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Between the Invisible Hand and the Grabbing Hand: The Ebb and Flow of China's Growth

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  • Xiaodong Zhu

Abstract

Contrary to popular belief, the rise of China over the past half century was not driven by industrial or mercantilist policies. The economy grew fastest when the government played a more passive role, allowing market forces and bottom-up initiatives from farmers, local officials, and private entrepreneurs to shape economic development. China’s vast size and extensive markets created strong incentives for entrepreneurial innovation. However, the government remained committed to preserving its political system and a dominant state sector, imposing clear limits on private sector and market development. Whenever private entrepreneurs sought to push these boundaries, the government responded forcefully. Over the last five decades, China’s economic trajectory has been shaped by the tension between these two forces.

Suggested Citation

  • Xiaodong Zhu, 2026. "Between the Invisible Hand and the Grabbing Hand: The Ebb and Flow of China's Growth," Working Papers tecipa-818, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-818
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P30 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - General

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