Innovation through iteration: Policy feedback loops in China’s economic reform

How did China overcome information problems and institutional gaps to successfully implement early market reforms in its state-owned economy? When the Chinese government initiated economic reform in 1978, it needed to stimulate information sharing across hierarchical bureaucracies and incentivize adaptation to varying market and local conditions. Neither state design nor grassroots efforts alone could overcome these gaps. Instead, policy feedback loops—driven by flows of people, information, and ideas linking enterprises with the state—facilitated dual bureaucratic and economic transformation. Process tracing using qualitative and quantitative data reveal how policy feedback loops functioned for three reforms with varying degrees of success: contract responsibility system reform, cost control system reform, and procurement management system reform. This analysis extends the concept of policy feedback beyond advanced industrial democracies, suggests that overlap between policy experimentation and implementation can facilitate adaptive policy-making, and illuminates the centralization and exercise of state authority in China’s economic reform.