Chinese economic reform

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Economic reforms have triggered internal migrations within China. Click on the image for more information.

Chinese economic reform (Chinese: 改革开放; pinyin: Găigé kāifàng) refers to the program of economic changes called "Socialism with Chinese characteristics" in the mainland of the People's Republic of China (PRC) that were started in 1978 by pragmatists within the Communist Party of China (CPC) led by Deng Xiaoping and are ongoing as of the early 21st century. The goal of Chinese economic reform was to generate sufficient surplus value to finance the modernization of the mainland Chinese economy. Neither the socialist command economy, favored by CPC conservatives, nor the Maoist attempt at a Great Leap Forward from socialism to communism in agriculture (with the commune system) had generated sufficient surplus value for these purposes. The initial challenge of economic reform was to solve the problems of motivating workers and farmers to produce a larger surplus and to eliminate economic imbalances that were common in command economies.

Chinese economic reform has been undertaken through a series of phased reforms. In general, these reforms were not the results of a grand strategy, but as immediate responses to pressing problems. In some cases, such as the closing of state enterprises, the government has been forced by events and economic circumstances to do things that it did not want to do.

Although Chinese economic reform has been characterised by many in the West as a return to capitalism, Chinese officials have insisted that it is a form of socialism, because to do otherwise would call into question the validity of Marxism and the legitimacy of the regime. However, they have not argued against the premise that many of the reforms involve adopting economic policies that are in use in capitalist nations, and one of the premises of Chinese economic reform is that China should not avoid adopting "whatever works" for ideological reasons.

In addition, many of the economic structures that have been created in the course of Chinese economic reform may appear superficially similar to those found in other nations, but are in fact quite unique.

History of Chinese Economic Reform

The first reforms in the late 1970s and early 1980s consisted of opening trade with the outside world, instituting the contract responsibility system in agriculture, by which farmers could sell their surplus crops on the open market, and the establishment of township village enterprises. The reforms of the late 1980s and early 1990s focused on creating a pricing system and decreasing the role of the state in resource allocations. The reforms of the late 1990s focused on closing unprofitable enterprises and dealing with insolvency in the banking system. After the start of the 21st century, increased focus has been placed on the gap between rich and poor in China.

Chinese economic reform, unlike perestroika, has been an economic success, generating over two decades of rapid economic growth. The standard of living of most Chinese has improved markedly since 1978. The CCP goal of modernization also seems to be moving forward. Throughout China one can witness the rapid modernization of infrastructure, including new superhighways, airports, and telecommunications facilities. Shanghai now has a magnetic levitation train (the first commercial maglev in operation in any country).

Chinese economic reform has consisted of a large number of different changes. There are several principles which appear to underlie the program. The first is pragmatism, which is embodied in Deng Xiaoping's dictum to seek truth from facts. The criteria for success are determined by experiment rather than by ideology. The second is incrementalism. Instead of announcing and implementing a national program, typically, an idea is implemented locally or in a particular economic sector, and if successful it is gradually adopted piecemeal throughout the nation.

The first parts of Chinese economic reform involved implementing the contract responsibility system in agriculture, by which farmers were able to retain surplus over individual plots of land rather than farming for the collective. This was followed by the establishment of township and village enterprises, which were industries owned by townships and villages. An open door policy was introduced by which the PRC began to allow international trade and foreign direct investment. These initiatives immediately increased the standard of living for most of the Chinese population and generated support for later, more difficult, reforms.

The second phase of reform occurred in the 1980s and was aimed at creating market institutions and converting the economy from an administratively driven command economy to a price driven market economy. This difficult task of price reform was achieved using the dual-track pricing system, in which some goods and services were allocated at state controlled prices, while others were allocated at market prices. Over time, the goods allocated at market prices were increased, until by the early-1990s they included almost all products.

In the 1990s, the focus of the reform was to create a viable banking system which could control the economy via monetary policy and issue loans on the basis of profit and loss, rather than by political orders. In the late-1990s and early-2000s, the focus was also on industrial reform, which involved the painful closing of unprofitable state-owned factories and the development of social security systems.

Comparison to Peristroika

Chinese economic reforms occurred at roughly the same time as peristroika in the Soviet Union, yet peristroika has been widely judged to be a failure while Chinese economic reform has been widely considered to be a success.

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One difference is that Chinese economic reform produced immediate winners.

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