Economic Miracle

By Justin Yifu Lin

This year marks the 70th anniversary of the founding of the Peoples Republic of China （PRC）， which， under the leadership of the Communist Party of China （CPC） and the tireless efforts of the Chinese people， has been transformed from a backward agrarian country into the worlds second largest economy and biggest manufacturing powerhouse.

Over the past seven decades， Chinas economic development can be roughly divided into two periods. The fi rst period lasted from 1949 to 1978， when China adopted a planned economic system and strove to promote economic development through industrial modernization. During the sec- ond period that started at the end of 1978， China established and continues to improve a socialist market economic system by upholding reform and opening up， which has resulted in a miracle of economic development never seen before in human history. Chinas economy is transitioning from a phase of high-speed growth to a stage of high-quality development. This is a pivotal period for transforming the growth mode， improving the economic structure and fostering new growth drivers.

70 years of progress

In the period of the planned economy， China mainly followed the Soviet model of development with an aim to build a complete heavy industry system from scratch. Although this model could help a developing country quickly establish a modern industrial system， it also caused many problems in economic development. China formed a relatively complete modern industrial system in less than 30 years but continued to suffer unsatisfying industrial efficiency and comparatively low per-capita income. As a result， peoples living standards didnt see obvious improvement.

At the end of 1978， China became the first socialist country to transition from a planned economy to a market economy. But instead of following the neoliberal development theory that was the global mainstream at the time， it opted for an approach of promoting gradual dual-track reform through emancipating the mind and seeking truth from facts. Special economic zones were set up to create regional advantages to overcome bottlenecks in infrastructure and the business environment.

During the 1980s and 1990s， neoliberalism continued to prevail throughout the world. Neoliberal economists prescribed“shock therapy，” arguing that it was the only feasible roadmap for a planned economy to transition to a market economy. Some said that the gradual dual-track transformation adopted by China， in which both the government and the market played a role in resource allocation， was the “worst institutional arrangement” and predicted that it could result in more problems than a planned economy.

However， China has maintained rapid economic growth for the past 40 years and achieved what took developed countries hundreds of years to accomplish， creating a world-shaking development miracle. At the same time， Chinas understanding and deployment of reform has kept pace with the times. In 2013， the Third Plenary Session of the 18th CPC Central Committee adopted a decision to comprehensively deepen reform， which called for letting the market play the decisive role in allocating resources and the government play its functions better.

Currently， both China and the world at large are navigating profound and complex changes. China remains in an important period of strategic opportunity for development in which the prospects are bright but the challenges daunting. As Chinas economy enters a new normal of slower but more effi cient growth， the country needs to put its new development philosophy into practice， forge a modern economic system， pursue supply-side structural reform as its central task， and strive to embrace better quality， higher effi ciency and more robust drivers of economic growth through reform.

It needs to give full play to the role of an “effective market” and a “responsible government.” Even facing a relatively unfavorable external environment， Chinas economy can still grow through enhanced innovation and competitiveness and ensure the realization of the goal to complete building a moderately prosperous society in all respects by 2020 as it takes the Chinese people on a journey to fully build a modern socialist China.

Chinese wisdom

All mainstream economic theories in circulation today around the world were produced in developed countries. They exert global influence and some developing countries have formulated development and reform policies based on these theories. However， China has achieved rapid economic development with a mode that runs counter to the so-called mainstream theories， which should inspire retrospection in modern economics. In fact， almost every developing country that has formulated policies according to development theories from developed countries has been plagued by economic stagnation， crisis and even social turmoil. The primary reason is that these theories ignore the differences between developing and developed countries based on endogenous results of contrasting national conditions.

Chinas development over the past seven decades presents a gold mine to be explored by economists seeking theoretical innovation. Over the first 30 years of the PRCs founding in 1949， China showed few major differences from other socialist countries or developing countries as it followed the mainstream path of development of the times. However， it has blazed a new trail during the past 40 years of reform and opening up and created a never-before-seen economic miracle in human history， an achievement that cannot be explained with existing theories. The marvelous success of Chinas reform and opening up is absolutely worth further study with new theories.

To make Chinas experience in reform and opening up a source of inspiration for the theoretical innovation of economics， the best place to start would be to determine which factors produce the structural differences between China—a developing country—and developed countries. The industrial structures of countries with different degrees of development are endogenous， and every stage of development features different factor endowments. Such a structure determines a countrys industries with comparative advantages at each stage of development. Industries with comparative advantages coupled with appropriate infrastructure and a certain system arrangement will make a countrys industries more competitive. This development structure has proved optimal.

In terms of summing up Chinas experience in development with an aim at theoretical innovation， Chinese economists clearly enjoy a favorable position. China remains a developing country and has similar national conditions to other developing countries in the world. Compared to development theories from developed countries， Chinas solutions are better suited to help other developing countries seize opportunities and overcome difficulties as they promote industrialization and modernization and march toward the goal of economic prosperity.