Chinese economic institutions and policies have undergone changes since the creation of the Communist system within 1949 (Campbell, Joel, and Hieyeo 10). After the Communist had seized power in 1949, the instability caused by domestic wars, the imperialist invasion were put to halt, and China began pursuing development through Russia's example in adopting Marxist and Leninist doctrine. Following the doctrine would replace private ownership and free market with public ownership and socialist planning. Achieving this needed revolutionary foreign and domestic policies in overcoming the Chinese Communist movements (Zhang 20). Following closure to western concepts of free market and capitalism, Chinese economy seemed the flourishing; nonetheless, it was soon apparent that the inflexible command market economy and planning were becoming inappropriate. Contrary to the economies of westerns, China was falling.
The leaders of realist Party headed by Xiaoping Deng officially adopted many significant measures to revert the Chinese crisis. They were later referred open door policies. Therefore, the momentum of the reform process started when Xiaoping Deng came to power of controlling Communist Party in the year 1978 (Campbell, Joel, and Hieyeo 15).
China has employed dual track structure to reform, which denotes adopting market economy aspects as well as operating old planned economy. Moving to planned economy via the dual-track framework reflects a fundamental nature of Chinese economic structure reform (Saich 7). It operates by advancing the elements of a novel system concurrently with the old planned economy.
Chinese economy reform began when agricultural restructuring was introduced in the system of household responsibility (Zhang 23). Commune system that existed before household responsibility system was inefficient (Saich 4). Farmers lacked incentives to produce in excess of the needed quota, as it had no benefit in the commune system. There was no productivity increase in commune system as farmers were not for extra production. The system of household responsibility improved the output and income of rural households (Saich 6). The household responsibility system allowed households to sell surplus within the private market provided government output quotas are fulfilled. The new system was effective as it created incentives to the farmers to increase productivity by working hard. Household responsibility system increased agricultural output and farmers’ income (Campbell, Joel, and Hieyeo 16). The success of household responsibility system was a springboard to reform other sectors in efforts to create a market economy.
Chinese government also set to reform state owned enterprises (SOEs). Within the command economy, state owned enterprises functioned as way production, in which raw materials were processed into industrial products or goods. The planning commissions within local and national governments determined for all SOE what to produce and quantity. The state agencies determined what to produce, distribute the products, and supplied resources. It is referred as centralized command economy, since no free market and free enterprise existing. Communist members believed in control of main means of production, they opposed making of profit by non-government officials from SOEs (Zhang 26).
The third economic institution reformed or restructured was the system of price. The Chinese price system was controlled and restructuring was to decontrol prices simultaneously permitting market to determine prices. The government initiated a system called two-tier price. In the system, a set of prices remained constant as before while a second set for those goods was market determined. In the system, once state enterprises had fulfilled production quota as in the plan, they could sell surplus at the free market price. SOEs were also permitted to buy inputs within quantities in excess of the planned quota within free market prices. The system of a two-tier price was economically efficient. Slowly though surely the administered costs or prices were becoming similar as the market costs/prices and by 1990, the system of two-tier was no longer required as most products within China were sold at prices determined by market (Campbell, Joel, and Hieyeo 70).
Banking system was also reformed. The old system of banking consisted only of the PBC and the current system of banking had to be created to sustain the economy. The PBC was a mono-bank that just had the power to issue currency as well as extending loans to state owned enterprises, but all these had to be permitted by the planning institution or authority. In practice, PBC had no power and in 1983, the bank was transformed to the central bank. Besides, other banks like ABC, ICBC, and PCBC were created and given autonomy for extending credits to state owned enterprises. Giving these banks the authority to extend credits increased currency supply and China was experiencing inflation by 1985 (Saich 5).
In the year 1993, the Communist party restructured the financial industry by granting independence to the PBC, moreover, reformed the specialized banks to commercial banks. Central bank was to run as the FRB (Federal Reserve Bank) within the USA and commercial banks were to operate as the current commercial banks within other countries (Campbell, Joel, and Hieyeo 9).
The current economic condition for China is promising or bright and Chinese economy has advanced since the Qing era or Dynasty (Zhang 23). Foreign trades, as well as businesses expansion, have progressed by joining WTO in 2001. Even though China must reform many of its policies, for example, tariffs on agricultural products and imports and open oversea competition. By joining, the World Trade Organization China will gain by bringing the required foreign investment, bring needed new technology, and improve Chinese abilities for technological advancement (Saich 3). Global trade is projected to double, and efficiency increases are projected to raise average gross domestic or home product. Trade will rise in both directions (Zhang 24). Chinese tariffs will be reduced and goods and services will have access to global markets open to WTO members. Chinese products and services will be opened to international competition, as a result, enhance quality by inspiring the home economy. Joint ventures, foreign owned enterprises, and private enterprises are expected to contribute positively to the development, in a better legal framework as well as in enhanced economic setting with China as a WTO member (Campbell, Joel, and Hieyeo 84).
In summary, the economic transformations, which China has gone through, have dramatically improved its current economy. The planned market economy system was successfully reformed to system of a free market economy. By joining the World Trade Organization, China has experienced considerable benefits as well as increased efficiency within the economy. Because China removed barriers to market internationally and domestically in 1978, she has witnessed extraordinary growth performance regarding rapid economic improvement, efficiency increase within economic sector, as well as accelerated urbanization. Even though the Chinese economic transformation propelled by the policy of the open door used by Xiaoping Deng in 1978, was slow, it improved or enhanced economic condition for China.
Works Cited
Campbell, Joel R, and Hieyeon Keum. "The Price of Change: Policy Reform in Post-1978 Mainland China and Gorbachev's Soviet Union. Issues and Studies. 29.9 (2009) N.p., 9-84. Print.
Saich, Tony. Governance and Politics of China. Houndmills, Basingstoke: Palgrave Macmillan, 2011. Print.
Zhang, Jun. China's Economic Growth: Trajectories and Evolving Institutions. Helsinki: UNU-WIDER, 2008. Print.
