Summary
Highlights
Despite not being legally recognized by the constitution until the early 21st century, China's private sector grew from virtually nothing to produce over half of the GDP. This rapid, informal rise of the private sector, even before its formal legalization, is considered the true 'China miracle'.
China's economic reform started from institutions inherited from the Cultural Revolution, specifically a 'regionally decentralized totalitarian system' where local governments control resources and manage their economies. This sets the stage for understanding China's unique economic trajectory.
China's rise is significant due to record-breaking GDP growth and the largest poverty relief in history over 30 years. However, its per capita GDP remains much lower than the US and even the Soviet Union at its peak, indicating that claims of China being a superpower can be exaggerated given its starting point as one of the poorest nations.
Before reform, China saw no substantial economic catch-up, with per capita GDP remaining around 5-6% of the US level. The reform marked a departure from disastrous movements like the Great Leap Forward and Cultural Revolution, emphasizing a change in economic organization.
China's system, often mistakenly equated with the Soviet centrally planned economy, diverged significantly after 1958. It evolved into an 'administratively planned' system, or a 'regionally decentralized totalitarian system,' where local governments manage substantial resources and economic activities, differing from a truly centralized model.
Early economic reforms leveraged 'regional competition,' a unique form of tournament competition among local governments striving for top rankings, initially based on GDP growth. This mechanism proved highly effective in promoting economic reform and growth, especially in the early stages.
The first successful reform was in agriculture, involving partial privatization of land use rights, which spurred an industrial revolution in rural areas. This led to the growth of Township and Village Enterprises, becoming the largest sector by the mid-1980s and forming the foundation for the private sector.