IDEAS home Printed from
   My bibliography  Save this paper

Why Chinas Economic Reforms Differ: The M-Form Hierarchy and Entry/Expansion of the Non-State Sector


  • Yingyi Qian
  • Chenggang Xu


China's thirteen years of reforms (1979-1991) have achieved an average GNP annual growth rate of 8.6%. What makes China's reforms from those of Eastern Europe and the Soviet Union is the sustained entry and expansion of the non-state sector. We argue that the organization structure of the economy matters. Unlike their unitary hierarchical structure based on the functional or specialization principles (the U-form), China's hierarchical economy has been the multi-layer-multi-regional one mainly based on territorial principle (the deep M-form, or briefly, the M-form). Reforms have further decentralized the M-form economy along regional lines, which provided flexibility and opportunities for carrying out regional experiments, for the rise of non-state enterprises, and for the emergence of markets. This is why China's non-state sector share of industrial output increased from 22% in 1978 to 47% in 1991 and its private sector's share from zero to about 10%, both being achieved without mass privatization and changes in the political system.

Suggested Citation

  • Yingyi Qian & Chenggang Xu, 1993. "Why Chinas Economic Reforms Differ: The M-Form Hierarchy and Entry/Expansion of the Non-State Sector," CEP Discussion Papers dp0154, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0154

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. McMillan, John & Naughton, Barry, 1992. "How to Reform a Planned Economy: Lessons from China," Oxford Review of Economic Policy, Oxford University Press, vol. 8(1), pages 130-143, Spring.
    2. Kornai, Janos, 1986. "The Hungarian Reform Process: Visions, Hopes, and Reality," Journal of Economic Literature, American Economic Association, vol. 24(4), pages 1687-1737, December.
    3. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1992. "The Transition to a Market Economy: Pitfalls of Partial Reform," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 889-906.
    4. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 299-322 National Bureau of Economic Research, Inc.
    5. Masahiko Aoki, 2013. "Horizontal vs. Vertical Information Structure of the Firm," Chapters,in: Comparative Institutional Analysis, chapter 5, pages 57-58 Edward Elgar Publishing.
    6. repec:fth:harver:1512 is not listed on IDEAS
    7. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    8. Byrd, William A., 1987. "The impact of the two-tier plan/market system in chinese industry," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 295-308, September.
    9. Sicular, T., 1992. "Public Finance and China's Economic Reforms," Harvard Institute of Economic Research Working Papers 1618, Harvard - Institute of Economic Research.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0154. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.