China´s Period Prior to the Economic Reform and Trade Liberalization

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Despite the OECD's (and others') rosy predictions for China's growth between now and, say, 2060, it is entirely possible for China's economic juggernaut to run off the rails, and to remain relative to the now rich countries in a state of disrepair for a long time.

Introduction – China’s Economic Background

34 years ago prior to the economic reforms and trade liberalization, China had a different background to today’s economic development. The government supported policies that kept the country centrally controlled, inefficient and relatively isolated to the world economy. Since 1979, there has been a shift in the economic policies and implementation of free market reforms that has led to trade liberalization and foreign investment. As a result, China has been growing at an average GDP rate above 10% over the past 30 years.

Today, China is the second largest economy in the world driven by its foreign direct investment, large manufacturing base and growing levels of foreign exchange reserves.

Nevertheless it is interesting to analyze how China looked like prior to 1979. Under the leadership of Mao Zedong, China was a centrally planned economy with a vast majority of its economic activity directed by the government which controlled prices, established production objectives and allocated key resources among the different industries. During the 1960s and 70s the Chinese government made large investments into physical and capital resources which led to a vast control of the economy by the SOEs (state-owned enterprises). The ultimate goal of the government was to have a self-sufficient economy with relatively small foreign direct investment as well as international trade. There were no incentives for private firms t...

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...up to the junior high school level, which involves nine years of schooling, is compulsory and since the late 2000s has been free of charge” .

For the future economic development of the country and the sustainability of this growth, the aspect of managerial capabilities is an issue for the short to medium term. Clearly with the adaptation of the Western practices forced by market competition or the government willingness to support more western type of education and training, will lead to a more sophisticated work force matching the requirements needed to develop the private or even the SOEs further.


Key policy challenges for sustainable and balanced growth include facilitating the allocation of resources to the most productive sectors, broadening the access to quality education and enhancing competition through further product market liberalisation.

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