Institutions, Growth and Imbalances
Chapter 7: Appropriate institutions and sustainable growth: China’s development and its worldwide significance
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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