China’s Economic Development

China’s Economic Development

Institutions, Growth and Imbalances

Lu Ming, Zhao Chen, Yongqin Wang, Yan Zhang, Yuan Zhang and Changyuan Luo

The authors identify three major factors in the growth of the Chinese economy: economic decentralization and political centralization; the urban–rural divide; and relational society. These are explored in depth via analyses of factors including urban and rural economic development and their political and social foundations, industrial agglomeration, transitions of public services and governmental responsibilities towards them and developmental imbalances and mechanisms. It is illustrated that whilst contemporary China has obviously made great economic strides, a wide variety of problems are accumulating over time. The book concludes that following three decades of high economic growth, China now faces great challenges for sustainable growth, and the institutions of China’s economy have reached a critical point. Strategies for dealing with these challenges and requirements for the successful future development of China are thus prescribed.

Chapter 7: Appropriate institutions and sustainable growth: China’s development and its worldwide significance

Lu Ming, Zhao Chen, Yongqin Wang, Yan Zhang, Yuan Zhang and Changyuan Luo

Subjects: asian studies, asian development, asian economics, development studies, asian development, development economics, economics and finance, asian economics, development economics


China’s economy has grown at an average yearly rate of nearly 10 percent over the past 30 years. This is practically a miracle for a developing country with a large population, extensive territory, and large-scale economy. The 30 years of rapid economic growth were caused by large-scale, market oriented reform and opening-up under a governance structure with uniquely Chinese characteristics. Neglecting to acknowledge these characteristics would impede further understanding of China’s developmental path and the future of this Chinese-style socialist market economy. In this book, we have presented a development model with three core elements to illustrate the past and future of China’s development: appropriate institutions, and imbalanced economic growth and development. China’s economic growth has involved the establishment of appropriate institutions adapted to the early stages of economic development under the decentralized governance structure and relationship-based social structure. Economic decentralization (fiscal decentralization) has given local governments incentives to develop the economy. The Party’s leadership promoted political utility and integration of the economy. The relationship-based social structure was able to reduce transaction costs during the early stages of economic development. Market-oriented reform and opening-up were both challenged by development imbalances.

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