China’s economic transformation

Abstract

Why economic reform started in 1978Deng Xiaoping took over control of the Communist Party of China (CPC) in 1978.He was responsible for initiating reform of the planned economy to move towards a more market-oriented economy.In a sense, the change in policy can be interpreted partially as a continuation of the 'four modernisations' (of agriculture, industry, defence, and science and technology) announced by premier Zhou Enlai in 1964, but interrupted by the Cultural Revolution.This explanation was suggested to me by a former vice-premier of the People's Republic of China (PRC).On the other hand, a former premier once told me: 'The Cultural Revolution did great harm to China, but it freed us from certain ideological constraints.'These statements indicate that the Cultural Revolution did affect the thinking of top party leaders and thus the course of China's economic development.Taking these statements into account, together with other considerations, I offer the following explanation for the initiation of economic reform.There were four reasons the time was ripe for reform.First, the Cultural Revolution was very unpopular, and the party and the government had to distance themselves from the old regime and make changes to win the support of the people.Second, after years of experience in economic planning, government officials understood the shortcomings of the planned system and the need for change.Third, successful economic development in other parts of Asia-including Taiwan, Hong Kong, Singapore and South Korea, known as the 'Four Tigers'-demonstrated to Chinese government officials and the Chinese people that a market economy works better than a planned one.This lesson was reinforced by the different rates of economic development in North and South Korea, and among countries in Eastern and Western Europe.Fourth, for the reasons stated above, the Chinese people were ready for, and ready to support, economic reform.Given these four reasons, was economic reform in 1978 inevitable?My answer is yes.The first two reasons alone were sufficient to motivate the government to initiate reform.The urgency of the case was such that it had to occur as soon as the political leadership was ready after Chairman Mao Zedong's death.The

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