricting many families to a single child. That initiative was part of a much bro ...
" to cope with the overpopulation crisis. But the 2010 census data showed that the population growth rate had remained very low, and due to the financial pressure and other factors, many young couples choose to delay or even abandon the plan of raising a second child even though the Chinese government has largely relaxed the one-child policy in late 2015. The population crisis threatens further economic development.


See also

* *
Boluan Fanzheng Boluan Fanzheng () or Poluan Fancheng, was a History of the People's Republic of China (1976–1989)#Boluan Fanzheng and economic reform, period in the History of the People's Republic of China, history of People's Republic of China during which ...
*
China model The Beijing Consensus ( zh, 北京共识) or China Model ( zh, 中国模式), also known as the Chinese Economic Model, is the political and economic policies of the People's Republic of China (PRC)Zhang Weiwei,"The allure of the Chinese model", ...
/
Beijing Consensus The Beijing Consensus ( zh, 北京共识) or China Model ( zh, 中国模式), also known as the Chinese Economic Model, is the political and economic policies of the People's Republic of China (PRC)Zhang Weiwei,"The allure of the Chinese model", ...
*
Deng Xiaoping Theory Deng Xiaoping Theory ( zh, s=邓小平理论, p=Dèng Xiǎopíng Lǐlùn), also known as Dengism, is the series of political and economic ideologies first developed by Chinese leader Deng Xiaoping. The theory does not reject Marxism–Leninism ...
* Deng Xiaoping's southern tour *
Economy of China The China, People's Republic of China has an upper middle income Developing country, developing Mixed economy, mixed socialist market economy that incorporates economic planning through Industrial policy, industrial policies and strategic Five- ...
*
Go Out policy Go Out policy () is the People's Republic of China's current strategy to encourage its enterprises to invest overseas. Most nations favour attracting inward foreign investment, and support outward foreign investment only passively. The People ...
* China's political reforms in 1980s *
Khrushchev Thaw The Khrushchev Thaw ( rus, хрущёвская о́ттепель, r=khrushchovskaya ottepel, p=xrʊˈɕːɵfskəjə ˈotʲ:ɪpʲɪlʲ or simply ''ottepel'')William Taubman, Khrushchev: The Man and His Era, London: Free Press, 2004 is the period ...


Further reading

* Gewirtz, Julian. 2022.
Never Turn Back: China and the Forbidden History of the 1980s
'. Belknap Press.


References


Citations


General and cited sources

* * * * * * * Dillon, Michael. ''Deng Xiaoping: The Man Who Made Modern China'' (Bloomsbury Publishing, 2014). * * * * * Kau, Michael Y. M. ''China in the Era of Deng Xiaoping: A Decade of Reform'' (Routledge, 2016). * * * * * Vogel, Ezra F. ''Deng Xiaoping and the Transformation of China'' (Harvard UP, 2011). * * *


External links

* {{DEFAULTSORT:Economic Reform In The People's Republic Of China Chinese economic policy Cold War history of China Economic booms Economic history of the People's Republic of China Economic liberalization People's Republic of China Reform in China