China: Transition to a Market Economy

China: Transition to a Market Economy

China: Transition to a Market Economy

China: Transition to a Market Economy


At the heart of China's remarkable economic growth is a new economic system, which has emerged out of radical reforms in virtually all areas of economic activity. Understanding this system is the key to understanding the Chinese economy. This book, the culmination of many years of research in Hong Kong and China, is a comprehensive account of these systemic reforms, as well as of their transferability to other economies in transition. The starting-point of Dr Chai's analysis is a careful examination of the structural elements of China's new economic system, focusing particularly on the decentralization of property rights in both the agricultural and industrial sectors. There follows a detailed analysis of changes in the functional elements of the system: its price and financial mechanisms. An assessment of the open-door policy also considers the twin impact of the liberalization of China's foreign trade and foreign investment regimes. Finally, China: Transition to a Market Economy highlights the increasingly important role of the non-state sector in facilitating economic growth and structural transformation. It will be essential reading for any student or researcher concerned with the Chinese economy, or with transition economies in general


The experiences of the Central and the Eastern European countries show that the costs of transition from a planned to a market economy can be substantial. Most countries undergoing such a transition suffered a sharp drop in output and employment and increased social and political instability in the early phase of their transition (Siebert, 1991: 14-16). Some countries like the former Soviet Union and Czechoslovakia even disintegrated politically under the reform pressures. in contrast, the Chinese transition appears to be relatively smooth. With the exception of the Tiananmen Square tragedy in 1989 China has so far not incurred any serious political or social upheaval. Economically it not only experienced no drop in output and employment during the transition but actually saw an increase in output at an annual average rate of over 9 per cent over the last 15 years. Thus the Chinese reform model is very often considered superior to other transition models and extolled as the model for other socialist countries.

This study is a comprehensive assessment of Chinese economic reforms introduced during the last 15 years. Its purpose is to provide a firmer judgement on the key issues of whether the Chinese reform model is superior to those adopted by the Central and Eastern European countries and whether it provides a viable alternative transition strategy for other socialist countries. Specifically, this study addresses the following questions: What has been the progress of the reforms achieved so far in various sectors of the economy? Has China succeeded in establishing a functioning market mechanism in its economy? What has been the impact of the reforms on Chinese economic performance? What lessons can be learned for other socialist countries from the Chinese transition experience?

Origins of the reforms

Prior to reforms China adopted a centralized planning system with Maoist ideology (Donnithorne, 1967; Howe, 1978; and Dernberger, 1982). the reforms were initiated in 1978. the origin of the reforms can be traced back to the pressures for change which had gradually . . .

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