The economic reform of the 1980s in China was a dramatic period of transformation and upheaval that was initiated by the Chinese Communist Party and is often referred to as the “Reform and Opening Up” or “Reform and Liberalization”. The party sought to overhaul the existing planned and centrally-controlled economy to permit some degree of market-oriented principles and practices.
Prior to the reform, the Chinese economy was characterized by severe shortages, low labor productivity, low agricultural output, inefficient allocation of resources, and a wide disparity between urban and rural incomes. To improve the country’s weak economic performance, the Chinese government adopted the reform in 1978 under the leadership of Deng Xiaoping with the purpose of encouraging foreign investment, international trade, and technology transfers.
In order to effect this major transition, Deng Xiaoping implemented four important strategic changes: reforms in the market and pricing system, gradual liberalization of foreign trade and investing, decentralized decision-making, and an emphasis on science and technology.
The most significant of these reforms was the shift towards a more market-oriented system. This allowed for the introduction of supply and demand in the economy, providing private enterprise an opportunity to allocate resources more efficiently. Prior to the reform, a fixed pricing structure had been imposed by the government which allowed for little flexibility. By introducing competition into the market, prices were allowed to fluctuate based on supply and demand conditions, providing enterprises greater incentives to produce goods with greater efficiency. In addition, it provided citizens with better access to goods and services.
The second strategic policy implemented was the liberalization of foreign trade and investment policies. It established Special Economic Zones (SEZs) where foreign investments could be made with relative ease. This encouraged the influx of foreign capital, expertise, and technology, allowing for further economic growth throughout the country. Additionally, it allowed for the Chinese government to reap the benefits of increased foreign revenue, albeit at the expense of internal productivity.
The third strategic change addressed the decentralization of decision-making authority. The localized management of factories and enterprises gave managers the responsibility to take actions independently. Furthermore, it allowed firms to pay higher wages to attract and retain quality labour, while still allowing state institutions to maintain ideological control over their operations.
Finally, the reform placed great emphasis on science and technology. This allowed China significantly expand its technological capabilities, allowing it to become more competitive globally. Specifically, the government sought to invest in computers, telecommunications, and other high-tech fields in order to become a leading industrial power.
The decade-long reform of the 1980s ultimately paid off for China. By 2000, the country had become one of the fastest growing economies in the world with an average annual GDP growth of 9.7%. The reform drastically changed the country’s social and economic fabric, offering greater choice, opportunities, and prosperity for its citizens.
The economic reform of the 1980s in China has had far-reaching and far-lasting effects. It has ushered in an era of economic liberalization, increased foreign investment, greater domestic consumption, job creation, and improved standards of living. Despite some short-term economic disruptions caused by the reform, the benefits have outweighed the costs. Ultimately, the reform has allowed China to become one of the largest and most powerful economies in the world.