China’s Miracle

• DOI: https://doi.org/10.13169/worlrevipoliecon.12.2.0150
• Published date: 01 July 2021
• Date: 01 July 2021
• Pages: 150-180
• Author: Fusheng Xie,Xiaolu Kuang,Jiateng Wang
• Subject Matter: transformation,reform and opening-up,China,political economy

WRPE Produced and distributed by Pluto Journals www.plutojournals.com/wrpe/

CHINA’S MIRACLE

From the Perspective of Political Economy

Fusheng Xie, Xiaolu Kuang and Jiateng Wang

Fusheng Xie (left) is Professor at the School of Economics and the

National Research Centre for the Political Economy of Socialism

with Chinese Characteristics, Renmin University of China. Email:

xiefusheng@ruc.edu.cn

Xiaolu Kuang (right) is a PhD student at the School of Economics,

Renmin University of China. Email: kxl696401@163.com

Jiateng Wang, the corresponding author, is a PhD student at the

School of Economics, University of Massachusetts, Amherst,

USA. Email: wjiateng@umass.edu

Abstract: We construct a framework for the interaction between economic system

reform and the technological-economic system in order to analyze the dynamic

process of China’s economic transformation and development. China has passed

through three major phases of economic system reform, which have involved

reforming the commodity economy through planning, establishing the socialist

market economic system, and improving the socialist market economic system.

Correspondingly, China has gone through three technological-economic systems,

which may be summed up as: “quantitative subsistence consumption and extensive

production without technological progress,” “qualitative subsistence consumption

and extensive production with technological progress,” and “standardized mass

consumption and mass production.” Since 2012, China’s economy has entered the era

of a “new normal,” characterized by lower growth rates. This indicates a fundamental

shift in the patterns of social demand away from the current technological-economic

system that is growing incapable of sustaining rapid capital accumulation and thus

needs transforming. To better explain China’s miracle, we focus on the ways in which

the contradictions within each technological-economic system have evolved and have

been resolved through targeted reforms to the economic system. Eventually, these

reforms will lead to a new system that facilitates further capital accumulation.

Keywords: transformation; reform and opening-up; China; political economy

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World revieW of Political economy vol. 12 no. 2 Summer 2021

Since the “reform and opening-up” initiated in 1978, China has sustained high

growth rates for over 40 years, significantly improving popular living standards.

The country is now home to a middle-income class of more than 400 million people.1

Many attempts have been made to explain the “China Miracle.” The most influen-

tial of these attempts have been based on market-oriented reforms, comparative

advantage, resource endowments, and tournaments between local governments.

First, the theory of market-oriented reform stresses the indispensable function of

the market in allocating resources. Insisting on the inherent inefficiency of the

centrally planned economy, proponents of this theory argue that a free market

represents the only way to avoid distortion of information in the allocation of

resources as well as to offer sufficient incentives (Zhang 2007; Li 2008; Zhou

2017). Second, comparative advantage theory argues that following attempts to

implement the costly practice of import-substitution industrialization, China even-

tually gave in and accepted the export-oriented mode of industrialization, fully

utilizing its comparative advantage in labor-intensive industries (Lin, Cai, and Li

1999). Third, resource endowment theory, which is in practice a more sophisti-

cated version of the previous explanation, stresses a number of other historical and

geographical factors, such as the virtually unlimited supply of labor, the geopoliti-

cal advantages of East Asia, cultural traditions, and the legacy of the planned

economy era (Goldstein 1995; Rawski 1995; Putterman 1995; Lardy 1995).

Lastly, tournament theory argues that the vital role of economic performance in

the promotion of government officials gave them incentives to compete with each

other at the local level to boost growth, especially after the public finance reform

of 1994 granted local governments a larger claim on tax revenues (Qian and

Weingast 1996; Zhang 2005; Zhou 2007; Zhang 2009).2

These prevailing explanations, though providing important insights, are not with-

out flaws. First, marketization does not necessarily lead to rapid growth, and many

countries that have abandoned the planned economy in favor of a free market have

not performed better.3 Second, China did not follow the classical mode of compara-

tive advantage. Even in the early stages of its reforms in the 1980s and 1990s, capital

and technology-intensive products made up a considerable portion of China’s

exports, a pattern that was to become more marked over the years (Lu 2001). What

is more, various other nations that have adopted an export-oriented path have not

experienced similar growth or upgraded their productive economies to include more

advanced industries.4 This phenomenon is often summarized as the middle-income

trap or premature deindustrialization. Third, endowment theory, despite partially

acknowledging the contributions of the planned economy era, tends to rely too much