7 - Conclusion

Summary

In 1987, in a conversation with a visiting government delegation from Yugoslavia, Deng Xiaoping gave the following assessment on Chinese economic reforms:

In the rural reform our greatest success – and it is one we had by no means anticipated – has been the emergence of a large number of enterprises run by villages and townships. They were like a new force that just came into being spontaneously…. The Central Committee [of the Chinese Communist Party] takes no credit for this.

This is a powerful insight into both the success and the limitations of China's economic reform. The biggest success of the reform is to have allowed a substantial degree of flexibility in an otherwise rigid and statist economic system. This flexibility gave an opportunity to innovative and hard-working entrepreneurs to create and expand businesses, which over time would eclipse China's inefficient and wasteful state sector. Some of the specific economic policies and reform measures have also been important. These would include price liberalization, opening up the country to FDI and overseas export markets, creation of central banking and tax institutions essential to a functioning market economy, and a gradual emergence of rule-leaning, though not yet rule-based, governmental interventions in the economy and business-government relationships. These policy measures have led to macro stability, elimination of shortages, and abatement of anticompetitive barriers, all very impressive achievements during a short period of time.