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30 Years of Reform & Opening Up
Special> 30 Years of Reform & Opening Up
UPDATED: December 28, 2007 NO.1 JAN.1, 2008
Systematic Foundation
Three decades into its reform and opening-up policy, China has learned from its experiences and transformed itself into a global economic powerhouse

Thirty years have elapsed since the reform and opening-up policy was adopted in China on December 18, 1978, at the Third Plenary Session of the 11th Central Committee of the Communist Party of China. This magnificent economic reform, particularly the reform from a planned economy into a market economy, has a close bearing on the destiny of the Chinese nation, and thereby it is of great significance to review the decades as we mark its 30th anniversary.

At the start of reform, a system of contracted responsibility linking remuneration to output was introduced in rural areas. This greatly stimulated the enthusiasm of farmers and reduced production and supervision costs. The system also laid a solid foundation for China's subsequent economic boom. The increase in the efficiency of food production enabled the country to feed its huge population and also created a wealth of surplus labor. The surplus work force had unexpectedly produced a new non-public economy before the reform of the traditional planned economy was completed, which helped enhance and activate the public economy.

Microeconomic reform has inspired the competition of enterprises under different ownerships, thus greatly sparking the vigor and vitality of the national economy. After 30 years of reform focused on state-owned enterprises (SOEs), the majority of small and medium-sized SOEs have been replaced by more efficient private enterprises, while the economic performances of large SOEs have been significantly improved.

Tax reform since 1994 has helped form a unique relationship between central and local governments centered on economic construction. Under the system, fiscal revenue from local governments depends greatly on the expansion of the local economy, pushing the local government to attract investment and improve GDP performance. The fact that the local governments take investment attraction as an important task has accelerated the process of industrialization and urbanization.

China has pursued its opening-up policy and participated in the globalization process in an omni-directional way. It now tops the world in foreign investment. The influx of foreign capital has helped relieve the country's shortage of capital for construction and make up the insufficient needs in the domestic market. Participation in international competition has also boosted overall economic efficiency.

The banking sector has become more market-oriented after it was independent of the financial system. Under the traditional planned economy, banks were affiliated with the national fiscal system. During the 30 years of reform and opening-up, China has gradually formed a capital market and state-owned banks have gradually introduced enterprise management. As a result, capital is able to move into highly efficient links driven by market principles, which in turn has greatly improved the efficiency of the distribution of capital factor.

These five factors have impacted the national economy through its different periods of development. For instance, overall reform first started in rural areas, with the contracted responsibility system quickly helping boost agricultural production. This system exerted its greatest potentials in the late 1990s with solid achievements. Dramatic slip in grain production is unlikely to occur except in case of special circumstances. After the motivation brought about by this system to economic growth waned, the country has witnessed the boom of the private economy as well as the foreign-invested economy since the late 1990s. At the start of this century, China's entry into the World Trade Organization brought another new momentum to economic development.

China has gradually transformed from a highly intensive planned economy into a modern market economy. This rational approach is based on the concept of peaceful development in connection with China's unique historical backgrounds.

First, China has stuck to the principle that "practice is the sole criterion for testing truth." While a theory might be right, only practice can show whether it is pragmatic or not, and sufficient attention is attached to yielding sound results in each step.

Second, the country has been able to prioritize. At the beginning of reform and opening-up, the CPC raised the concept that China was still in the primary stage of socialism and decided that the most urgent task at this stage was economic development, thereby extricating the country from the dilemma of taking class struggle as the key link.

Third, China made a correct judgment of the international situation. It has successfully seized the chance during the third wave of globalization and efficiently participated in the international division of labor to develop its own economy, thus setting an example of success for other developing countries. China's WTO accession is also attributed to its correct, wise judgement of the international situation, as, at that time, many people still held the belief that a world war would break out.

Fourth, the country created a consensus on reform. On the one hand, it employed many audacious people to carry out reform in various fields. On the other, it strove to ease the resistance to reform and leave aside arguments in order to focus on economic development. For instance, since many people could not accept the concept of a market economy at the beginning of reform, the reformists put forward the idea of a commodity economy.

Lastly, great attention has been attached to coordination and leadership during the course of reform. The former State Commission of Economic Reform played a positive role in the 30-year economic structural reform. Such leadership has helped push forward reform and remove obstacles through coordination of complicated interests relations.

The author is director of the Public Policy Research Institute under the China Institute for Reform and Development

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