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Lessons of China's Transition from a Planned Economy to a Market Economy

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Author Info
Justin Lifu Lin () (China Center for Economic Research)

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Abstract

One of the most important events in the modern economic history is the socialist countries' transition from the Soviet-type planned economy to a market economy starting in the last two decades of the 20th Century. China's experience of transition has produced many interesting contrasts to the experience of transition in Eastern Europe and Former Soviet Union (EEFSU). When the transition started in EEFSU, most economists in the West favoured a big bang approach, which included stabilization, price liberalization, and privatization. They considered these three reforms to be necessary for a successful transition to a market economy and attempted to complete all these reforms simultaneously or in a short sequence. The big bang approach in essence is a version of the Washington Consensus, which is based on the basic principles of neoclassical economies for a well-functioning market economy and was recommended by the IMF/World Bank for market-orientated reforms in the developing countries. The proponents of big bang approach expected the transition in EEFSU to have a "J-Curve" effect on economic growth; that is, they expected the GDP in a country that implemented the big bang approach to decline initially and to be followed by a strong recovery in a short period of time. Most countries in EEFSU followed this approach. The big bang approach, nevertheless, has resulted in an unexpected sharp and prolonged decline in GDP with extraordinarily high inflation rates and serious deterioration of other social indicators.

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Paper provided by East Asian Bureau of Economic Research in its series Development Economics Working Papers with number 446.

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Length: 40 pages
Date of creation: Feb 2004
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Handle: RePEc:eab:develo:446

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Keywords: China; transition; stabilization; price liberalization; privatization; GDP;

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John Bennett & Huw Dixon & Helen X.Y. Hu, 2008. "The Effects of Reforming the Chinese Dual-Track Price System," CEDI Discussion Paper Series 08-14, Centre for Economic Development and Institutions(CEDI), Brunel University. [Downloadable!]
  2. Brigitte Granville & Judith Shapiro, 2008. "Scratch a Would-Be Planner: Robbins, Neoclassical Economics and the End of Socialism," Working Papers 11, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research. [Downloadable!]
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