A planned economy was once regarded as one of the striking features of socialism and communism. The planned economic system adopted since 1950 has contributed substantially to the economic recovery and development of the new-born China, but its negative effects have also become increasingly clear over time.
1. The domestic economy was over-controlled, with no clear separation between the government and enterprise. The laws of value and the regulatory function of the market were neglected. The idea that everything should be planned failed to meet consumer needs and inhibited the development of commerce and economy. It was, at that time, considered the biggest bottleneck for China's economic growth.
2. Production was planned in terms of both item and quantity. Corresponding coupons were required to purchase these products (for example, food coupons to buy food). This made it difficult to buy necessary products with actual money.
3. Collective ownership of the means of production was applied to both distribution and sales of agricultural and industrial products. Private possessions were deemed illegal, personal profits had to be shared equally with others. This practice largely removed any incentives for producers and the economy soon became enfeebled as everyone still obtained an equal share regardless of the work done.
Reform and opening-up formed a vital part of the Deng Xiaoping Theory, and was a fundamental in building socialism. Reform falls within a wide range of areas, including economic and political. Economic reform focuses on transforming the highly-centralized planned economy to a socialist market economy. Political reform involves efforts to promote democracy, strengthen law enforcement, establish separation between government and enterprise, streamline government organs, perfect the system of democratic supervision, and safeguard stability and solidarity. Opening-up means opening to the outside world, and also opening to the domestic market in a wider sense. Reform and opening-up is the basic stance of the CPC in the primary stage of socialism and also an inherent requirement to build a more prosperous China. It has generated extensive and far-reaching implications for China's economic development.
The Report to the 17th National Congress of the CPC points out that reform and opening-up is a new revolution that involves the participation of all the people under the leadership of the CPC in the new era. By doing so, we can unleash and develop social productive forces and modernize the country; by doing so, the texture of life can be upgraded for the people and we can achieve great rejuvenation of the Chinese nation; by doing so, the socialist system in China can be ameliorated through self-improvement and development, and socialism will be injected with new vitality, so that socialism with Chinese characteristics can be further perfected; by doing so, the cause of Party building can yield new fruits as China makes greater strides over the course of development, so that the CPC can always stick firmly to its principles, keep its vigor and develop new visions in the new century.
Initiation of the Reform
Before 1978, Xiaogang Village, Fengyang County, Anhui Province, was known for its poverty. It had to rely on re-sold grains (at that time grains were bought by the state then re-sold to areas undergoing a grain shortage) for food, rely on financial subsidies for money and on government loans for production. Every household had to beg for a living after the autumn harvest. On November 24, 1978, 18 families in the village made bold attempts to implement the household contract responsibility system, and this marked the beginning of China's reform in rural areas. Meanwhile, the Third Plenary Session of the 11th Central Committee of the CPC was inaugurated in the Great Hall of the People in Beijing. The overlap of these two events can be considered a historical coincidence that created a defining moment on the destiny of the Chinese nation. Senior government officials, represented by Deng Xiaoping, and those farmers jointly added a new and significant chapter to Chinese history. Xiaogang Village became known as the cradle of China's rural reform.
Reform of State-owned Enterprises Following reform there were a host of cases concerning bankruptcy and embezzlement in state-owned enterprises. Some of the state-owned enterprises were acquired by their former managers, which resulted in the laying off of many employees.
Secondary industry and labor-intensive industry were the pillars of the economy. The expansion of college enrolments in 1998 created a shortage of workers in the market. The surplus of college students and technicians also led to a large number of laid-off college students. In addition, after the reform and opening up, excellent teaching staff and academics poured into the eastern coastal area which enjoyed greater economic strength than the central and western regions. Problems were compounded when the better schools began to charge additional fees, which was a grave disadvantage to those students who were unable to meet admission requirements or pay the higher fees.
China's real estate market has accelerated since the mid-1990s following the abolition of the welfare-oriented public housing distribution system. After tax reform in 1993 the central government collected 70% of local revenue, but expenditure on education, infrastructure and healthcare remained the responsibility of local government. Consequently local governments put up land for sale to make up for the loss of financial revenue. Under these circumstances government involvement, capital flow from the banks and other factors have all contributed to ballooning house prices.
According to the report released by Reuters, based on the numbers publicized by the National Bureau of Statistics of China, China's Gini Coefficient (which measures national income distribution) reached 0.474 in 2012, as opposed to 0.491 in 2008. Although China's GDP has witnessed explosive growth since the reform and opening up, the proportion of wages in GDP has decreased, dropping from 56.18% in 1985 to 43.12% in 2007, a continuous decline in 22 consecutive years.
1. The establishment of Special Economic Zones in 1979
On July 15, 1979, the State Council approved and endorsed the report submitted by the provincial Party committees of Guangdong and Fujian, aiming to adopt preferential policies and flexible measures to reinvigorate foreign trade. They decided to establish pilot economic zones in Shenzhen, Zhuhai, Shantou and Xiamen. On August 13, the State Council promulgated a series of measures to increase foreign trade and foreign exchange earnings by authorizing local governments and enterprises to conduct foreign trade, increase export and establish well-managed special export zones. On May 16, 1980, the Central Committee of the CPC and the State Council approved The Minutes of the Meetings Held by Guangdong and Fujian Provinces, and decided to grant the official name "Special Economic Zone" to the export zones.
2. The establishment of the Household Contract Responsibility System in 1982
On January 1, 1982, the Central Committee endorsed The Minutes of the Meeting on the Administrative Work in Rural Areas. According to the minutes, the rural responsibility systems, including quota remuneration, contractual remuneration and other methods of payment, are all incorporated into the responsibility system for production. In 1983, the document issued by the central government pointed out that the contract responsibility system was a great invention made by the vast majority of the Chinese farmers under the leadership of the CPC, and also a fresh development of the Marxist theory of agricultural cooperation in China.
3. The Planned Commodity Economy adopted in 1984
On October 20, 1984, the Third Plenary Session of the 12th Central Committee of the CPC was held in Beijing. The session unanimously approved The Resolution on Carrying out Economic Reform, pointing out that further efforts should be pooled to implement the policies to reinvigorate the economy and openg up to the outside world, and also to focus on urban economic reform, as current national conditions demanded. The primary tasks of the reform included building socialism with Chinese characteristics, establishing a dynamic socialist economic system, and giving a strong impetus to social productive forces.
4. The initiation of reform in enterprises owned by the whole people in 1986
On December 5, 1986, the State Council endorsed The Provisions on Deepening Enterprise Reform to Boost the Vitality of Enterprises. As stipulated in the provisions, large state-owned enterprises (ie owned by the whole people) may adopt such modes of business operation as lease management and contract management, while the medium state-owned enterprises may adopt a variety of responsibility systems in business cooperation. At the local level, well-positioned state-owned enterprises, both medium and large, may carry out reforms to their shareholding systems.
5. The idea that "science and technology constitute the primary productive force" was put forward in 1988
On September 5, 1988, Deng Xiaoping advanced the idea that "science and technology constitute the primary productive force" when he received Mr. Husak, the President of Czechoslovakia. On March 13, 1985, the Central Committee of the CPC endorsed The Resolution on Carrying out Reform in the System of Science and Technology. This resolution stipulates that modern science and technology are the key dynamic factors leading to fresh socially productive forces. All the Party members should put a premium on giving full play to science and technology. The primary tasks of the reform in the system of science and technology are also specified in the resolution.
6. Health Care Reform and Housing Reform in 1992 and 1994
In 1985, health care reform was also initiated as part of the reform and opening up initiatives. Health care reform centered on decentralization of power and transfer of profits through giving hospitals more right to handle their own affairs. The government only provided policy, but no financial support in carrying out the reform. The policy was that the price of medicines could be raised 15% higher so as to compensate for the loss of government funds. The 1990s witnessed another new wave of reform in health care. In September, 1992, as required by the State Council, the Ministry of Health advocated that hospitals be supported by enterprises and tertiary industry. In 2000, health care reform was further developed, involving the underlying problems arising from the system, mechanism and structure of health care. In March, 2000, the General Office of the State Council forwarded The Opinions on Urban Health Care Reform submitted by the eight ministries, commonly known as "the 14 articles". In May, 2001, the General Office of the State Council forwarded The Opinions on Rural Health Care Reform submitted by the four ministries.
On July 18, 1994, the State Council endorsed The Resolution on Strengthening the Reform of Urban Housing, providing guidelines for reform. In accordance with the resolution, the distribution system of housing benefits was changed to the performance-based distribution system of wages and the system of housing funds was established. The endorsement of the resolution charted the course for urban housing commercialization and marked a milestone when China pressed ahead with housing reform. The significance of the resolution was that it regulated and advanced the selling of public housing and helped achieve privatization through selling the public properties that had already been distributed to employees, but without giving them ownership. On July 3, 1998, the State Council issued The Notice on Strengthening the Reform of the Housing System. It was this document that abolished the distribution system of housing benefits, paved the way for the development of commercial real estate, and established commercial real estate as the main force of the housing market.
7. The non-public sectors of the economy were defined as a vital constituent part of the socialist market economy in 1999
The Report to the 18th National Congress of the CPC, delivered in 1997, pointed out for the first time that "non-public sectors of the economy are a vital constituent part of the socialist market economy". From March 5 to 15, 1999, the 2nd Session of the 9th National People's Congress was held in Beijing. The session approved The Amendment to the Constitution of the People's Republic of China, specifying that the non-public sectors of the economy are a vital constituent part of China's socialist market economy and will serve to promote social productive forces.
8. The strategy of Western Development was put forth in 1999
On March 22, 1999, The State Council's Opinions on Pressing Ahead with Western Development provided ten suggestions for further developing the western regions.
9. China officially became a permanent member of the WTO in 2001
On November 11, 2001, the 4th World Trade Organization (WTO) Ministerial Meeting in Doha witnessed the formal approval of the resolution to approve China's accession to permanent membership of the WTO. Finally, 15 years hard work turned China's entry to the WTO into a reality. China's accession to the WTO also marked a milestone when China's reform and opening up ushered in a new era.
10. The objective of building a prosperous, well-rounded society was specified in the 16th National Congress of the CPC
Based on the fact that China had delivered a moderately prosperous life to its people by solving the feeding, clothing and shelter problems, the 16th National Congress of the CPC further specified the objective of building a more prosperous society from all perspectives, i.e. we need to concentrate on building a society that enjoys higher standards all round, to the benefit of well over one billion people, in the first 20 years of the century. We will further develop the economy, improve democracy, advance science and education, enrich culture, foster social harmony and upgrade the texture of life for the people. "The Important Thoughts of the Three Represents" were added to The Constitution of the Communist Party of China as the guide to action.
11. Protection of private property was added to the constitution in 2004
On March 14, 2004, the 2nd Session of the 10th National People's Congress approved The 4th Amendment to the Constitution, specifying that "the legal private property of citizens shall not be violated", and that "the state respects and protects the human rights of its citizens". This amendment responds to the need to protect private property, extends the protection of private property, and perfects the system to achieve this protection. Meanwhile, it helps perfect the basic economic system, promotes the non-public sectors of the economy, ensures the actualization of the rights of the citizens, govern the country according to law, mobilizes the enthusiasm and creativity of the masses, and build a well-off society in comprehensive way.
12. The article of imposing agricultural tax was abolished in 2005
On December 29, 2005, the Standing Committee of the 19th Session of the 10th National People's Congress approved The Resolution on Abolishing the Article of Imposing Agricultural Tax of the People's Republic of China, putting an end to the agricultural tax that had been collected for nearly 50 years since the founding of the People's Republic of China. Agricultural tax, a tax system going back 2000 years, finally came to an end.
13. The arduous historical task of building a new socialist countryside was put forth in 2005
On October 11, 2005, the 5th Plenary Session of the 16th National Congress of the CPC approved The Central Committee of the CPC's Suggestions for Formulating the 11th Five Year Plan for National Economic and Social Development. It specifies the objectives and action plans for China's economic and social development in the five years to come, puts forth the arduous historical task of building a new socialist countryside, and charts a right course for the current and future work on agriculture, rural areas and farmers.