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
From 1984 China's state-owned factories sold quota output at plan prices and extra output at market prices. Why do you think China chose this dual track?
- To let markets grow alongside the plan without a sudden collapse.
- To privatise the factories within a few years.
- To abolish markets and return the cities to full central planning.
Show the answer
To let markets grow alongside the plan without a sudden collapse.
Gradual change avoided shock, but it also caused inflation and corruption. Reform was relaunched in 1992.
Reform in the cities was slower and riskier. It mixed plan and market, caused inflation, and was relaunched in 1992.
Reform in cities was harder. State-owned enterprises (SOEs) employed most urban workers and provided housing, health care and pensions.
From 1984 the state used "dual-track" pricing. Firms sold quota output at plan prices and extra output at market prices. This let markets grow alongside the plan without a sudden collapse.
Private businesses were allowed, starting with small family firms. Many SOEs were given more freedom and could keep some of their profits.
Reform brought problems. Inflation reached about 18 per cent in 1988, and corruption grew. These grievances fed the protests of 1989.
Deng's Southern Tour of 1992 relaunched reform. That year the Party adopted the goal of a "socialist market economy". In the late 1990s Premier Zhu Rongji closed or sold many small SOEs, and tens of millions of state workers lost their jobs.
- Dual-track pricing
- From 1984.
- 1988
- Inflation about 18 per cent.
- Southern Tour
- 1992: reform relaunched; "socialist market economy".
Real examples to use
Bankruptcy law, 1986
State firms could now be closed in principle, a break with the iron rice bowl, though few were closed at first.
Tiananmen, June 1989
Protests followed high inflation and anger at corruption. Reform slowed until the Southern Tour.
State-firm layoffs, late 1990s
Under Zhu Rongji millions of state workers lost their jobs as loss-making firms were cut back.
Worked example: Judging urban reform
How successful was reform in the cities?
- Growth: private and foreign firms expanded fast.
- Method: dual-track pricing avoided collapse.
- Costs: inflation, corruption and the unrest of 1989.
- Later: SOE reform in the 1990s brought mass layoffs.
Watch out for this
China privatised its whole economy after 1978.
Private firms grew, but the state kept large firms and the banks. Reform mixed plan and market for many years.
Check your understanding
What was dual-track pricing?
- Quota output sold at plan prices, extra output at market prices
- Moving prices to market levels in one step across the economy
- Different prices for Chinese and foreign buyers of the same goods
Show the answer
Quota output sold at plan prices, extra output at market prices
Right. Markets grew beside the plan.