The rapid changes and substantial development of China during the past 70 years is indeed rare and remarkable in human history. In just four decades since 1979, China’s GDP increased from 4.9 percent of the global GDP to more than 18 percent.
It is therefore important to summarize the country’s experience in the 70 years since the founding of People’s Republic of China. Analyzing the right and wrong moves China has made during those seven decades will enhance the understanding and clear the doubts of the international community about China, and help other countries to learn from its best practices.
But China’s economic performance in the past four decades has been remarkably better than in the first three decades.
Still, two valuable lessons can be learned from the first three decades of new China. First, the basic education, healthcare and infrastructure sectors developed in the first 30 years formed the cornerstone of China’s long-term development, producing far-reaching benefits. And second, independent innovation is possible if a country can attract and cultivate talents, as well as remains open to absorbing new ideas from the rest of the world.
The lessons of the last four decades are equally valuable. First, fast-growing enterprises drive economic growth. A country should have the courage to let zombie enterprises exit the market. And it is important, as governments at all levels do, to support up-and-coming enterprises. For instance, some economic development zones in Zhejiang province have a large maneuvering space and can offer a preferential tax policy to enterprises, which act as a strong impetus for them to develop their economies and attract businesses.
Second, it is important to regulate the transfer of land use rights. Some local governments used to rely on revenues from the transfer of land use rights, which gave them the advantage of making quick and big money. That had to change, especially because some local governments used land for industrial and business purposes, instead of constructing residential buildings.
Third, further reform is needed in the financial sector to maintain macroeconomic stability. China has maintained financial stability and prevented big crises since the launch of reform and opening-up because of stability of the financial sector and the macro-economy. It is also important to maintain the long-term stability of the financial sector to enable Chinese people and enterprises to enjoy their financial assets without fear of the volatility.
Fourth, further opening up of the economy is crucial, because it’s important to learn from other countries’ experiences. The United States’ history is an apt example of this. After the American Civil War, when the US was isolated from the international community and Britain stopped the export of its scientific and technological know-how to the US, a textile mechanic fled from Britain to the US. Without a single drawing, he managed to use his eidetic memory to recreate British textile machines. The prototypes, which are still kept in a museum, earned him the title of “the father of American industrialization”. Learning is the law of the development.
Fifth, prudent macro-management is critical. In the initial stage of reform and opening-up, the government realized it was necessary to check violent market fluctuations. Irrational market competition usually leads to irrational decisions by individual enterprises and zero-sum results. In good times, all companies scramble for more profits. In bad times, none takes a bow and lets it go. It is always about “everyone-for-one”.
That’s why the government has rolled out measures such as tightening banking regulations for certain markets, and used some administrative tools to phase out or close down some enterprises that violate rules. It has also introduced flexible but prudent management rules for the real estate market, and implemented higher education reform so more students can enroll in colleges. All these reforms play their due roles in macroeconomic management.
China has achieved an economic miracle especially in the past four decades. And while cherishing the precious achievements, it should also draw lessons for them to propel development in the future.
The author is chief economist at New Development Bank and founding dean of the Academic Center for Chin’s Economic Practice and Thinking (ACCEPT), Tsinghua University.The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
Adopted from China Watch