China’s Great Economic Transformation

Topics: Economics, Tertiary sector of the economy, Economy Pages: 11 (2653 words) Published: October 18, 2013
Wu Luming/China Foto Press

China’s Great
Economic Transformation
Thirty years of change have modernized China’s economy
Loren Brandt and Thomas G. Rawski


hina’s massive, protracted, and unexpected
economic upsurge began in the late 1970s and
continues nearly 30 years later. China’s
extended boom began at remarkably low levels
of income and consumption. Its growth spurt
is remarkable for its geographic spread as well as its speed and longevity. While coastal regions have led the upward
march of output, exports, and income, China’s central and
western regions have recorded enormous gains as well.
Rapid advance in output per capita has elevated hundreds of millions from absolute poverty. Using an early official poverty indicator, the share of impoverished villagers drops from 40.7 percent in 1980 to 10.6 percent in 1990

30 November–December 2008

and 4.8 percent in 2001. A second indicator shows higher
proportions living in absolute poverty, but indicates a comparable trend (75.7 percent impoverished in 1980 and 12.5 percent in 2001).
China’s economy has abandoned its former isolation in
favor of deep engagement with world markets. The trade
ratio, which measures the combined value of exports and
imports as a share of gross domestic product (GDP),
jumped from under 10 percent prior to reform to 22.9
percent in 1985, 38.7 percent in 1995, and 63.9 percent
in 2005—a level far higher than comparable figures for
any other large and populous nation. China has also
become a major player in the global market for foreign


direct investment, receiving annual inflows in the neighimperfect markets, institutional shortcomings, and other borhood of $70 billion during 2004–06 and generating
defects that retarded growth and increased its cost but
moderate, but rapidly increasing, outflows of direct overnever threatened to stall the ongoing boom. seas investment ($16.1 billion in 2006).
China’s economic ascent rests on a series of gradual,
Rural reform
often discontinuous, and continuing transitions. A masEarly initiatives in the farm sector illustrate the impact sive exodus from the villages has reduced the farm sector’s of limited reforms affecting incentives and mobility. The

share of overall employment from 69 to 32 percent
shift to household cultivation meant that farmers could
between 1978 and 2004, while the farm sector’s GDP
claim the fruits of extra effort for themselves. The restorashare fell by more than half. tion of household farming immediately
The slow retreat of planning has
reinstated the link between effort and
Quick Glance
cumulated in a dominant role for market
reward throughout rural China.
s China’s reforms have focused
outcomes. Price determination, formerly
Substantial increases in official purchase
on increasing incentives, mobility,
concentrated in official hands, now
prices, especially for grain, added to the
price flexibility, competition, and
reflects shifts in supply and demand.
rewards from extra effort. With new
Data for 2000–03 indicate an 87 percent
incentives spurring work effort, farm outs These reforms have unleashed share of market pricing (as opposed to
put jumped quickly, even though the postmarket forces and driven the prices that are fixed or guided by governreform rural environment retained imporcountry’s rapid economic growth. ment) for “means of production”; compatant elements of the planned economy. rable figures for farm products and conThe response to early rural reforms sumer goods exceed 90 percent.

quickly spread beyond the farm sector.
Following a quarter century of liberalization, markets
Following the revival of agriculture, rural industry, now
for products, labor, and materials are well developed and
fortified by greater access to the cities, rising incomes
increasingly competitive. While investment decisions,
among potential rural customers,...
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