Open­ing Up a Chi­nese Mir­a­cle

Com­pared to de­vel­oped coun­tries, China’s ex­pe­ri­ence and the­ory on re­form and open­ing up present a more sig­nif­i­cant ref­er­ence for other de­vel­op­ing coun­tries.

China Pictorial (English) - - Contents - Text by Justin Yifu Lin

This year marks the 40th an­niver­sary of China’s re­form and open­ing up. Just as Chi­nese Pres­i­dent Xi Jin­ping pointed out in the re­port de­liv­ered at the 19th Na­tional Congress of the Com­mu­nist Party of China (CPC), Chi­nese peo­ple to­day are closer, more con­fi­dent, and more ca­pa­ble than ever be­fore of mak­ing na­tional re­ju­ve­na­tion a re­al­ity. The ma­jor rea­son­ing for Pres­i­dent Xi’s state­ment is China’s achieve­ments over the past 40 years.

In 1978, China’s per capita GDP stood at only US$155, and more than 80 per­cent of its pop­u­la­tion lived in ru­ral ar­eas. At that time, China’s im­ports and ex­ports ac­counted for only 9.7 per­cent of the coun­try’s to­tal GDP. Essen­tially, 90 per­cent of the coun­try’s GDP was not re­lated to the in­ter­na­tional econ­omy. How­ever, over the 40 years since China’s his­toric re­form and open­ing up, the coun­try’s GDP has av­er­aged an an­nual growth rate of around 9.5 per­cent in com­pa­ra­ble prices. In hu­man his­tory, never has a coun­try with such a huge pop­u­la­tion and weak foun­da­tion been able to re­al­ize such a high-speed and long-term growth. It is more than ap­pro­pri­ate to call China’s progress over the last 40 years a “China mir­a­cle.”

In the 1980s and 1990s, al­most all de­vel­op­ing coun­tries, so­cial­ist coun­tries in­cluded, car­ried out re­form and open­ing up. How­ever, in­stead of pros­per­ity, th­ese re­forms caused eco­nomic col­lapse, stag­na­tion and crises in most places. Some econ­o­mists dubbed the 1980s and 1990s the “lost 20 years” for de­vel­op­ing coun­tries. How­ever, in the same in­ter­na­tional cir­cum­stances, how was China able to re­al­ize con­sis­tent high-speed eco­nomic growth?

The rapid growth has pri­mar­ily been at­trib­uted to China’s “late­comer’s ad­van­tage” and flex­i­ble de­vel­op­men­tal men­tal­ity en­abling it to adapt to chang­ing sit­u­a­tions. A coun­try’s eco­nomic growth mainly de­pends on tech­no­log­i­cal in­no­va­tion and in­dus­trial up­grad­ing. Tech­no­log­i­cal in­no­va­tion in­volves the in­tro­duc­tion of tech­nolo­gies that im­prove on cur­rent tech­nolo­gies, and in­dus­trial up­grad­ing refers to greater added value in a cer­tain in­dus­try. Thus, tech­no­log­i­cal in­no­va­tion and in­dus­trial up­grad­ing can be achieved by im­i­ta­tion, im­port­ing or in­te­gra­tion of ex­ist­ing and ma­ture tech­nolo­gies and in­dus­tries from other coun­tries. This av­enue was dubbed the “late­comer’s ad­van­tage” in eco­nom­ics. When its eco­nomic foun­da­tion was weak, China cap­i­tal­ized on its late­comer’s ad­van­tage to achieve faster eco­nomic growth than de­vel­oped coun­tries.

Due to a con­trast­ing de­vel­op­men­tal men­tal­ity, China’s eco­nomic per­for­mance was to­tally dif­fer­ent from other coun­tries dur­ing the tran­si­tion. Back in the 1980s and 1990s, the pop­u­lar idea then was that since the mar­ket econ­omy was su­pe­rior to the planned econ­omy, all coun­tries’ re­forms should point to­wards a mar­ket econ­omy. This trend ad­vo­cated shock ther­apy to

pro­mote im­me­di­ate trade lib­er­al­iza­tion, large- scale pri­va­ti­za­tion and mar­ke­ti­za­tion within a coun­try cou­pled with sud­den re­lease of gov­ern­men­tal con­trol as well as with­drawal of state sub­si­dies and pro­tec­tions.

This prac­tice to­tally over­looked a large group of cap­i­tal-in­ten­sive state- owned en­ter­prises of great scale. Overnight re­form re­moved al­most all pro­tec­tions and sub­si­dies fu­el­ing th­ese en­ter­prises, which forced them to shut down im­me­di­ately, leav­ing a great num­ber of peo­ple out of a job and cre­at­ing so­cial in­sta­bil­ity. Dur­ing its 40 years of re­form and open­ing up, China has placed great im­por­tance on eman­ci­pat­ing the mind, seek­ing truth from facts and “cross­ing the river by feel­ing for stones,” which calls for prudence and prag­ma­tism in nav­i­gat­ing for­ward in un­fa­mil­iar ter­ri­tory. Large state- owned en­ter­prises were given nec­es­sary pro­tec­tions dur­ing China’s tran­si­tion pe­riod. At the same time, mar­ket ac­cess for China’s la­bor-in­ten­sive pro­cess­ing in­dus­try which had ad­van­tages over many coun­tries opened. Op­ti­miz­ing the avail­able cir­cum­stances, China’s la­bor-in­ten­sive pro­cess­ing in­dus­try em­braced de­vel­op­ment at a break­neck speed. Rapid de­vel­op­ment amassed cap­i­tal which grad­u­ally trans­formed China from a cap­i­tal-scarce coun­try to a cap­i­tal-rich one. Many in­dus­tries in China which pre­vi­ously lacked com­par­a­tive ad­van­tages be­came com­pet­i­tive quickly. En­ter­prises im­proved their vi­a­bil­ity by leaps and bounds. Due to th­ese changes, the Third Ple­nary Ses­sion of the 18th CPC Cen­tral Com­mit­tee held in 2013 made the de­ci­sion to com­pre­hen­sively deepen re­form and pointed out that China must deepen eco­nomic sys­tem re­form by fo­cus­ing on the de­ci­sive role of the mar­ket in al­lo­cat­ing re­sources.

Look­ing back across the 40 years, ex­pe­ri­ence that will en­hance China’s fu­ture de­vel­op­ment is pro­vid­ing guid­ance. First, to re­al­ize high- qual­ity de­vel­op­ment, com­par­a­tive ad­van­tages must be op­ti­mized to cre­ate com­pet­i­tive ad­van­tages. China is now a mid­dle-in­come coun­try. Its per capita GDP at mar­ket ex­change rates is around US$8,100, com­pared to the United States’ fig­ure of around US$57,000. The big gap il­lus­trates China’s com­par­a­tively back­ward la­bor pro­duc­tiv­ity com­pared to de­vel­oped coun­tries, and China is still sit­ting on abun­dant late­comer’s ad­van­tages yet to be ex­plored. Sec­ond, China should con­tinue to eman­ci­pate the mind and seek truth from facts. As the largest de­vel­op­ing coun­try in tran­si­tion on the planet, China must stead­fastly pro­mote the eman­ci­pa­tion of mind and the value of truth. It should keep in­no­vat­ing in prac­tice rather than sim­ply copy­ing ex­pe­ri­ences or the­o­ries from de­vel­oped coun­tries.

If China can achieve both of the two points as men­tioned above, its eco­nomic de­vel­op­ment can im­prove in qual­ity while main­tain­ing a rel­a­tively high speed. By 2035, the coun­try will ba­si­cally re­al­ize so­cial­ist mod­ern­iza­tion, and by the mid­dle of this cen­tury, China will be­come a great mod­ern so­cial­ist coun­try that is pros­per­ous, strong, demo­cratic, cul­tur­ally ad­vanced, har­mo­nious and beau­ti­ful. Na­tional re­ju­ve­na­tion is a dream for all Chi­nese peo­ple. And pre­sum­ably every de­vel­op­ing coun­try has the dream of be­com­ing a mod­ern, in­dus­tri­al­ized and high-in­come coun­try. Com­pared to de­vel­oped coun­tries, China’s ex­pe­ri­ence and the­ory carry more ref­er­en­tial sig­nif­i­cance for other de­vel­op­ing coun­tries.

A renowned econ­o­mist, the au­thor is hon­orary dean of the Na­tional School of De­vel­op­ment and dean of the In­sti­tute of South- South Co­op­er­a­tion and De­vel­op­ment at Pek­ing Univer­sity.

Work­ers busy at the sewage treat­ment zone of Taiyuan Iron & Steel Group. Dur­ing China's 40year re­form and open­ing up, the coun­try's en­ter­prises have been striv­ing to re­form and in­no­vate and have grad­u­ally be­come strong and ma­ture. by Yan Yan/ Xin­hua

March 11, 2014: Builders of the Shanxi-shaanxi Yel­low River Su­per Large Bridge. Over the past 40 years, China has at­tached great im­por­tance to in­fra­struc­ture con­struc­tion. IC

Work­ers at a cloth­ing fac­tory. In the early stage of China's re­form and open­ing up, the la­bor­in­ten­sive pro­cess­ing in­dus­try played an im­por­tant role in terms of help­ing the coun­try re­al­ize high-speed eco­nomic growth. by Zhang Heping

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