Compare and contrast the approaches to economic reform adopted in China and Russia

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Li Po Chun United World College of Hong Kong

Nicola Zilio ○ Chinese Studies Coursework ○ 2164 Words

Table of Contents

1. Introduction

Once a man said:

Black cat or white cat, it’s good cat that catches the mice                  Deng Xiaoping

 and another replied:

The market is not an invention of capitalism. It has existed for centuries. It is an invention of civilization.                                                                 Mikhail Gorbachev

Deng Xiaoping and Mikhail Gorbachev became famous in history to be the authors of two of the most important economic reforms of all times, respectively the Chinese and Russian ones.

Nowadays it is habit to consider China’s economic reform as the “Chinese Miracle, whereas that of Russia just as a mere failure. Data, in fact, support this thesis. Since China begun the reform in 1978, her GDP raised fourfold (from US$ 175 billion in 1978 to US$ 700 billion in 2000) principally sustained by large foreign private investments. On the contrary Russia assisted to a constant fall of her GDP, which has more than halved, from US$ 700 billion to US$ 300 billion, since the beginning of the reform in 1992.

Similarly, economists often refer to the approach Russia adopted in implementing her reform policies as the “shock therapy” (or “big bang approach”), applying a nationalwide privatization and prize liberation, that is, starting fast and attempting to remove all the problems at once. On the other hand China has preferred to implement the so-called “incremental reform strategy” (or “gradualism”), introducing the market forces progressively, that is, eliminating the easy problems soon and leaving the hard ones for the future.

This work will therefore concentrate on the comparison of the different approaches to economic reform adopted by China and Russia, as a result of the dissimilar ideologies behind the reform itself (the “incremental reform strategy” and the “shock therapy” respectively) and the drastically different socio-economic conditions which the two countries faced before it. The essay will first focus on presenting China’s and Russia’s pre-reform conditions and then on the different approaches the two countries employed to implement their reforms, such as: the Chinese bottom-up microeconomic approach and the Russian top-down macroeconomic, privatization of SOEs (state-owned enterprises) in Russia and promotion of new nSOEs (non-state-owned enterprises) in China and foreign investments policies.

2. Pre-Reform Conditions in China and Russia

Any comparison or attempt to assess China’s and Russia’s approaches to economic reform must take in consideration the diametrally diverse economic, but also social and political, conditions which the two countries faced just before the start of the reorganization.

China was mainly based on the agricultural sector (72% of the labour force) with a largely secure macro-economic situation, implementing the reform when the global trades showed a rapid growth. In contrast Russia was largely an industrial country, with 85% of the labour force working in factories, with weakening macro-economic conditions and putting in action reconstructive changes in a moment of general economic recession.

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Besides the fundamental dissimilarities mentioned above, China and Russia also showed several other differences.

  1. The role of agriculture and distribution of the labour force: before the reform, agriculture accounted for 70% of the GNP in China and only 13% in Russia, supported by the fact that the “men employed in the agriculture sector/land” ratio was higher than 0.6 in China whereas lower than 0.044 in Russia. Statistics now show that agriculture contributes for less than 35.8% of China’s GNP.
  2. Land ownership: before the reform land was still collectively owned in China (today instead it ...

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