Institutions, Growth and Imbalances
Chapter 2: Political and social foundations of economic development
During the 30 years that have passed since China first introduced its reform and opening-up policies, its economy has developed rapidly. China’s economic miracle has received increasing levels of recognition from the international community, and economists continue to explore its possible causes and implications. To understand the development of China as a large country, we must first understand the behavior of the local governments. In a large country, the central government faces enormous governance costs. China’s central–local relationship involves economic decentralization. Politically, China espouses unified leadership in order to execute policies effectively and ensure the political unification of the country. As early as 10 years ago, it became clear to many economists that China’s economic performance had outstripped Russia’s. Economic decentralization and political centralization are both considered important causes of China’s economic success (Blanchard and Shleifer, 2001). The uniqueness of the Chinese economic system can be traced back to the period of planned economy, when China basically copied the Soviet Union’s economic system. However, China paid more attention to the initiative of the local authorities rather than emphasizing the accuracy of central plans, as in the Soviet Union. It could be said that decentralization began shortly after the foundation of the People’s Republic of China, even though it changed over time.
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