What this lesson teaches
I can judge which factors did most to transform the economies of Japan and China over time.
Syllabus 9174, Paper 1, Theme II, Learning Outcomes. evaluate the factors that contributed to the economic transformation of Japan and China over time
Make a guess
China's economy grew fast after 1978. Do you think the state stepped back from the economy?
- Yes, the Communist Party gave up control of the economy.
- No, the Party chose reform, set its pace and kept key sectors.
- No, the state took over more private firms after 1978.
Show the answer
No, the Party chose reform, set its pace and kept key sectors.
Reform was gradual and experimental. Local governments competed for investment, and the state kept control of banks and big industry.
The Party-state chose reform, set its pace and kept control of key sectors. Its gradual approach avoided collapse.
The Communist Party kept control throughout. Reform was a policy chosen by the state, not a collapse of state power.
Reform was gradual and experimental. Deng called it "crossing the river by feeling for the stones". Policies were tested locally and spread if they worked, such as farm contracts in Anhui and the SEZs in Guangdong.
Local governments drove growth. They kept a share of the taxes they raised, so they competed to attract investment and ran township and village enterprises.
The state kept the "commanding heights". Banks, energy, steel and other heavy industry stayed state-owned. State banks lent to state firms, often unwisely, which built up bad loans.
The state also managed money and risk. It unified the exchange rate in 1994 and kept controls on the movement of capital. These controls helped shield China from the Asian Financial Crisis of 1997.
Politics set limits. After the Tiananmen crackdown of June 1989, conservatives slowed reform until Deng's Southern Tour of 1992.
- Gradualism
- Test locally, then spread.
- Local governments
- Kept a share of taxes; competed for investment.
- 1997
- Capital controls shield China from the Asian Financial Crisis.
Real examples to use
Tax reform, 1994
A new tax-sharing system gave the central government a larger share of revenue, strengthening the state's hand.
One exchange rate, 1994
China unified its two exchange rates and devalued the yuan, which helped exports while the state kept control of capital.
Worked example: State and market together
How did the state shape reform?
- Choice: the Party decided to reform in 1978.
- Method: local experiments, then national rollout.
- Control: the state kept banks and heavy industry.
- Pace: politics slowed reform after 1989 and relaunched it in 1992.
Watch out for this
Growth happened because the state withdrew from the economy.
The state changed its role rather than withdrawing. It created markets, guided investment and kept key sectors under its control.
Check your understanding
What did "crossing the river by feeling for the stones" mean?
- Reform step by step, testing policies before spreading them
- Closing China's borders to foreign ideas
- Rapid reform of the whole economy in one step
Show the answer
Reform step by step, testing policies before spreading them
Right. It describes gradual experiment.