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China’s reform: 'Change the system, open the door'

David Dollar's picture

Chinese farmers prospered under the return to the household responsibility system. Nationwide, grain production jumped 20 percent as a result of strengthened incentives.
Last week was the 30th birthday of the launching of China's reform and opening up. During the week I got to travel around rural Sichuan with World Bank President Bob Zoellick. The purpose of the trip was to visit the earthquake-devastated Beichuan town and to see the reconstruction efforts, which will be supported by a $710 million loan from the World Bank. Mara Warwick described our visit on her blog.

With our visit falling during the week of the 30th anniversary, I naturally thought of my first trip to rural Sichuan. After teaching at the Chinese Academy of Social Sciences in the spring of 1986, I traveled around the country by myself for about a month. The highlight was traveling by local bus through rural Yunnan and Sichuan.

China's reform started in the countryside with the breakup of the commune system and the return to family farming under the "household responsibility system." In 1986 the reform was eight years old and had already achieved vast accomplishments. I particularly remember an all-day bus ride sitting next to a Sichuan woman, who graciously shared her "thousand-year-old eggs" (that’s the name, not the actual age). She was very enthusiastic and talkative about the reforms. Under the old system everyone got a share of the crop, whether they worked hard or not. She was quite bitter about that. And there was no scope for individual initiative.

Under the household responsibility system, her family had prospered. Hard work and investment yielded gains that the family could keep. Nationwide, grain production immediately jumped 20 percent as a result of these strengthened incentives. We now know from household survey data that the poverty rate was cut by 50 percent in the short period from 1981 to 1987. The woman from Sichuan illustrated another important part of the reform: While other family members farmed their land, she was traveling around, buying simple manufactures in the city and selling them in remote towns for a small margin. The reform opened up scope for off-farm activities, and this became an important source of income for rural families.

Chinese call their reform "gaige kaifang," which translates as, "change the system, open the door." Change the system means to strengthen property rights and incentives so people benefit from their hard work and investment. Open the door means connecting to markets, both the international market, but more important initially, connecting to domestic markets. This one woman from Sichuan had taken advantage of the changed system and opened door to make her family's life much better. I think the most important lesson from China's reform is the power of incentives and connectivity to markets. I often think of the bus-mate who made that concrete for me.

Another important aspect of the open door policy is more information exchange between China and the rest of the world. As I traveled through the countryside in 1986 I reached quite a few towns and villages where people had never seen a Westerner before. It is hard for people today – even young Chinese – to realize how isolated the country was.

The woman on the bus asked me a lot of questions about the U.S.A. At one point she asked me if America had had a revolution.

"Yes," I replied.

"So, you're governed by a communist party too?" was her reaction.

I tried to explain our revolution and our electoral system, though the effort was a bit beyond my Chinese language abilities at the time.

The contrast between then and now in terms of access to information is striking. During the recent U.S. presidential election, many ordinary Chinese followed the campaign closely. By the same token, many more foreigners are studying Chinese and learning about the country. As we foreigners interact more with China, I urge all of us to study the country’s history, especially over the past century. It is impossible to appreciate the achievements of reform and opening up without some understanding of the situation pre-reform.

Image credit: autanex at Flickr under a Creative Commons license.

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