Chinese economy

Since the period of the Great Leap, Chinese economy changed a lot. Year after year it acquired characteristics of the free market economy and derogated from the principles of direct planning. After the fall of the Gang of Four, the country started to shift towards the principles of free economy: managers’ credentials were increased, decision-making process was further delegated to the local authorities and the country started to eliminate foreign trade barriers. It was under the guidance of Hua Guofeng that the country entered the stage of institutional reforms and transformation. Deng Xiaoping who led China through the fundamental reform of the economic system continued his undertakings. Deng did not deny the postulates of communism but urged Chinese people to focus on socialism first. He said, “the fundamental task for the socialist stage is to develop the productive forces. The superiority of the socialist system is demonstrated, in the final analysis, by faster and greater development of those forces than under the capitalist system.” (WELLESLEY, 1984) After the Cultural Revolution the country was in ruins and was not only uncompetitive compared to the Western countries, but also uncompetitive compared to such Asian countries as Japan, South Korea, Taiwan and so forth. The period from 1979 to 1981 in Chinese economic history is called the period of readjustment. Many economic reforms were implemented during this period, with agrarian reform being the most important to the welfare of Chinese. The reforms were first tested in separate regions and, if proved successful, implemented on a national scale. One of such successful reforms was implementation of the contract responsibility system in agriculture. According to the system, each farmer family had to provide collective with a certain amount of good at a given price while the rest of the goods could be used to increase families’ welfare. Some families had the status of the “specialized household”, which gave them a right to produce scarce commodities on a profit-making basis. During the period of readjustments, the government simplified the procedure of establishing free farmer markets in the countryside and urban areas. This helped to overcome the hunger that was caused by using old communes system in the 1970-s.China started its policy of “grasping the large and letting the small go” by “giving local authorities the ability to restructure the firms, privatize them or, in the worst case, shut them down.” (NAUGHTON, Barry, 2006) A simplified taxation policy was implemented, which allowed the enterprises to pay tax on their profits instead of giving away all of them to the government. This allowed the industry to invest in itself and let the law of the “invisible hand”, described by Adam Smith, remedy the situation. Individual entrepreneurship, which is, in fact, a form of true capitalism was allowed as well. This step greatly increased the overall economic activity, with artisans filling the streets of the urban areas once again. China opened its borders, and even renamed its Ministry of Foreign Trade into the Ministry of Foreign Economic Relations and …