Chinese economic reform

reforms allowing more free markets in China since Deng Xiaoping

The Chinese economic reform or reform and opening-up; known in the West as the Opening of China is the program of economic reforms termed "Socialism with Chinese characteristics" and "socialist market economy" in the People's Republic of China (PRC). Led by Deng Xiaoping, often credited as the "General Architect", the reforms were launched by reformists within the Chinese Communist Party (CCP) on December 18, 1978. In 2010, China overtook Japan as the world's second-largest economy. The success of China's economic policies and the manner of their implementation resulted in immense changes in Chinese society in the last 40 years, including greatly decreased poverty while both average incomes and income inequality have increased.

The Lujiazui financial district of Pudong, Shanghai, the financial and commercial hub of modern China


  • In 1978, after years of state control of all productive assets, the government of China embarked on a major program of economic reform. In an effort to awaken a dormant economic giant, it encouraged the formation of rural enterprises and private businesses, liberalized foreign trade and investment, relaxed state control over some prices, and invested in industrial production and the education of its workforce. By nearly all accounts, the strategy has worked spectacularly.
    While pre-1978 China had seen annual growth of 6 percent a year (with some painful ups and downs along the way), post-1978 China saw average real growth of more than 9 percent a year with fewer and less painful ups and downs. In several peak years, the economy grew more than 13 percent. Per capita income has nearly quadrupled in the last 15 years, and a few analysts are even predicting that the Chinese economy will be larger than that of the United States in about 20 years. Such growth compares very favorably to that of the "Asian tigers"--Hong Kong, Korea, Singapore, and Taiwan Province of China--which, as a group, had an average growth rate of 7-8 percent over the last 15 years.
    Curious about why China has done so well, an IMF research team recently examined the sources of that nation's growth and arrived at a surprising conclusion. Although capital accumulation--the growth in the country's stock of capital assets, such as new factories, manufacturing machinery, and communications systems--was important, as were the number of Chinese workers, a sharp, sustained increase in productivity (that is, increased worker efficiency) was the driving force behind the economic boom. During 1979-94 productivity gains accounted for more than 42 percent of China's growth and by the early 1990s had overtaken capital as the most significant source of that growth. This marks a departure from the traditional view of development in which capital investment takes the lead. This jump in productivity originated in the economic reforms begun in 1978.
  • On Dec. 13, 1978, at the close of a Communist Party gathering that lasted over a month, Chinese leader Deng Xiaoping delivered a speech that laid out a pragmatic vision for China’s future. It was a country that was then not long out of the grip of the chaos and terror of the Cultural Revolution.
    He proposed that China learn from the example of other, richer countries, allow workers and peasants to “vie” to get ahead so those with a better standard of life would inspire others to work harder, and proposed that provinces and enterprises be given the power to make decisions or try new things.[...]
    In 1981, just three years after Deng’s reform project was launched, almost 90% of Chinese people lived in extreme poverty by the definition of the World Bank. By 2013, that number had dropped to less than 2%.
  • The opening up policy has enabled China to learn from other countries, either developed or developing. To strengthen its own capabilities, China has expanded research capacity, emphasized advanced management and increased infrastructure development. China has entered a new stage of development, with growth rate of domestic investment on infrastructure development decreasing and rapidly increasing foreign investment. China has also expanded its foreign direct investment through such international programs as the “Belt and Road Initiative” to promote economic cooperation, technological innovation, and resource sharing between regions and countries. On the basis of its own national conditions, China has taken a “small step, but fast run” rather than a “shock therapy” approach, with new policies or programs. This was first demonstrated on a small scale, and then incrementally spread to the whole country, to ensure success and reduce the trial-and-error cost as far as possible. China has increasingly realized the importance of achieving an “ecological civilization” by learning from the past and promoting an aggressive decoupling of the relationship between environmental pollution and associated loss of natural capital and economic growth, and chosen to make sustainable development a national strategy.
  • No country in human history ever grew so fast over such a long period of time. Average annual growth rates of 9.7 percent pulled hundreds of millions of Chinese out of poverty. The policy of reform and openness also led to a fundamental departure from norms in Mao’s China, replacing collectivism and group conformity with individual performance and diversity. The unparalleled rise of China also fundamentally changed the international world order. The country began to wield its economic influence in search of raw materials with the confidence and intentions of a future global superpower. China’s growing economic power inevitably resulted in an increasingly assertive foreign and security policy.
    • Klaus Mühlhahn, Making China Modern: From the Great Qing to Xi Jinping (2019)

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