China’s Economic Rise: Deng’s Reforms and Their Impact

Posted on Jan 9, 2025 in Economy

Theme II: The Development of the Global Economy

Introduced in 1978
A significant, though not complete, abandonment of the collectivization system under Mao
Farming households were free to dispose of any surplus produce on the open market once production targets were met
First major reform, setting the stage for other future reforms
Allowed for an increased role for market forces
Rural production rose, became self-sufficient in grain – became a net grain exporter in 1985
Total increase in agricultural output was 127% from 1979 to 1984
Increased efficiency in the rural sector
Created surplus labor hours that were directed to non-agricultural businesses like TVEs

The ban on individual businesses was lifted in 1980
New private medium-small scale businesses in the rural sectors that competed with SOEs
Played the catalytic role in transforming the command economy to a market economy
Raised rural incomes, helped narrow the urban-rural gap
Contributed to the overall dynamism of the Chinese economy due to flexibility, autonomy, and vibrance
Fueled competition and reform in SOEs
1.4 million TVEs with 30 million rural labor force (7% of the national labor force) in 1980
25.5 million TVEs with 123.5 million rural labor force (20.5% of the national labor force) in 1993
Contributed to industrial output, producing 30% of China’s GDP in 1995
Two-thirds of growth in Chinese exports attributed to TVEs from 1978 to 1993

Firms owned by the government for economic production were, however, inflexible
Fixed wage rates, little initiative to innovate and improve efficiency
“Iron rice-bowl” practice with no incentives for profitability, low productivity, and a low-skilled labor force
Made huge losses and diverted resources away from potentially more efficient and profitable enterprises
The Company Law of 1994 allowed for the restructuring of SOEs into limited liability corporations with majority state ownership
Employment in SOEs fell from 112 million to 86 million in 1996-2000, improving the labor market
Public production gradually had to compete with more efficient private sectors
By the late 1990s, 80% of small and medium SOEs were transformed, large SOEs were broken up, and 20 giant corporations proved competitive

Opened up China’s traditionally closed economy towards foreign corporations, eager to utilize China’s huge potential productive capacity
Areas enjoyed special privileges such as lower tax rates and private ownership that boosted economic growth
Aimed at attracting new technology, capital, and production goods which could be exported
Sped up modernization and development and increased international trade
Encouraged Joint Ventures (JVs) between Foreign Invested Enterprises (FIEs) and TVEs in rural areas
Guangdong, Pearl River Delta, Fujian, and Shanghai were open to foreign investment
SEZs were established in 14 coastal cities by 1985
By 1997, investments into SEZs totaled US$45.3 billion
By 2000, 124 SEZs in China employed 18 million people
Areas open to foreign investors included 30% of China’s population by 1987, generating 60% of China’s industrial output
Increasing attempts to attract Foreign Direct Investment (FDI) through loosening business regulations and promoting Joint Ventures (JVs) with foreign firms
In 1993, JVs increased exports by 45.2%
Accounted for US$25.2 billion of China’s total exports