Chinese economic reform

Chinese economic reform refers to the program of economic changes in mainland China or 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 2003. 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 challenge of economic reform was to solve the problems of motivating workers and farmers to produce a larger surplus. The solution to the motivation problem in agriculture has come in the form of expanded self-employment and capitalist employment replacing the commune system of employment. In industry the strategy has been to increase management autonomy, including the power to make laborers redundant and to grant bonuses, and to gradually move to a corporate form of capitalism to replace the old state capitalism.

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 CPC 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, with 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.