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Why China's economic reforms differ: the m-form hierarchy and entry/expansion of the non-state sector

Listed author(s):
  • Qian, Yingyi
  • Xu, Cheng-Gang
Registered author(s):

    China's thirteen years of economic reforms (1979-1991) have achieved an average GNP annual growth rate of 8.6%. What makes China's reforms differ 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 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.

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    File URL: http://eprints.lse.ac.uk/3755/
    File Function: Open access version.
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    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 3755.

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    Length: 72 pages
    Date of creation: Jun 1993
    Handle: RePEc:ehl:lserod:3755
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    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. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    3. Bolton, Patrick & Farrell, Joseph, 1990. "Decentralization, Duplication, and Delay," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 803-826, August.
    4. 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.
    5. Sicular, T., 1992. "Public Finance and China's Economic Reforms," Harvard Institute of Economic Research Working Papers 1618, Harvard - Institute of Economic Research.
    6. 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.
    7. 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.
    8. Chen, Kang & Jefferson, Gary H. & Singh, Inderjit, 1992. "Lessons from China's economic reform," Journal of Comparative Economics, Elsevier, vol. 16(2), pages 201-225, June.
    9. Richard E. Ericson, 1991. "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 11-27, Fall.
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