The Chinese Path of Economic Reform and Its Implications

Abstract

gies to generate sustained growth. Much of the developing world believes political and economic reforms are necessary, and there is a growing consensus on the need for less government intervention in the economy and greater political openness. But there has been much less agreement on how to design the reforms: how fast to proceed, what sequence to adopt, and how far to advance.' There is an ongoing debate about what constitutes the most successful reform strategy; that is, one that returns the economy, after a brief recessionary period, to sustained growth. Although social scientists agree that macroeconomic stabilization is critical and liberalization of trade and prices is essential, there is disagreement on five issues. The first issue concerns whether reform should proceed slowly or quickly; the second, how reform should be sequenced; the third emphasizes institutional reforms, the appropriate timing of these reforms, and which reforms are judged optimal. The fourth issue concerns the disagreement between economists and political scientists about whether and to what extent policy makers should soften the distributional consequences of the institutional reforms. The final and more fundamental issue is whether the key determinant of economic responses to reform is the point of departure, including factors such as state capacity and trade distortion.2 In many countries, entire economic systems have been transformed after failed reforms. A large number of developing countries still are devastated by chaos and poverty. The remarkable success of China's economic reforms poses a stark contrast to the struggling economies of Eastern European countries.