Economic Reform 1979

Abstract:
Economic reforms were undertaken in China in 1979. These reforms were a matter of interest not only to the Chinese but to the rest of the world as well. The reforms focused on increasing foreign trade and providing more autonomy to enterprises. Reform measures in both agriculture and industry gave a major boost to the growth of the Chinese economy.
In 1979 Economic reforms were initiated for the first time in People’s Republic of China. A Communist country with a completely state-controlled economy, the economic reforms undertaken was a major experiment in the context of the socio-economic and political situation in China.

These economic reforms undertaken in 1979 under the leadership of Deng Xiaoping were of strategic importance to the rest of the world as well. The entire world was noticing closely as pro-liberalization reforms were being implemented within a socialist economy.

The way in which the economy of China would shape up as a consequence of reforms was a subject of immense interest and speculation among many.

Pre-reform period
The Chinese economy was traditionally a centrally planned economy.

Economic production was controlled by the state in terms of –
Resource allocation.
Production goals.
Price controls.

The significant features of the Chinese economy prior to reforms were –
Absence of private enterprises.
Bulk of the production in the industrial sector (nearly 75%) was from state owned industrial units.
Limited foreign trade. Only those items that could not be produced in China were imported.

The Chinese economy prior to reforms in 1979 was devoid of any significant growth, lacking in profit incentives and with a comparatively lower standard of living.
Economic Reforms 1979
In 1979, reforms were undertaken with a focus on readjustment of the economy. The primary objective of these reforms was to rectify the economic imbalances of the pre-reform period.

The goals of the economic reforms of 1979 were –
Rapid expansion of exports
Overcome deficiencies in specific industries like coal, electricity, iron and steel, transportation, etc.
Reducing the imbalance between light and heavy industries.

Reforms in Agriculture
Several reform measures were introduced in the agrarian sector of China as a part of the economic reforms of 1979. The contract responsibility system of production, introduced in these reforms turned out to be a major success. This new policy enabled the increase of incomes of the rural poor in arid and mountainous regions. In urban regions efforts were undertaken to free farmers’ markets. This initiate was taken up in certain proportions in the rural areas as well. Some families were given the opportunity to earn profits by producing scarce commodities or services. Such families were called “Specialized Households”.
Reforms in Industry
The major initiatives in the industrial sector during the economic reforms pf 1979 were –
Moro autonomy was given to enterprise managers.
The importance of planned-quotas declined significantly. This allowed enterprises to produce goods and services outside the state plans.
Rewards for higher productivity, like bonus, etc. was allowed.
Certain state owned production units were allowed to retain part of the profit. Instead of depositing the entire profits with the government, these units were allowed to pay a part of that as taxes and use the rest for distribution among workers as bonus and/or for reinvestment.
Collectively owned enterprises were encouraged. This helped, on the one hand to decrease unemployment and on the other, to increase investment in light industries.
Individual enterprise was allowed.
Foreign trade was encouraged. Individual enterprises in China were allowed to negotiate directly with foreign firms.
Results of Reforms
As a result of the economic reforms initiated in 1979, subsequent consistent reforms thereafter, the Chinese economy experienced high growth. China’s GDP has grown at an average rate of 9.6% from 1979 to 2005. China is now being considered to have the potential to become the world’s largest economy in near future. Chinas rapid economic growth is attributed to large scale investment and high rate of productivity, both of which are direct outcomes of economic reforms.

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Last Updated on : 26th June 2013

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