THE TRENDS OF CHINA'S ECONOMIC REFORM
September 15, 1996
Wu Jinglian
The Chinese Academy of Social Sciences and the Development Research Center of the State
Council, People's Republic of China
1. Economically, China has done remarkably well since the beginning of the reform
movement in 1978. Between 1979 and 1995, China's GDP grew at an average annual rate of 9.5
percent. China's exports grew even faster and China now ranks among the world's top 10
exporting economies. The economic boom is very much due to the market-oriented reforms and
opening up to the outside world. In the meantime, China also faces a series of knotty
problems. Amongst them, significant inflationary pressure and the prevalence of corruption
are the most vexatious. At a New York gathering in 1993, I said that the Chinese economy
is running, but she is racing against two other runners: inflation and corruption. China's
future will hang on the result of the contest. Who will be the final winner is still to be
decided.
2. The spectacular achievements of China's economic reform and development owes to an
unusual strategy of reform, namely, "reforming and growing out of the established
system" or an incremental strategy for short.
At the beginning, the reform measures were oriented towards delegating decision- making power and relinquishing benefits to lower levels in the state sector. As in the former Soviet Union and the Central European countries, these "gradualism" measures did not work in China. Since late 1980, the focus of China's reform had shifted from the urban state sector to rural areas. Pioneering this effort was the introduction of the "household contract system." Within two years, the People's Commune was replaced by household farming. Since then, China tried a new and unusual reform strategy. The spirit of that strategy was characterized by three aspects:
3. This new strategy proved to be correct and effective. From the point of view of the
entire economy, however, the "incremental reform" is a tactical arrangement.
Reform in the state sector has been lagging behind. This results in the following consequences:
The severe inflation in 1988 and political unrest in 1989 slowed the pace of reform.
Confronted with such a situation, Deng Xiaoping advocated a new upsurge in the reform
drive in 1992.
4. In November 1993, China concluded a new reform strategy of "overall advance
with focal breakthrough" and started to "storm the heavily fortified
positions."
"Focal breakthrough" refers to the expected progress in the reform of the
state sector, while "overall advance" refers to the building of a market system
as a whole.
A new wave of economic reform has been launched and gives priority to the state sector:
5. Several institutional changes were in introduced in 1994, and big progress was made
in the restructuring of the taxation system and the administration of the foreign exchange
market. But little progress had been made in restructuring the banking system, while
preparatory steps in the reform of state-owned enterprises and the creation of a new
social security system were being taken.
Reforms in 1995 concentrated on state enterprises. Great efforts have been made in the
restructuring of the large state-owned enterprises as well as the establishment of a new
social security system. The reform of small sized state-owned enterprises has gained
momentum and made immense achievement in some regions' areas. It's an encouraging sign of
the coming breakthrough in this field.
6. China is now in a good position to develop its economy in a steady and rapid manner.
Its economic situation in the near future will be determined by how far the overall
economic reform is being pushed forward, particularly be whether substantial progress can
be made in the reform of state enterprises and the banking system.