China’s Transition to a Market Economy

Abstract

If the state’s role in the East Asian miracle could hardly be brushed aside, it would be almost impossible to fit the Chinese economic success into the free-market model. As a former centrally planned economy, China has never embraced a thorough transformation of ownership in its economic reforms. Even up to this date, the state still controls the large size state-owned enterprises (SOEs) that remain the backbone of the Chinese economy. Yet, under the strong state leadership, China has achieved phenomenal economic growth over the last two decades of the twentieth century. The country managed to raise its GDP by seven fold from about US$145 billion in 1978 to above US$1 trillion in 2000. With an average annual growth of about 10 per cent during the period, China had well matched the growth record of the East Asian economies in the past. By the World Bank measurement, China’s per capita purchasing power parity (PPP) gross national income had increased from US$340 in 1978 to US$3,920 in 2000, meaning the country has turned from a low-income into a lower-middle income economy’ in only a little over two decades. Although observers dispute the reliability of the official statistics, almost everyone agrees that significant economic progress has been made in China since the beginning of the economic transition in 1978.