Can Communist economies transform incrementally? China's experience
AbstractThe authors try to answer important questions. How important is the phasing of political and economic liberalization and the active (versus passive) role of the state in reform? What lessons can be learned about comprehensive top-down reform as opposed to experimental bottom-up reforms; fast versus slow liberalization and opening up of the economy; the need to establish full private property rights at the beginning of reform; and reform's implications for welfare and distribution? Can China's excellent performance be linked toparticular reform measure, or does it reflect distinctive initial conditions or social or demographic factors? Is China's performance sustainable without more comprehensive transformation, or does it reflect transient gains that are substantially exhausted? Among the lessons China offers are the following. Partial reform can succeed in raising productivity in agriculture and industry; industrial productivity has grown very rapidly in the nonstate sector but also in state enterprises. A"big bang"is not economically necessary unless justified by the need to address macroeconomic imbalances. There may be virtue in a decentralized"bottom-up"approach to reform. Rapid privatization is not necessary for successful reform, but it is important to diversify ownership and encourage the entry of new firms. Small scale privatization and the liberalization of distribution and service sectors are likely to have the fastest payoff in the reform of property rights. China's rapid growth momentum and macroeconomic stability cannot be sustained without further reforms, including the reform of banking, taxation, and property rights.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1189.
Date of creation: 31 Oct 1993
Date of revision:
Environmental Economics&Policies; Economic Theory&Research; Banks&Banking Reform; Health Monitoring&Evaluation; Municipal Financial Management;
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