The speed and order of economic liberalization in China and its comparison with Russia and Vietnam

This paper overviews and compares China's gradual economic liberalization with other transitional economies moving from planned economy to market economy such as Vietnam in Asia and Russia. China liberalized its economy more slowly than Vietnam and Russia. In the early stage of reform, China achieved macroeconomic stabilization by controlling credit through state banking system. However, state owned banking system has been handicapped in allocating capital efficiently. Some economists say that, in explaining the relatively bad Russian economy, Russia got the order of liberalization wrong. In contrast, within a short period of time, Vietnam completely transformed its economic system and achieved successful economic results. The economic liberalization in Vietnam was more radical and rapid than that of China. What transitional economies need in liberalizing their economy is a economic liberalization policy combined with strict financial supervision, strict monetary policy, fiscal reform and management of external debt structure. That is, it is not speed or sequence of economic liberalization but the state's capacity for setting up stable institutional incentive structure which is the crucial determinant of success.