THE P OST -M AO E RA IN C HINA
Edward J. Sappin
Chinese Economic Reform since 1978
April 21, 2003
India and China are the two nations with the largest populations on the planet. They are similar in many ways as both have diverse ethnic minorities, well-educated segments of their populations, and relatively stable governments. Nevertheless since 1978 China’s gross GDP and GDP per capita have grown at high levels while India has had a mixed record of economic growth. This has led to many people in India to call for its government to emulate Chinese economic reforms in the post-Mao period in an effort to increase growth. However, what works in one country rarely works in another; whereas India is a democratic nation, China is not and the basis from which each country has pursued economic growth over the past quarter century was significantly different.
This paper will examine briefly the major engines for economic growth and China and India’s experience and reforms in these areas over the last 25 years. After a recent economic history of the two countries, it will look at key statistics that highlight growth, provision of basic social services, the impact of the government on the economy, economic openness, and the banking system. We will examine China’s and India’s records in each area and seek to draw any lessons from the Chinese experience that may be applied to India. Finally, we will look at some of the fundamental differences between the two countries, and the challenges that they face in the future. It should be noted that this subject could easily be addressed in a paper double or treble in length of this one but the brief analysis provided here should help to shed some light on an important comparison.
After the establishment of the People’s Republic of China in 1949, it experienced uneven and sometimes negative growth rates in the pre-reform period up until 1978. The Great Leap Forward in particular was disastrous to the Chinese economy. Nevertheless, there were significant advances made in decreasing poverty and increasing life expectancy and literacy rates. Significant growth did occur, although it was below the average of the last half century1 India gained independence from
GNP per Capita Growth
England in 1947 and Prime Minister
Nehru set out a path of self-sufficiency
along the lines of Maoist China. As a
result, there was strong government
control over the economy.
solid growth during its first three decades,
but it lagged behind its neighbor to the
northeast in overall and per capita terms
as shown at right. Although both countries had periods of negative growth, India was able to avoid the massive famines that plagued China as a result of the Great Leap Forward.4 China launched on a path to economic reform in 1978. At the Third Plenum of the Eleventh Party Congress in December 1978, Deng’s reforms were introduced. The five major points were Incrementalism, a dual-track system of reform where elements of the private sector were introduced to an economy that was and still largely is state controlled, spurring dynamic internal changes, seeking foreign technical assistance as rapidly as possible, and learning by doing.5 The post 1978 period shifted the drivers of economic growth away from inputs and labor towards productivity.6
India has continued to set out government policy for the economy and is currently in its ninth five year plan. It achieved slow and uneven growth during the 1980s (GDP actually
declined in 1985), but notably, in 1991 India had a massive budget deficit crisis where it was almost bankrupt of foreign reserves and running a budget deficit of 8.4% of GDP. 7 . This emergency spurred a move toward major reform aimed at...