China

Forty years ago in December, Deng Xiaoping delivered his historic speech "Emancipate the mind, seeking truth from facts and unite as one to face the future." This triggered four decades of reforms that have transformed China into the world’s second largest economy.  By some time in the next decade, China will be among the few countries in the world that will have transitioned from low income to high income status since World War II. 

Understanding the path China traveled, the circumstances under which historical decisions were made, and their effects on the course of China’s economy will inform future decision makers.  Increasingly, this reflection is important to the rest of the world as more and more countries see China as an example to emulate.  At the 19^th Party Congress in November 2017, China accepted this mantle for the first time since the onset of reforms.

In some ways, China’s reforms were fairly mainstream.  The country opened up for trade and foreign investment, liberalized prices, diversified ownership, strengthened property rights, kept inflation under control, and maintained high savings and investment.  But this is simplifying the reforms and obfuscates the essence of China’s reforms: the unique steps China took reforming its system are what makes its experience of interest (see the Annex). Its gradual approach to reform was in sharp contrast to Eastern Europe and the former Soviet Union.  Although often compared, China and other transition countries were simply too different in terms of initial economic conditions, political development, and external environment.  

Predominantly rural and among the poorest nations on earth, China was marred by the failure of the Great Leap Forward and the political disruptions during the Great Proletarian Cultural Revolution. Integration into the global economy was minimal. Industry was inefficient, but also far less concentrated than in Eastern Europe and the former Soviet Union.  Perhaps most importantly, because China retained political continuity, the country could focus on an economic and social transition instead of a political one.

Comparison with much of the Latin American reforms also seems out of place. Brazil, Mexico and Argentina were far closer to a market-based system than China, and their reforms—liberalization and macroeconomic stability—were focused on macroeconomic stabilization, whereas China’s reforms aimed for a transformation of the economic system as a whole.  So there is no need to juxtapose the “Washington Consensus” with a “Beijing Consensus:” the approaches taken served very different purposes indeed.