1 - Introduction

Summary

Purpose of the book

China is in transition from a planned economy towards a market-oriented one. The economic reforms begun in the late 1970s have brought about remarkable economic growth, initially through transformations in the agricultural sector and subsequently through rapid export growth. The proportion of exports in the country's GDP has quadrupled in less than two decades, to 20 per cent in 1997. Whether China can sustain its rapid growth rate will depend heavily on the government's willingness to pursue further internal structural reforms.

Unlike its East European counterparts, economic reform in China has proceeded in a piecemeal manner, with the aim of establishing a ‘socialist market economy under state planning’. This goal has been poetically described by China's most influential economist, Chen Yun (1995):

The bird must not be held tightly in the hand or it will die. It should fly, but only within the cage: without a cage, it will just fly away. If the bird is a market economy, then the cage is state planning. Naturally, the size of the cage has to be appropriate.

While the reforms have not been sweeping, partly to avoid socio–political upheaval, keeping ‘the bird in its cage’ is inherently problematic. Recent economic growth has not been accompanied by significant labour market reforms within state enterprises, which have remained heavily over-staffed and inefficient. This book contends that achieving sustainable economic growth will require a more thorough overhaul of the current labour market arrangements.