Pragmatic approach to dealing with reform pays off with remarkable results in GDP growth

Around 1990, when the Chinese economy had been steaming ahead at an annual growth of 9 percent for 10 years, many scholars did not believe such momentum could continue much longer, economist Justin Yifu Lin recalled in a 2011 speech.

But China continued to grow at a similar pace for another three decades, with average GDP growth hitting 9.4 percent from 1978 to 2018, the fastest in the world.

Today, no one denies that remarkable achievement can be attributed to the country's reform and opening-up drive, launched in the late 1970s, but before making that historic move the country had taken great pains to search for a way out of poverty and underdevelopment after the founding of the People's Republic of China in 1949.

Back then, the country was poor and economically underdeveloped, with a vast number of people trapped in poverty. China's economic output was basically stagnant from 1913 to 1950, with GDP growth averaging - 0.02 percent compared with the global average of 1.82 percent.

To shake off poverty and achieve rapid development, the newly founded People's Republic of China opted to build a centrally planned economic regulatory system. Although the planned system ended up throttling the vitality of labor and production and failed to distribute resources efficiently, China nevertheless achieved much faster growth under it and built a relatively comprehensive industrial system that laid a foundation for its economic takeoff in the early 1980s.

From 1952 to 1978, China's annual GDP growth averaged 4.4 percent, slightly lower than the global average of 4.6 percent.

By the end of the 1970s, policymakers had become fully conscious of the defects of the planned economic system and the harm of previous political movements, which severely disrupted normal economic activities. As a result, they shifted focus to economic development and embarked on a new road - market-oriented reform - in an attempt to accelerate growth.

The road proved bumpy, but it paid off. By encouraging farmers to increase agricultural output through the household contract responsibility system, gradually liberalizing the State sector, allowing private enterprises to grow, and ushering in foreign investors, China managed to achieve a GDP growth rate of 9.4 percent from 1978 to 2018.

"The growth was unprecedented," said Cai Fang, economist and deputy head of the Chinese Academy of Social Sciences. "It enabled China to catch up miraculously in 40 years."

Martin Raiser, World Bank country director for China, said: "China's growth is indeed remarkable both for the speed and duration of its high-growth phase. No other country has grown that fast for so long."

Now the country is the world's second-largest economy, the largest exporter of goods, and the second-largest global investor in terms of outbound direct investment value.

It is also the largest contributor to global growth, accounting for about 30 percent of the annual expansion of the world economy.

On the poverty alleviation front, China has reduced the number of poor people by 740 million in the past four decades.

The significance of China's economic success lies not only in its contribution to global growth or the cause of poverty reduction, but also because it provides a model for other countries to learn from to improve their governance.

"Maybe the best lesson that countries can learn from China is that there are no one-size-fits-all development models," Raiser said. "Each country should carefully study available experience and adapt policies to fit its own needs."

He said other countries may not have the same conditions for economic growth as China, such as high savings rates and a solid stock of human resources, and should therefore not blindly copy China's model.

Unlike some countries, China has opted not to totally replace the government's role in resource allocation with that of the market. Instead, it has adopted a mixed system in accordance with its own conditions to reduce opposition to reform while ensuring high, market-driven growth.

Lin, former World Bank chief economist, said China's way of dealing with reform was a "pragmatic approach".

"The result was to achieve transition without tears," he said. "It was based on the government's recognition that big-bang reforms could be self-defeating. It was necessary to let private enterprises prosper wherever feasible, but to continue to support important State-owned enterprises while reforming them gradually."

Cai said China's experiences in reform and opening-up and development, and its constructive suggestions for global development-oriented rule-setting and governance constituted a contribution of public goods to the world.

"China does not seek hegemony, nor does it export its development model, but ... its development, wisdom and solutions are very important for the world," he said.