Overall, by the liberalization of the trade, the

Overall, China’s economic reform
toward a market-oriented economy has been seen as successful, mainly driven
by the liberalization of the trade, the removal of trade barriers that lead to
greater competition and more foreign direct investments. The average rate of growth
of real GDP in the ?rst two decades of reform was about 9.6% annually according
to o?cial statistics.

China’s economic reform towards market-oriented economy started
in 1978 caused by some of the reasons described below. Firstly, the Cultural
Revolution in the years 1966-1976 led by leader Mao Zedong proved to be
unpopular. The Communist Party and the government had to change direction to
get support from the Chinese nation. Secondly, rapid economic growth experienced
by the more market-oriented neighbors (like Hong Kong, Taiwan, South Korea or
Singapore) was a good example of market economy performing better. Besides,
Chinese people supported market oriented reform after suffering from the
economic consequences of central planning which often meant shortage of
consumer goods, limited variety or low quality.
It was decided that the reforms should begin with agriculture sector which was
the foundation of the national economy at that time. Among the priorities of
Mao’s successor Deng Xiaoping was to improve the life in the countryside and his
answer was the Household Responsibility System. It was instituted in 1978, moving
from the collective to individual farming where farmers were given some autonomy
over usage of the land and crop selections and were able to sell a portion of
their crops on the free market. The system was changed from farmers working as
a team to individual households with each receiving the reward for additional
Another reform undertaken related to state-owned enterprises. Prior to 1978
reforms central government had complete control over the economy where nearly
all companies were state-owned enterprises known as SOEs. It has been an
example of a gradual approach where changes were carried out and adopted step
by step. State enterprises were given some autonomy in production, marketing
and investment decisions rather than simply deciding under a system of central
planning. They were allowed to keep the earnings after paying taxes to the
state as their own profit, rather than as revenue belonging to the government,
in order to gain more independence. Besides, SOE managers were given greater
autonomy on how to spend surplus income and could make decisions by reinvesting
the money in production equipment or rewarding their employees with bonuses.
One of another major reforms was the open-door policy initiated by Deng
Xiaoping’s that encouraged China to open to foreign imports and to promote exports
with the aim to rebuild its economy and society that were devastated by the
Cultural Revolution. Special conditions were given to companies to encourage
them to export; they were allowed to keep part of the foreign exchange they
earn and to obtain special loans for short-term ?nancing or long-term
The government gradually
established areas for overseas investment which triggered inflows of foreign
investment. It started from 1980, when China opened several Special Economic
Zones in southern China close to Hong Kong and Taiwan. Producers in these zones
could import materials free of some regulations and tariffs. The Chinese
government also provided subsidies for infrastructure. After 1981 more favorable exchange
rate was granted to exporters in exchanging the foreign currency earned for
RMB. Inflows of foreign
capital, technology, and knowhow enabled China to turn its vast labor resources
to rapid economic growth. Further in 1984, China established similar Special
Economic Zones in 14 other coastal cities. In addition, Chinese were encouraged
to start their own businesses and state price controls on a wide variety of
products were over the time eliminated. Managers of industrial plants were concerned
with the quality of their products they produce.

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