Softening the Impact of Adjustment to Reform: The China Experience

This paper examines the structural adjustments induced as China moved from a planned economy that subsidized capital-intensive industry at the expense of agriculture to a nationally integrated market economy more fitting with China's underlying resource endowments. We argue that there were few losers in the process because of 1) a gradual implementation process that maintained transfers to the favored groups under the planned economy, such as urban industrial workers, while the market economy developed benefiting the non-favored groups, such as farmers; 2) high growth rates allowed a large portion of the economy to benefit from the overall reform process and bolstered the government's commitment to further reform; and 3) labor, the most important resource that farm households hold in China, was much less institutionally constrained than land and capital during the reform period, allowing rural workers to participate in the fast growing nonagricultural sector.