Economic reform of China: Cause and effects

Abstract

Despite the early success in mobilizing the people after seizing power in 1949, the Chinese Communist Party (CCP) soon faced difficult bottlenecks. After the disastrous Great Leap Forward, compounded by the Three Bitter Years of natural calamities, reformists instituted a series of changes moving towards more market oriented rewards. This was short lived as Mao Zedong mobilized the Little Reds Guards to launch the Cultural Revolution and regain power. China's economy stagnated till the death of Mao. When Deng Dehuai reemerged as the leader, he reinstituted the reforms he had initiated a decade and a half ago. There is, however, a difference. The first time was a tacit move, but the Comprehensive Economic Reform (CER) started in 1978 represented a change in paradigm and a shift in ideology. True to the historical and cultural traits of China, the early stages of the reform were experimental, limited, and somewhat timid. It started in the rural agricultural production with the Household Responsibility System. With its success, the reform was extended to urban industrial sectors, but the Tianmen student demonstration in 1989 brought the momentum to a halt. It was not until Deng's Southern Tour in 1992 did the CER formally become the fundamental directive that “cannot be altered for a hundred years”. The CER is true to its name, comprehensive. The reform encompassed many aspects, with few exceptions (e.g., the insistence of the CCP one-party rule). We discuss the reform actions in four facets: property rights, factor income, macro controls, and global integration. China's economic success is evident, as it has sustained an average of more than 8% growth for more than three decades, but what is the prognosis for the future? Bumpy, but promising.