Economic Reforms, 1978-Present

by

Ralph W. Huenemann

• LAST REVIEWED: 22 April 2013
• LAST MODIFIED: 22 April 2013
• DOI: 10.1093/obo/9780199920082-0008

Introduction

Between 1949 and 1976, under Mao Zedong’s 毛泽东 leadership, the Chinese Communist Party (CCP) implemented socialist economic policies. In the 1950s, the central planning of industry (with an emphasis on heavy industry) was introduced, modeled on the five-year plans of the Soviet Union, and agriculture was collectivized. Following the collapse of the Great Leap Forward and the political split with Moscow, China’s economic policies in the 1960s and 1970s vacillated between Mao’s ultraleftist tendencies and more conventional socialist policies advocated by such leaders as Liu Shao-ch’i 刘少奇 and Deng Xiaoping 邓小平. Mao attacked his opponents for taking the capitalist road and largely succeeded in suppressing their proposed policies until his death in 1976. After Mao’s death, advocacy of various reforms became more acceptable. One important early sign of the new atmosphere was the announcement in 1977 that entrance examinations for China’s universities (which had been attacked and closed down during the Cultural Revolution) would be reestablished. Deng Xiaoping returned to power, and at the Third Plenum (of the Eleventh Central Committee of the CCP) in December 1978 the famous four-character policy gaige kaifang (改革开放), a reform of the economic system and an opening up to the outside world, was promulgated. Beyond the strong signal that the reforms were intended to remedy some of Mao’s mistakes, it was not clear exactly what the slogan would entail in practice. Indeed, even in the early 21st century the specifics of the reforms are still the subject of substantial disagreements within the CCP leadership. However, there can be no doubt that the reforms since 1978 generally have succeeded in both the system reform aspect, marked by the decollectivization of agriculture and the dismantling of Soviet-style central planning in industry, and the opening-up aspect, leading to China’s entry into the World Trade Organization (WTO) in 2001. It is also beyond doubt that the reforms have resulted in rapid economic growth (by the official statistics, an average annual growth of real gross domestic product of 9.7 percent between 1980 and 2009). However, it is also true that in the early 21st century many Chinese people remain desperately poor, and the reforms continue to be incomplete and controversial.

General Overviews

Many surveys of China’s economic reforms have been written, but six books are particularly valuable both for their direct content and for their guidance to other sources in their extensive references and bibliographies. Naughton 2006 is the most comprehensive of these, covering such topics as China’s environmental problems that receive little attention in the others. Naughton’s work is also valuable for his explicit discussion of the two distinct phases of the reforms—the “reform without losers” phase until about 1993 and the “reform with losers” phase since then. Wu 2004 is equally worthwhile because of its insights into the failings of central planning and the origins of the reforms. Lin, et al. 2001 is particularly good for its analysis of the comparative advantage strategy underlying the reforms and how this differs from the Great Leap Forward strategy under Mao Zedong. Garnaut and Huang 2000 has brought together in a single volume the insights of many of the best experts, Chinese and non-Chinese, in the field. Brandt and Rawski 2008 is a valuable collection of papers by leading scholars. Bramall 2008 is an important alternative view of the reforms with a more sympathetic analysis of the policies under Mao and a less sympathetic view of the reforms. A useful supplement to these six books is the analysis in Xu 2011—in the spirit of Adam Smith, Ronald Coase, and Douglass North—of China’s complex institutional structure (which Chenggang Xu characterizes as a regionally decentralized authoritarian regime), which has roots in both China’s two-millennium imperial history and the chaos of the Cultural Revolution. Another valuable supplement is Brandt, et al. 2012, a lengthy research paper that sets China’s post-1949 economic events into the context of the previous millennium, analyzing both the changes and the continuities over time.

• Bramall, Chris. Chinese Economic Development. New York: Routledge, 2008.

  DOI: 10.4324/9780203890820

  Unlike the other books cited in this section, Bramall’s devotes much more space (about half of the book) to the policies pursued under Mao. Although acknowledging that some of Mao’s policies were disastrous, the author argues that much of Mao’s development strategy was well thought out and successful.

• Brandt, Loren, Debin Ma, and Thomas G. Rawski. “From Divergence to Convergence: Re-evaluating the History Behind China’s Economic Boom.” Hitotsubashi University, Research Unit for Statistical and Empirical Analysis in Social Sciences (Hi-Stat), Global COE Hi-Stat Discussion Paper Series 217. Tokyo: Institute of Economic Research, Hitotsubashi University, 2012.

  In this paper of over one hundred pages, only about forty pages deal with post-1949 China. However, the entire essay is valuable for an understanding of China’s reforms, setting them in the long-term historical context and analyzing both the important changes and the important continuities between post-1949 China and the earlier periods, reaching back a thousand years.

• Brandt, Loren, and Thomas G. Rawski, eds. China’s Great Economic Transformation. Cambridge, UK: Cambridge University Press, 2008.

  DOI: 10.1017/CBO9780511754234

  This volume contains twenty detailed articles by leading economists with greater technical detail than Naughton 2006. It is substantially more up to date than Garnaut and Huang 2000.

• Garnaut, Ross, and Yiping Huang, eds. Growth without Miracles: Readings on the Chinese Economy in the Era of Reform. Oxford: Oxford University Press, 2000.

  This collection contains thirty seminal articles about China’s reforms written by some of the most significant economists—both Chinese and non-Chinese—who have analyzed various aspects of the reforms since 1978.

• Lin, Justin Yifu, Fang Cai, and Zhou Li. The China Miracle: Development Strategy and Economic Reform. Rev. ed. Hong Kong: Chinese University Press, 2001.

  Lin, Cai, and Li provide background on the Chinese economic system under Mao and then explore in detail why the reformed system is better suited to China’s labor-rich, land-scarce resource endowment. However, the authors also discuss candidly the problems with the reforms.

• Naughton, Barry. The Chinese Economy: Transitions and Growth. Cambridge, MA: MIT Press, 2006.

  After providing background information on China’s geography and on the economic developments before 1978, Naughton analyzes the reforms in both agriculture and industry and developments in international trade and investment. His coverage includes the labor market and demography, the financial sector, and environmental issues.

• Wu, Jinglian. Understanding and Interpreting Chinese Economic Reform. New York: Thomason Texere, 2004.

  This book provides an excellent discussion of the origins of central planning, the problems that emerged, and the gradual evolution of the reforms. This is a translation of Wu Jinglian 吴敬琏, Dangdai Zhongguo jingji gaige (当代中国经济改革) (Shanghai: Yuandong chubanshe 上海远东出版社, 2003).

• Xu, Chenggang. “The Fundamental Institutions of China’s Reforms and Development.” Journal of Economic Literature 49.4 (2011): 1076–1151.

  DOI: 10.1257/jel.49.4.1076

  This thoughtful article explores both Douglass North’s key question (how are markets embedded in a society’s institutions?) and Ronald Coase’s famous question (what is the boundary of the firm?) in the specific context of China’s reforms. Available online by subscription.