3 - China in Light of the Performance of the Transition Economies

Summary

INTRODUCTION

China's post-1978 economic reforms and the post-1989 economic transition in the former Soviet bloc and Yugoslavia provide a unique setting for comparing two paths of transformation of a communist economic system into a market economy. In both cases, the transition followed years of increasingly unsuccessful economic performance. Yet, the transition itself was very different in the two settings. In the case of China, economic growth has from the start exceeded most expectations. In the case of Central and East Europe (CEE) and the Commonwealth of Independent States (CIS), there was a precipitous and unexpected economic decline in the first three to eight years, with impressive growth thereafter. While China adopted a gradual approach and appears to have benefited from sensible policies and relative absence of adverse shocks, the CEE and CIS policymakers underestimated economic problems associated with a rapid transformation and made a number of questionable choices in the first few years of the transition.

In this chapter, I compare China's performance and future challenges with those of the CEE and CIS countries. In presenting data and examples from the CEE and CIS regions, I refer to all twenty-seven transition economies, but I focus primarily on comparing China's experience with that of the five Central European countries (the Czech Republic, Hungary, Poland, Slovakia, and Slovenia), three Baltic countries (Estonia, Latvia, and Lithuania), three Balkan countries (Bulgaria, Croatia, and Romania), and two CIS countries (Russia and Ukraine).