Economic Reforms in China

At the end of the 1970s, with Deng Xiaoping running China, China slowly turned away from Communism and decided to work for the market.

The country has changed unrecognizably since. China has now witnessed a boom in private business, the withering away of stateowned industry, large inflows of foreign investments and large reductions of tariffs on imports. According to the official statistics, the Chinese national economy has grown by over 7% every year and the economy of the coastal area has grown even quicker. The average income per person is now over $1,000 (at current exchange rates) nationwide, above the $3,000 in many richer coastal urban centres (like Shanghai), and well over $5,000 in the south cities of Shenzhen and Guangzhou. If these trends continue, China may become the largest manufacturing country in terms of gross national output by around 2012, and will have an economy worth at least $5 trillion by 2025.

Changes in the rules governing farming provided the foundation for economic growth. By quietly doing away with the old communist system, allowing farmers to lease their own land for large periods of time and sell their produce in local towns, the government orchestrated a rapid rise in agricultural output in the 1980s. Farming households accumulated funds to invest in small-scale industry and buy the consumer goods that these new factories produced. Local governments, suddenly able to keep a portion of the tax revenues they levied on business (instead of giving it all up to Beijing), became interested in investing in and generally supporting these new firms. Tens of thousands of government and party officials jumped into business, rejecting Maoist dogmas even if they still espoused them in public. According to official statistics, over 2m private firms have been established - the real number is certainly higher.

Of course, the one area of life where competition was still banned was in politics. Deng introduced the concept of the "socialist market economy" to explain his vision for the future. This was an economy in which private property and prices had important roles to play, but it was also an economy that would grow within the bounds of a one party state - at least for as long as the Communist Party could hold together the contradictions evinced by freer markets and an undemocratic political system. Perhaps no other new institution better represents these contradictions than the stockmarket.