Notes on the economic transformation of China.

Authors Avatar by ankibee (student)


GDP: US$5.8 trillion (2nd largest eco PPP)

Govt. Policies for eco growth + development

1978 Deng Xiaoping: ‘socialism with Chinese Characteristics’:


  •  Central planning, govt. allocating resources open mkt eco
  • Initially: rapid industrialisation, improvements in life expectancy + literacy rates
  • Later: great Chinese famine in ‘Great Leap Forward’ in early 60s

ECO GROWTH: (gradual move towards more open mkt eco)

  • Dual Track Reform Approach (in ag sector)

Existing features of co-exist with product mkts.


  • Govt. specified quantity produced + price paid for ag produce
  • Ag producers set certain quota of output purchased by govt. at fixed price


  • Producers sell at mkt prices any output above the quota
  • New mkt based incentives for farmer to earn additional Y

Decollectivisation/Household Responsibility System: farmers make own production decisions + sell surplus output in free mkts once state quota met

Highly successful when applied to other industries. Chinese eco outgrew central planning as production above quota dwarfed size of govt. plan.

1993 – central planning become obsolete + mkt main instrument for distributing + allocating eco resources.

  • X ↑ 15% annually. 0.8% 1978  8% share of world X now
  • TVE output ↑ 25% p.a

  • Coastal Development Strategy/Open Door Policy

 Allow China’s coastal regions to participate in global eco.


  • Interior development through industrialisation of China’s inland cities


  • Took adv. of proximity to major port, abundance of labour + tech capabilities

  • Special Economic Zones (SEZs)

In Southern + Eastern provinces, Complement Coastal Development strategy.

  • Facilitated trade + attracted foreign I


  • Flexible + less stringent govt. policies
  • Tax incentives for foreign Investors
  • Exemption from M duties
  • Cheap labour + power
  • Eco policies that supported role of mkt

e.g. Shenzhen.

  • shares border with booming city Hong Kong + close proximity to major shipping routes
  • significant I from HK
  • made use of tech + knowledge transfers

Assisted by SEZ, foreign I :     near 0 levels 1978  $3.5 billion 1990  > $60 billion today = transfer of substantial western tech + creating employment

Trade in X & M grew from 10% China GNP 1978  36% of GNP 1996

  • Restructuring Banking system 


  • SO banks easy access to money that facilitated I across country
  • Many loans issued by banks underperforming + used to fund speculative I in non-productive assets


  • Ensuring capital was allocated to only productive ventures
  • Implemented governance procedures + enhanced regulatory oversight of PBC
  • Network banking with foreign banks
  • Promote more efficient capital mkt to facilitate saving + I in China

  • Taxation Reforms (1994)


  • Govt. earn sig. revenues through direct involvement in eco
  • (had control of China’s eco resources, did not collect taxes)


  • Govt. role diminished  re-establish a tax base
  • Abolished inefficient taxes + replace with broad based taxes that applied across eco
  • 17% Value Added Tax (similar to GST) + other businesses taxes
Join now!

  • SOEs


  • SOEs dominated eco
  • Monopoly control over particular assets/mkts – inefficiently run
  • Resources poorly allocated + governance arrangements weak (orgs susceptible to corruption)


  • Restructuring + privatisation
  • New legal frameworks + corporate governance practices that improved operation
  • Efficiency gain achieved through corporatisation whereby incentives aligned to profits earned

Shares of SOEs in total eco: 78% GDP 1978  30% 2011


  • TRADE 

  • WTO membership
  • Trade liberalisation to take advantage of comparative advantage in low-cost manufacturing + very large labour force
  • Comply with mkt access + adherence ...

This is a preview of the whole essay