Economic Reform In China Post 1978

2356 words - 10 pages

First of all I will discuss China’s historical background and its need for reform and also how economic reform started out in 1978. Then I will go on to cover the four major economic institutions that needed to be reformed in order for China to become a market economy. These four major economic institutions will then be discussed in detail. This paper will then go briefly into China joining the WTO and will conclude with China’s economic situation at present.

Chinese economic policies and institution have undergone a number of extreme changes since the establishment of the Communist regime in 1949. After the Communist Party took national power in 1949, the disorder caused by the ...view middle of the document...

It was also a time where there was public discontent and the party members knew that they needed to move away from the old regime and make changes in order to earn the support of the Chinese people.
China has used a dual track system to reform. Dual tracking refers to adopting some aspects of a market economy while at the same time operating under the old planned economy. Transition from a planned economy to a market economy through the dual-track system reflects the most fundamental characteristic of Chinese economic system reform. It works by developing the elements of a new system side by side with the old unreformed system and then by looking at the results it will then implement the new system gradually by phasing out the old system. It was a system that would experiment as it went. As Deng Xiaoping put it, it was like “grope stones while crossing the river”. This system may seem very time consuming and slow as compared to “big bang reforms” or shock therapy used in Russia and Poland, but it was a way the Chinese government could avoid political conflict that rapid reform may generate.
Chinese economic reform began when agricultural reform was introduced under the household responsibility system. Before this system of reform was introduced Chinese agriculture under the commune system was not efficient. Farmers had no incentive to produce more than the required quota as this did not benefit them at all under the commune system. The work point system that the farmers worked under made sure that the farmers were not rewarded in any way for any extra production therefore increased productivity was non existent. The household responsibility system was a system that was made to improve the income and output of rural households. The idea was that once the government agricultural output quotas were fulfilled, the farm households could sell their agricultural surplus in the private market. The new system was proven to be effective as it created incentive for the farmers to work harder and increase productivity. There was a rapid increase in agricultural output and also in the incomes of the farmers which provided ongoing support for the household responsibility system. The success of this system was a stepping stone to reform other areas in order to move forward in creating a market economy.

After the agricultural reforms, the Chinese government then set out to reform its state owned enterprises (SOEs). In the command economy, the SOEs served merely as a means of production where raw materials are turned into industrial products. The planning commissions in national or local governments decide for each SOE what needs to be produced and how much. In such a system, the government agencies plan what to produce, supply resources, and distribute the products. This is known as the centralized command economy. As there is no free market, there are no free enterprises either. Reform of SOEs was not as successful as agricultural reform as it is...

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