China’s Economic Transformation
Part I: Economic Reform and Growth in China
The Hong Kong University of Science and Technology
Course Overview
Greetings, my name is Albert Park. I'm the director or the Institute for Emerging Markets Studies
and a professor in the Social Science division and Economic Department at the Hong Kong
University of Science and Technology. I'm standing here at the economic gateway to China.
Behind me are the massive container ports of Hong Kong. Through which more that 300 billion US
dollars of goods, produced by the factory of the world, are shipped each year to destinations
around the globe including to stores near your home. What a great vantage point for appreciating
China's remarkable economic transformation, a process which began more than three decades
ago. In 1978, after nearly 30 years of socialist planning under Mao Zedong. China was one of the
world's poorest countries, saddled with a highly inefficient, inward looking, and economy. With the
ascension of Deng Xiaoping, China undertook fundamental economic reforms that unleashed
market forces, opened the country to the outside world, and lifted millions of Chinese out of poverty.
From 1978 through 2015, China grew at an average annual growth rate of 10% per year. Today,
China has the largest GDP of any country in the world, measured by purchasing power parity. It is
the world's largest trading nation.
Not surprisingly, these days, it's nearly impossible to read the news without confronting headlines
about China. Or work in a sector that does not require engagement with China. For a country of
over a billion people, to grow so fast for so long, is an unprecedented historical achievement. But
how could such a remarkable transformation occur? What reforms made it happen? And how have
they affected the lives of Chinese citizens? Can rapid economic growth continue? And if so, for
how long?
What are the key challenges currently facing the Chinese economy? If you are interested in
learning the answers to these questions, I welcome you to take this course on China's economic
transformation. The course consists of two parts. Part one is on economic reform and growth in
China. In this part of the course, you will learn about China's key economic reforms in different
sectors, in China's macro development, including the role of international trade and investment,
and the sources of economic growth. Part two focuses on the human dimensions of economic
development. Covering topics such as demographic changes caused by the one child policy,
China's massive rural to urban migration, and poverty and inequality in China. In both parts of the
course, we will visit China together. And speak with firm managers and other individuals affected
by China's economic reforms.
, 1.1 China’s Gradualist Reforms – An Introduction
Hello and welcome to this module on China's Gradualist Reform. In this introduction, I want to
provide some motivations for why we should be interested in studying China's economic
transformation. And second, introduce you to the topics that we'll be covering in this module.
If we look at the growth in China's Gross Domestic Product, since the establishment of the Socialist
Republic in 1949, you can see that there has been a dramatic change. In particular, since the
period of economic reform began in 1978, there has been exponential growth in China's economic
output. This really shows the power of compounded high rates of annual economic growth. By the
end of this period, China's output is a thousand times greater than in 1952. The question, of course,
is how did China accomplish such a remarkable economic transformation? That's what we're going
to try to address in this course and in this module.
,China has also become increasingly important to the global economy. You can see here that
compared in the 1980s, when China's growth was relatively unimportant to global economic output
and the leading countries were the USA and Japan. By the 2000s, China has become the most
important country in contributing to total economic growth in the world. And much faster than even
the United States and other emerging market countries.
So if we return to the question, why should we bother studying Chinese economic reforms? We
can think of several different perspectives. The first, of course, is China's global importance. In the
future, no matter where you live in the world, what happens in China will matter because it will
affect what's happening in all of the other countries in the world. Second, if we're trying to
understand the general process of economic development, how do poor countries become rich
countries? China's historic accomplishment becomes an incredibly important case study for
studying this general process. And finally, if we want to understand the current challenges facing
the Chinese economy and the likely paths or outcomes that are going to occur in the future. We
really need to understand what has happened in the past, what has happened during the past 30
years of economic reform. In this module, we will cover five main topics. The first is institutional
change as a framework for thinking about economic reform. So we will use these concepts to try
to understand analytically why reform has unfolded in the way it has and what it has meant for
economic performance. We will then provide an overview of China's graduous reform experience,
contrasting it with the big bang, big shock therapies applied in Russia and Eastern Europe. Then
we will turn to reforms and specific sectors of the economy. And in this module, we will look both
at agriculture and the industry. On the agricultural side, we will examine the decollectivization
reforms that returned farming to households at the beginning of the reform period. On the industrial
side, we will analyze the rise and fall of China's township and village enterprises. And also discuss
the continuing problem of state-owned enterprise reform in China. And as we examine each of
these topics, we will continue to use this framework of institutional change as a lens for
understanding what is happening in China's economic reforms.
, 1.2 Institutional Change – A Framework
The first topic in this module is institutional change. And here, I want to provide a framework for
analyzing Chinese economic reforms. Douglas North defined institutions as the rules of the game
in a society, humanly devised constraints that shape human interaction. And here he had in mind
that the world is not just one open free market, that there are many other environmental factors
that shape the way in which we interact with others and that impact the economic activity and
performance of an economy.
Now, Mr. North distinguished between formal and informal institutions. Where formal institutions
refer to political, economic, legal institutions, and constitutions, laws, regulations that constrain the
types of activities and interactions that can occur. There are also informal institutions in every
society. And these are social norms, the level of social trust, the religious values of people that
may affect how family members take care of each other, etc. These are also very important in
thinking about how people are able to function and interact in an economy.
Now, if we think about institutions as a tool for analysis, one real important aspect of Douglas
North's contribution was that he kind of put institutions at the center and said, to think about what's
happening in the economy, we really have to understand the nature of the institutions and how
they are changing. Because those changes then, affect changes in economic activity and
economic performance. And so using institution as a lens, we can better understand the history of
economic performance in different countries. We can think more clearly about the political
economy of economic transition. We can understand better why growth comes from different
sources. And we can understand the consequences of reform for different groups in society.
Now, economists tend to put main focus on the market as an institution. And there have been
many important thinkers who have described very eloquently how the market provides an invisible
hand that creates very efficient production, coordinating the decision of millions, thousands of
producers and consumers into a efficient outcome.
Part I: Economic Reform and Growth in China
The Hong Kong University of Science and Technology
Course Overview
Greetings, my name is Albert Park. I'm the director or the Institute for Emerging Markets Studies
and a professor in the Social Science division and Economic Department at the Hong Kong
University of Science and Technology. I'm standing here at the economic gateway to China.
Behind me are the massive container ports of Hong Kong. Through which more that 300 billion US
dollars of goods, produced by the factory of the world, are shipped each year to destinations
around the globe including to stores near your home. What a great vantage point for appreciating
China's remarkable economic transformation, a process which began more than three decades
ago. In 1978, after nearly 30 years of socialist planning under Mao Zedong. China was one of the
world's poorest countries, saddled with a highly inefficient, inward looking, and economy. With the
ascension of Deng Xiaoping, China undertook fundamental economic reforms that unleashed
market forces, opened the country to the outside world, and lifted millions of Chinese out of poverty.
From 1978 through 2015, China grew at an average annual growth rate of 10% per year. Today,
China has the largest GDP of any country in the world, measured by purchasing power parity. It is
the world's largest trading nation.
Not surprisingly, these days, it's nearly impossible to read the news without confronting headlines
about China. Or work in a sector that does not require engagement with China. For a country of
over a billion people, to grow so fast for so long, is an unprecedented historical achievement. But
how could such a remarkable transformation occur? What reforms made it happen? And how have
they affected the lives of Chinese citizens? Can rapid economic growth continue? And if so, for
how long?
What are the key challenges currently facing the Chinese economy? If you are interested in
learning the answers to these questions, I welcome you to take this course on China's economic
transformation. The course consists of two parts. Part one is on economic reform and growth in
China. In this part of the course, you will learn about China's key economic reforms in different
sectors, in China's macro development, including the role of international trade and investment,
and the sources of economic growth. Part two focuses on the human dimensions of economic
development. Covering topics such as demographic changes caused by the one child policy,
China's massive rural to urban migration, and poverty and inequality in China. In both parts of the
course, we will visit China together. And speak with firm managers and other individuals affected
by China's economic reforms.
, 1.1 China’s Gradualist Reforms – An Introduction
Hello and welcome to this module on China's Gradualist Reform. In this introduction, I want to
provide some motivations for why we should be interested in studying China's economic
transformation. And second, introduce you to the topics that we'll be covering in this module.
If we look at the growth in China's Gross Domestic Product, since the establishment of the Socialist
Republic in 1949, you can see that there has been a dramatic change. In particular, since the
period of economic reform began in 1978, there has been exponential growth in China's economic
output. This really shows the power of compounded high rates of annual economic growth. By the
end of this period, China's output is a thousand times greater than in 1952. The question, of course,
is how did China accomplish such a remarkable economic transformation? That's what we're going
to try to address in this course and in this module.
,China has also become increasingly important to the global economy. You can see here that
compared in the 1980s, when China's growth was relatively unimportant to global economic output
and the leading countries were the USA and Japan. By the 2000s, China has become the most
important country in contributing to total economic growth in the world. And much faster than even
the United States and other emerging market countries.
So if we return to the question, why should we bother studying Chinese economic reforms? We
can think of several different perspectives. The first, of course, is China's global importance. In the
future, no matter where you live in the world, what happens in China will matter because it will
affect what's happening in all of the other countries in the world. Second, if we're trying to
understand the general process of economic development, how do poor countries become rich
countries? China's historic accomplishment becomes an incredibly important case study for
studying this general process. And finally, if we want to understand the current challenges facing
the Chinese economy and the likely paths or outcomes that are going to occur in the future. We
really need to understand what has happened in the past, what has happened during the past 30
years of economic reform. In this module, we will cover five main topics. The first is institutional
change as a framework for thinking about economic reform. So we will use these concepts to try
to understand analytically why reform has unfolded in the way it has and what it has meant for
economic performance. We will then provide an overview of China's graduous reform experience,
contrasting it with the big bang, big shock therapies applied in Russia and Eastern Europe. Then
we will turn to reforms and specific sectors of the economy. And in this module, we will look both
at agriculture and the industry. On the agricultural side, we will examine the decollectivization
reforms that returned farming to households at the beginning of the reform period. On the industrial
side, we will analyze the rise and fall of China's township and village enterprises. And also discuss
the continuing problem of state-owned enterprise reform in China. And as we examine each of
these topics, we will continue to use this framework of institutional change as a lens for
understanding what is happening in China's economic reforms.
, 1.2 Institutional Change – A Framework
The first topic in this module is institutional change. And here, I want to provide a framework for
analyzing Chinese economic reforms. Douglas North defined institutions as the rules of the game
in a society, humanly devised constraints that shape human interaction. And here he had in mind
that the world is not just one open free market, that there are many other environmental factors
that shape the way in which we interact with others and that impact the economic activity and
performance of an economy.
Now, Mr. North distinguished between formal and informal institutions. Where formal institutions
refer to political, economic, legal institutions, and constitutions, laws, regulations that constrain the
types of activities and interactions that can occur. There are also informal institutions in every
society. And these are social norms, the level of social trust, the religious values of people that
may affect how family members take care of each other, etc. These are also very important in
thinking about how people are able to function and interact in an economy.
Now, if we think about institutions as a tool for analysis, one real important aspect of Douglas
North's contribution was that he kind of put institutions at the center and said, to think about what's
happening in the economy, we really have to understand the nature of the institutions and how
they are changing. Because those changes then, affect changes in economic activity and
economic performance. And so using institution as a lens, we can better understand the history of
economic performance in different countries. We can think more clearly about the political
economy of economic transition. We can understand better why growth comes from different
sources. And we can understand the consequences of reform for different groups in society.
Now, economists tend to put main focus on the market as an institution. And there have been
many important thinkers who have described very eloquently how the market provides an invisible
hand that creates very efficient production, coordinating the decision of millions, thousands of
producers and consumers into a efficient outcome.
