Page 9 - THE SOUTH CHINA BUSINESS JOURNAL
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get to this point, China underwent vast changes Challenges and further reforms
to its economic system over the past 40 years. Despite
the breadth of the changes, however, China’s economic Despite the successes of the Chinese economy, in
reforms have been characterized by gradualism and recent years, it has shown vulnerabilities and entered a
experimentalism, or “crossing the river by feeling the critical stage for its continued development and reform.
stones” as Deng famously once said.
Economic growth has slowed from the previous
Special Economic Zones (SEZs) typified this gradualism double-digit rates, with this being described as the
and experimentalism, where the government piloted ‘new normal’ as the country’s economy becomes
new reforms in geographically contained areas. more mature.
No region in China better encapsulates the success of In 2018, China’s GDP grew by 6.6 percent, according
this strategy than Shenzhen, which was at the forefront to official statistics, and the leadership in Beijing
of reform and opening-up initiatives and exploded has lowered the growth target to 6-6.5 percent for
from a tiny fishing village into one of the country’s 2019. Many economists argue that actual growth is
wealthiest and most dynamic cities. significantly lower than these official figures.
Nevertheless, although the market was given a more Economists from both inside and outside of China
important role in resource allocation as a result of reforms, have called for the country’s leaders to adopt structural
the state still maintains a strong role 40 years later. reforms so that it can continue to develop and avoid
the dreaded ‘middle-income trap’.
In this respect, China’s development and reform
path is unique, with it sometimes being referred to The middle-income trap refers to when an economy
as the ‘China Model’ of development. To this day, it becomes developed enough that it loses its low-cost
is debated whether China developed because of the advantages but is not developed enough to transition
continued role of the state in its economy or despite it. to a higher-value knowledge-based economy, thereby
slumping to middling performance.
This debate is an important one because it informs
the future direction of reforms. What is clearer is While almost all analysts agree that China must adopt
that the reform and opening-up policies are regarded wide-ranging economic reforms to sustain its economy
in the long-run, there is a split regarding what exactly
overall as a success. those reforms should entail.
Over the 40-year period, 740 million people Liberal economists argue that China should adopt
have escaped poverty and the country more market-based measures, such as by reducing the
posted a prolonged period of role of state-owned enterprises and market-distorting
double-digit economic support in the economy.
growth.
China is now the Others with a more statist view, argue that China
second largest economy should increase subsidies to strategic industries and
in the world behind protect domestic firms to promote their development.
the US and is figures At the 2013 Third Plenum, 35 years after the launch
among the World of Deng’s reforms, the Communist Party under the
Bank’s Middle- leadership of President Xi Jinping made a decisive
commitment to further reforms.
Income Countries
(MICs) based At the plenum, a 60-point plan entitled “The
upon GNI per Decision on Major Issues Concerning Comprehensively
capita. Deepening Reforms” was released. One of the key
decisions pledged to “allow the market to play a
decisive role in resource allocation”, which appeared to
signal a preference for market-based measures.
South China Business Journal 6
to its economic system over the past 40 years. Despite
the breadth of the changes, however, China’s economic Despite the successes of the Chinese economy, in
reforms have been characterized by gradualism and recent years, it has shown vulnerabilities and entered a
experimentalism, or “crossing the river by feeling the critical stage for its continued development and reform.
stones” as Deng famously once said.
Economic growth has slowed from the previous
Special Economic Zones (SEZs) typified this gradualism double-digit rates, with this being described as the
and experimentalism, where the government piloted ‘new normal’ as the country’s economy becomes
new reforms in geographically contained areas. more mature.
No region in China better encapsulates the success of In 2018, China’s GDP grew by 6.6 percent, according
this strategy than Shenzhen, which was at the forefront to official statistics, and the leadership in Beijing
of reform and opening-up initiatives and exploded has lowered the growth target to 6-6.5 percent for
from a tiny fishing village into one of the country’s 2019. Many economists argue that actual growth is
wealthiest and most dynamic cities. significantly lower than these official figures.
Nevertheless, although the market was given a more Economists from both inside and outside of China
important role in resource allocation as a result of reforms, have called for the country’s leaders to adopt structural
the state still maintains a strong role 40 years later. reforms so that it can continue to develop and avoid
the dreaded ‘middle-income trap’.
In this respect, China’s development and reform
path is unique, with it sometimes being referred to The middle-income trap refers to when an economy
as the ‘China Model’ of development. To this day, it becomes developed enough that it loses its low-cost
is debated whether China developed because of the advantages but is not developed enough to transition
continued role of the state in its economy or despite it. to a higher-value knowledge-based economy, thereby
slumping to middling performance.
This debate is an important one because it informs
the future direction of reforms. What is clearer is While almost all analysts agree that China must adopt
that the reform and opening-up policies are regarded wide-ranging economic reforms to sustain its economy
in the long-run, there is a split regarding what exactly
overall as a success. those reforms should entail.
Over the 40-year period, 740 million people Liberal economists argue that China should adopt
have escaped poverty and the country more market-based measures, such as by reducing the
posted a prolonged period of role of state-owned enterprises and market-distorting
double-digit economic support in the economy.
growth.
China is now the Others with a more statist view, argue that China
second largest economy should increase subsidies to strategic industries and
in the world behind protect domestic firms to promote their development.
the US and is figures At the 2013 Third Plenum, 35 years after the launch
among the World of Deng’s reforms, the Communist Party under the
Bank’s Middle- leadership of President Xi Jinping made a decisive
commitment to further reforms.
Income Countries
(MICs) based At the plenum, a 60-point plan entitled “The
upon GNI per Decision on Major Issues Concerning Comprehensively
capita. Deepening Reforms” was released. One of the key
decisions pledged to “allow the market to play a
decisive role in resource allocation”, which appeared to
signal a preference for market-based measures.
South China Business Journal 6
