Economic reform in China 1978-1993

Author: Sarajuddin Isar
Institution: University of Manchester
Type of case study: Research

About the research

In 1978, following almost 30 years of a command economy, Deng Xiaoping rose to power and initiated the idea of China moving toward a more market-oriented economy. China's resulting economic reform (1978 to 1993) was based on significant changes in rural agriculture and industry, urban industrialisation and the liberalisation of the economy. Rather than being defined from the outset, the reform process moved forward on a gradual and continual series of economic initiatives known as 'crossing the river by grouping stones along the way'.

This research examines the key initiatives that effectively contributed towards the relative success of China's economic reform, and the reasons why its transition from a centrally planned economy to a market economy was more successful than those of the other centrally planned economies in Eastern Europe and the former Soviet Union.

Initiatives which contributed to the relative success of China during its transition to a market economy include the Household Responsibility System, Township and Village Enterprises, reform of State Owned Enterprises, the Dual Pricing System and the Open Door Policy. This empirical study investigates how the emergence and implementation of these initiatives proved to be influential factors in providing the distinctive basis for China's comparatively successful economic reform.

The findings reveal that the Household Responsibility System and the Township and Village Enterprises were critical to the success of China's transition in rural agriculture and the rural industry respectively, while the reforms of State Owned Enterprises and the Dual Pricing System were key to the process of urban industrialisation. Finally, the study shows that the Open Door Policy, which resulted in a dramatic inflow of foreign investment and foreign capital and a rapid increase in foreign trade, was the leading factor in the liberalisation of the economy to the outside world.

The comparative element of the research shows that the rural agricultural economy, combined with an abundance of labour in the agriculture sector, allowed the easy growth of the non-state sector. This, along with a distinctive system of central planning, contributed to China's relatively successful economic reform. In contrast, social protection systems and higher external debts in the industrialised economies of the former Soviet Union and Eastern European economies resulted in less successful transitions. China also benefitted from a gradual transition (reforming the economy rather than the politics) and used different mechanisms to deal with monetary management.

Methodology

This research was primarily qualitative but some quantitative measures have also been included. On the qualitative side, the paper depended on published books, articles and some official papers pertinent to the subject. On the quantitative side, some simple mathematical calculations have been made which were based on available statistical data from a series of China’s statistical yearbooks and from the World Bank World Development Indicators database.

The sources of the research were based on both primary and secondary data. Primary data are mainly used from available statistical yearbooks of China for the years 1981, 1983–5, 1986–7, 1997 and 1999. Given the fact that the primary documents were not easily accessible or were mostly in Chinese language (which was also one of the main limitations of the research), the paper largely depended on secondary sources which were in the forms of published articles and books by a wide range of researchers including both Chinese and non-Chinese.

Publications

Sarajuddin, I. (2012) Account for the relative success of economic reform of the centrally planned economy in China from 1978-1993, M.A. Political Economy of Development dissertation, University of Manchester.

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