Perceiving Truth and Ceasing Doubts: What Can We Learn from 40 Years of China's Reform and Opening up?

• Date: 01 March 2018
• DOI: http://doi.org/10.1111/cwe.12234
• Published date: 01 March 2018
• Author: Fang Cai

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 1–22, Vol. 26, No. 2, 2018

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*Fang Cai, Senior Fellow, Chinese Academy of Social Sciences, China. Email: caifang@cass.org.cn.

Perceiving Truth and Ceasing Doubts:

What Can We Learn from 40 Years of

China’s Reform and Opening up?

Fang Cai*

Abstract

China’s reform, opening up and resultant economic growth in the past 40 years have

led to the accumulation of an immense array of experiences, which economists are

obligated to look into, analyze and theorize upon. In fact, the rich literature in this

area has positively assessed and documented China’s successful experiences. However,

theories that were established in Western countries have been applied as doctrine to

judge China’s experiences. By adopting an analytical framework unifying historical

logic and theoretical logic, the purpose of this paper is to reveal the unique Chinese

experience and its relevance to the general laws of economic development. Based on the

experiences of and in reference to research ndings about China, this paper chronicles

the process of reform, opening up and economic growth, and analyzes the nexus between

them. The study demysties how the incentive mechanism, the factor accumulation and

allocation system, market development, and macro policy environment reforms have

spurred China’s economic growth, structural changes and the increase in productivity.

The changes in development stage are examined and policy implications for further

reform are discussed.

Key words: Chinese economy, demographic dividend, reform and opening up

JEL codes: O40, O53, P11

I. Introduction

It has been commonly stated that the Chinese economic reform started in the late

1970s and the early 1980s. Taking two symbolic events as a milestone, one can more

specically mark the year 1978 to be the starting point of the reform.

First, the 11th Central Committee of the Communist Party of China (CPC) held

its 3rd Plenum from 18 to 22 December 1978. This meeting re-established the CPC’s

ideological line of emancipating the mind and seeking truth from facts, and the

Fang Cai / 1–22, Vol. 26, No. 2, 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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committee decided to shift the focus from political movement to economic development,

which laid the theoretical foundation for the reform and opening up.

Second, in the winter of the same year, Xiaogang, one of the poorest villages

of Fengyang County in Anhui Province, was determined to abandon the collective

production brigade, and became a pioneer for contracting the collectively-owned land to

households to work. Such a practice, later known as the household responsibility system

(HRS), spread nationwide in the early 1980s and led to the abolition of the People’s

Commune System that had existed for a quarter of a century. This reform should be

considered as the rst step away from the planned economy.

China initiated its economic reform and opening-up policy simultaneously. The

economic reform has been carried out in the course of opening up, on the one hand, and

the opening up has been implented through the reform, on the other. And the domestic

economic development and participation in economic globalization have marched

forward hand in hand.1

In July 1979, under the initiative of Deng Xiaoping, known as the chief architect

of China’s reform and opening-up policy, the central government decided to establish

“special export zones,” which were later renamed “special economic zones,” in

Shenzhen, Zhuhai and Shantou in Guangdong Province and Xiamen in Fujian Province.

This signaled the start of China’s opening up to the outside world.

Such an experiment, which was regionally implemented but had nationwide

signicance in the early period of reform, had successively extended to 14 large cities

in coastal areas in 1984, Hainan, the newly established province in 1988, and a host of

cities along the Yangtze River and interior border cities in the early 1990s. China has in

all directions embraced economic globalization with efforts from its application for the

resumption of the status of the contracting parties to the General Agreement on Tariffs

and Trade in 1986 to its accession to the World Trade Organization in 2001.

That is, China’s reform and opening up have lasted exactly 40 years, from 1978 to

2018. Confucian said: “At forty, I perceived truth and doubts ceased” (Jin, 2005, p. 4).2

This phrase implies that a wealth of empirical materials accumulated in and a sufcient

time span of 40 years can justify the correctness of the adoption of reform and opening-

up policy, and help generalize experiences into theory so as to guide future reform.

The rich experiences of the reform and opening up in China have been observed,

evaluated, interpreted and generalized by economists, Chinese and international, from

day one. While some of the scholarly research focuses on specic aspects of the reform

1The International Monetary Fund considered 1979 as the start year for China’s economic take-off (see IMF,

2006).

2This is an oft-recounted quotation in Confucian Analects.