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Introducing Market Mechanism and Competition

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China has long been viewed as a country that lacked a solid government and a stable economy. While it is true that the early years of China’s history included times of great famine and economic upheaval, recent reform of the last three decades have proven to be beneficial. Surviving through the Great Leap Forward famine, the Chinese Civil War, and changing Communist rule, China has come out on top. Theirs is a story of financial reform like no other with political ramifications and leadership changing hands that only caused the situation to get worse before it got better. Nevertheless, China’s financial reform has proven to be exemplary and has brought China from the shadows of finance into the light of a growing economy.

China’s Economy before the Reform

In the nineteenth and twentieth centuries, China had the world’s largest population and was unable to care for its people. During regular years of operation, China was able to produce supplies to just meet the demand of their citizens. However, in years where situations deterred the production of food and other necessities, China was forced to import products and redistribute goods in order to avoid starvation. In short, China was just scraping by on what they could make themselves and that which they could import.

A series of localized and globalized events lead to a further reduction of China’s economy. The Great Depression experienced in the United States hindered China’s ability to import goods and supplies from the United States. China’s war with Japan, followed by the Chinese Civil War between 1937 and 1949 used more supplies than China had and resulted in their defeat by the Communist Party. The Communist Party, once in control of China, implemented a planned economy that promptly stagnated and ultimately lead to the Great Leap Forward famine of 1958 to 1960 which claimed the lives of over 35 million Chinese people.

China’s government found itself in situation that was never conducive to having a surplus of goods or products. From one year to the next, the products and goods produced were consumed by the growing population of China. As a good example, during the 1970s, before reform occurred, about 75 percent of the grain that was produced in China was used by the family who produced it, leaving only 25 percent of that grain to be distributed within China. In the years leading up to the market-oriented reforms put into place by the Communist Party of China (CPC), China was embarrassed by their situation in comparison to other East Asian countries such as Japan. While Japan and Hong Kong were on par with European countries as far as technology and economy, China was barely able to feed and clothe their people.

China’s Economic Reform

During the time period later dubbed as the “Period of Readjustment” which occurred in the years of 1979 through 1981, many changes were made for the good of China’s economy. First off, Hua Guofeng’s ten-year economic plan was trashed. The new sections of reform were market-oriented. The prices and distribution of goods and products was determined by the needs and demands of the market situation. Previously, the government had determined this information based on their own internal calculations.

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The many phases of reform were introduced experimentally and not all at once, in all areas. Because of the track record that China had with reforms, the new CPC government wanted to make sure the new policies went well before rolling them out country-wide. Reforms dealing with agriculture were experimented with first, followed by reforms in industry. Industry reform started slowly and included such aspects as increasing the autonomy of the managers of enterprises, reducing or removing the implementation of quotas on production, allowing companies to produce goods outside the requirements for sale in the ‘free markets’ for profit of the enterprise, and allowing enterprises to pay taxes to the Chinese government and keep profits, which had never been allowed in the past.

As a result of the new systems, China’s economy was showing improvement and growth across the country. The improving economy led to the CPC government loosening up the foreign trade policies and procedures. This allowed enterprises and corporations to initiate foreign trade. After the initial ‘Readjustment’ phase of the reform, came the ‘reform and opening’ phase of the program. This phase included broadening the policies to include more areas of China and not just those that had been included in the experimental phase of the reform.

China’s new reform encouraged international trade and foreign investment. Before the reform began, less than 10 percent of China’s combined import and export trade value. As a result of the relaxed trade policies and procedures, China’s international business went up to 15 percent in 1980, 21 percent in 1984, and 35 percent in 1986. In light of the great increase in foreign trade, the Chinese government saw fit to legalize foreign investment during the 1980s.

Work to Be Done

China has come a long way in the 30 years since the reform began. While their economy now is second in the world, with only the United States above them, they still have many things to streamline and improve upon. Despite having legalized foreign investment and trade in the 1980s, China still struggles with relationship with other countries in some cases. China has grown to be a part of several alliances concerning business and trade in the Asia-Pacific region. They are a commanding force wherever they are heard and are avidly in support of economic stability, growth, and trust with their trade partners around the world. Currently, China’s strongest partner in trade is the European Union.

While China continues to grow and evolve as a nation, they must be willing to create stronger bonds with other countries such as the United States. A collaborative relationship between the two largest economic powers in the world would not only benefit China and the United States, but the world as a whole.

Conclusion

The purpose of the reform period was not to do away with the Communist way of rule. The purpose was actually to make it work better, make it work the way it was supposed to work. For this reason, policies and procedures were chosen to put more of the power into the hands of the people instead of the hands of the government. As China continues to grow and strengthen its powers both economically and politically, it will also continue to change policies and reform specifics to meet the changing needs of China’s people. Reform is never truly complete; it is an ever-changing process of learning and experimentation.

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