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How Did China Take Off?

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  • Yasheng Huang
Abstract
There are two prevailing perspectives on how China took off. One emphasizes the role of globalization—foreign trade and investments and special economic zones; the other emphasizes the role of internal reforms, especially rural reforms. Detailed documentary and quantitative evidence provides strong support for the second hypothesis. To understand how China's economy took off requires an accurate and detailed understanding of its rural development, especially rural industry spearheaded by the rise of township and village enterprises. Many China scholars believe that township and village enterprises have a distinct ownership structure—that they are owned and operated by local governments rather than by private entrepreneurs. I will show that township and village enterprises from the inception have been private and that China undertook significant and meaningful financial liberalization at the very start of reforms. Rural private entrepreneurship and financial reforms correlate strongly with some of China's best-known achievements—poverty reduction, fast GDP growth driven by personal consumption (rather than by corporate investments and government spending), and an initial decline of income inequality. The conventional view of China scholars is right about one point—that today's Chinese financial sector is completely state-controlled. This is because China reversed almost all of its financial liberalization sometime around the early to mid 1990s. This financial reversal, despite its monumental effect on the welfare of hundreds of millions of rural Chinese, is almost completely unknown in the West.

Suggested Citation

  • Yasheng Huang, 2012. "How Did China Take Off?," Journal of Economic Perspectives, American Economic Association, vol. 26(4), pages 147-170, Fall.
    • Handle: RePEc:aea:jecper:v:26:y:2012:i:4:p:147-70
    Note: DOI: 10.1257/jep.26.4.147
    as

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.4.147
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    References listed on IDEAS

    as
    1. Huang,Yasheng, 2008. "Capitalism with Chinese Characteristics," Cambridge Books, Cambridge University Press, number 9780521898102, October.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics

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