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China's Macroeconomic Development: The Role of Gradualist Reforms

Author

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  • Kaiji Chen
  • Tao Zha

Abstract

This paper provides analytic guides to recent literature on China's macroeconomic development, emphasizing the critical role of the gradualist reform approach. Our analysis suggests that from 1978 to 1997, the gradualist approach contributed to China's aggregate total factor productivity and economic growth primarily through policies that facilitated the reallocation of surplus labor from agriculture to nonagricultural sectors. Since 1998, the government's focus shifted, with various reforms encouraging large enterprises, whether state owned or privately owned, to enter capital-intensive sectors, making capital deepening the main driver of economic growth. While this strategy sustained China's GDP growth, it also increased trade tensions with global partners, created barriers to transitioning to a consumption-led economy, and threatened China's long-term financial stability, casting long shadows over the Chinese economy.

Suggested Citation

  • Kaiji Chen & Tao Zha, 2025. "China's Macroeconomic Development: The Role of Gradualist Reforms," Journal of Economic Literature, American Economic Association, vol. 63(4), pages 1331-1362, December.
    • Handle: RePEc:aea:jeclit:v:63:y:2025:i:4:p:1331-62
    DOI: 10.1257/jel.20251631
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    Cited by:

    1. Fu, Xiao & Lin, Ping & Ye, Gaofen, 2026. "Industrial policy in China: Its development and ongoing transformation," International Journal of Industrial Organization, Elsevier, vol. 104(C).
    2. Kohsaka, Akira, 2025. "The end of miracle? China's economic growth pattern," International Economics, Elsevier, vol. 183(C).
    3. Li, Chenglin & Dong, Xuehan & Qin, Yi, 2024. "The misallocation of finance in China," Finance Research Letters, Elsevier, vol. 65(C).

    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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