Week 3 Long Term Development Of China S Business And...

Review Question 1: Why did the government of China engage in significant economic reforms in 1978, and what were the effects of these reforms during the next 6 years?

The Chinese government under the leadership of Deng Xiaoping began economic reform in the late 1970s. The decision to transform the Chinese centrally planned economy to a market economy was driven by a number of political and historical factors.

First of all, the shortcomings of the Soviet-style command economy to drive economic growth were evident by the 1970s. After the Communist party emerged victorious from the Chinese civil war (1946-49) and founded the People’s Republic of China in 1949, Chairman Mao Zedong’s statement of “leaning to one side” signified the Sino-Soviet alliance in the 1950s as well as the Chinese adoption of the Soviet-style command economy. Despite significant advances in industrialisation and technologies under the command economy, by late 1970s China lagged far behind of its Asian neighbours (Japan, Taiwan, South Korea) in terms of in terms of economic achievements.

The inefficiencies of the command economy was most evident in the agricultural sector (in both Russia and China), collective ownership of farms and the commune system failed to raise the standard of livings for millions of Chinese farmers, or even solve China’s food problem for that matter.

Furthermore, a change in leadership after the death of Mao Zedong in 1976 laid the foundation for the Chinese economic reform. Mao’s successor Deng Xiaoping was renowned for his pragmatism and he did not share Mao’s ideological zeal on “class struggle” or spreading the revolution abroad. As a result, Deng shifted the country’s emphasis from class struggle to economic development. He was willing to experiment with market economic practices to produce the best results, or in his own words: “it doesn't matter whether a cat is black or white, if it catches mice it is a good cat.”

A change in the contours of international politics also created an inductive environment for the Chinese government to engage in significant economic reform. After the Sino-Soviet split in the 1960s, there was a gradual but significant improvement in the Sino-US relationship in the 1970s as both countries held the URRS as a common enemy. The Sino-US rapport meant that China was ready to receive foreign aid and engage in international trade with the Western nations when the country decided to open up its economy.

The effects of the economic reform during the next 6 years were mostly concentrated on rural areas. Most importantly, the commune system was gradually replaced by household productive responsibility system, under which individual farmers were granted the right of land use and had more freedom in making their production decisions.

Other effects of the economic reform during the late 1970s and early 1980s include a reopen of rural markets, rising price levels of agricultural products sold to the government, and a gradual opening up of the economy to expanding foreign trade. Overall, rural reforms from 1978 to 1984 achieved the initial goal of abolishing the commune system and raising the standard of livings for millions of famers. Zhou (2007) concluded that these “early reforms laid solid foundations for further experiments later in urban areas”.

Review Question 2: In what ways did China’s government succeed in creating a market economy with subsequent economic reforms after 1984, and in what ways did it not succeed?

The Chinese government was succeeded in creating a market economy with subsequent economic reforms after 1984 due to:
(a) the establishment of Special Economic Zones (SEZ) in coastal cities;
(b) a gradual privatisation of State-owned enterprises (SOE) in the 1990s;
(c) opening up of the economy to expanding foreign capital and trade;
(d) growth of private sectors especially in the form of town and village enterprises;
(e) rising awareness of private property rights;
(f) a loosening of

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