Many government decisions about production and

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many government decisions about production and pricing. State-owned enterprises are slowly being exposed to market forces. The number of prices set by the government has fallen dramatically. Most early reforms focused on the rural economy. Large collective farms were broken up, and responsibility for agricultural decisions was given back to households. The government raised rural incomes by relaxing severe price controls on agricultural products. New rural businesses were permitted to open, and they were encouraged to operate on market principles. Many of these new businesses were owned by local governments, but some were privately owned. Because the agricultural sector had been so repressed, freeing it up produced immediate payoffs. Between 1981 and 1984, agriculture grew by about 10 percent per year, largely because the shift to family farming improved incentives. The increased incomes in the agricultural sector built momentum for further, more difficult: reforms. The increased income and savings from the improvement in agriculture were used to ease the transition in other sectors of the economy.
By 1984 reforms had spread to urban areas. Local governments were granted more authority, and the banking system took over part of the government's role as a source of finance. High savings rates occurred, along with gains in productivity that followed as labor moved from inefficient to more efficient jobs. Small firms, many privately owned, have been responsible for much of China's economic growth since 1990. In 1995, state-owned firms accounted for 40 percent of China's gross industrial output, down from 66 percent in 1985. Reforms also emphasized Chinese involvement with the rest of the world. Restrictions were progressively eased on trade. Trade policies now permit more foreign investment, helping Chinese industries to grow and modernize. Export growth in China has been phenomenal since these reforms were instituted. In 1995 the Chinese government instituted a tax reform program designed to raise new revenue to address future problems. For example, as the inefficient state-owned enterprises are made more efficient, many workers may be temporarily unemployed and in need of government assistance. The Chinese program of gradual reform looks spectacular. Unlike the former Soviet Union, China did not disintegrate as it under-took reform. Resources from reforms in agriculture cushioned the transition. Gross domestic product has grown at an average rate of over 9 percent a year since reforms began. This growth has resulted in many improvements in the lives of the Chinese people. According to World Bank reports, consumption levels have doubled, and the number of people living below the poverty line has declined by about 60 percent. The infant mortality rate has fallen from 48 per 1,000 live births in 1978 to about 35 per 1,000 today.

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