Industrial Reform in China: Past Performance and Future Prospects

Industrial Reform in China: Past Performance and Future Prospects

Industrial Reform in China: Past Performance and Future Prospects

Industrial Reform in China: Past Performance and Future Prospects


Industrial Reform in China is the first major attempt to explore the success of China's economic reform using studies of specific industries: the clothing, machine tool, and iron and steel industries, supplemented by analysis of official statistics. Particular emphasis is placed on the comparison of management and production efficiency between township-village enterprises (TVEs) and state-owned enterprises (SOEs). The authors discover that the efficiency of TVEs has been enhanced by the transfer of technology, know-how, and marketing capacity from SOEs. In contrast, reform of state enterprises was found to have had limited impact. Given the enormous differences in efficiency between private and public ownership, it is clear that TVEs will continue to overwhelm SOEs, a process which will in time transform the Chinese economy into a true market-based system.


The Chinese economy has received ever-increasing attention from political, economic, and business circles world wide, attracted by China's miraculous economic performance since the commencement of economic reform in 1978. The average annual growth rate of China's GDP exceeded 9% during the reform period, and there continued to be no sign of decelerating growth before the Asian financial crisis broke out in 1997. Having attained such commendable growth, the Chinese government is confident of sustained development in the future, while mindful of concerns such as repeated cyclical changes in economic growth resulting from the stop-and-go macroeconomic policies and a widening income gap between the progressively industrialized coastal regions and the less industrialized inner regions. Foreign experts generally agree with favourable prospects for China's long-term economic growth. In all likelihood, a new economic giant will emerge in East Asia in the early decades of the twenty-first century.

In view of the huge and rapidly expanding Chinese markets, advanced countries, including the USA, Japan, and Europe, and newly industrializing economies (NIEs) in Asia are interested in China as a partner in direct foreign investments and as an outlet for commodity exports. Furthermore, an unskilled but relatively well-disciplined labour force is available in a seemingly unlimited supply in China. Reflecting an export-oriented development strategy, exports from China have increased enormously and resulted in a huge trade surplus vis-à-vis the USA. By now it is clear that creating and maintaining favourable economic relationships with China will critically affect the fate of neighbouring Asian economies, the USA, and even other parts of the world.

What are the key features of China's economic reform responsible for such remarkable economic success? This is the central question of interest to economists. It is evident that, while the gradual reform approach adopted in China worked, the 'big bang' approach adopted in the former Soviet Union and East European countries did not. None the less, it is not clear why and how gradual reform worked so well in China. It is also unclear if a gradual approach would work better in other contexts of socialist economic reform.

Whether gradual reform will lead eventually to a market-based free economy or is a collection of piece-meal reforms within the framework of a socialist system is another major question. The Chinese government officially declared in 1992 that China aims to achieve a socialist market economy. Socialist and market-based economic systems, however, are incompatible, for the simple reason that the former relies on central planning . . .

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