China's economic reforms : pointers for other economies in transition?

POLICY RESEARCH WORKING PAPER -1310 China's Economic Reforms Chinasappchto economic refbrrn was graduail and inaemenaL Chinra's: Pointers for OtLher Economies expeience mrprouide' in Transition? - -auseftil pointers foother capita-scarce economies in Justin YifP Lin son from strategies Fang Cai geared to heavy industry to a Zhou Li more balanced profile of development- The World Bank Agriculture and Nantral Resources Department Agricultural Polices Division June 1994  I POLICY RESEARCH WORKING PAPER 1310 Summary findings China's two main cconomic problems before reform in transition from central planning chat based their were low incentives to workers and the misallocation of development on the rapid growth of heavy industry. resources among sectors. These problems werc the result China's approach may be of interest to them. Among of a development strategy oriented toward heavy lessons China learned are that: industry. - Autonomy must be granted to micromanagement By improving material incentives, China's reforms units and preserved to improve the incentive structure created a flow of new resources and allowed them to be and create a new flow of resources. allocated to sectors suppressed under pre-reform While maintaining essential minimum levels' of strategies. production in the pre-reform priority sectors, The onset of reform in China was not allowed to autonomous enterprises must be permitted and disrupt production from exisring resources. Instead, the encouraged ro allocate new incremental resource flows newly created resources were permitted to accrue and to to the previously suppressed sectors. flow into the more productive, often light industrial * [n parallel, the distorted policy environment and sectors, thus stimulating continuous growth of the planned-allocation system must be progressively national economy during reform. reformed to bring them into line with the new system of Low incentives and the suppression of nonpriority incentives and modus operandi of autonomous sectors are common features of the legacy of economies enterprises. This paper -a product of the Agricultural Policies Division, Agriculture and Natural Resources Departmnent was presentedto aBankwide seminarin March 1994. Copies of this paperareavailablefreefrom the World Bank, 1818 HStreet NW, Washington, DC 20433. Please contact Cicely Spooner, room Ng-037, extension 30464 (41 pages). June 1994. 7hc PoCcy Pteseairc Wartig Paper Sdceds bmthe Plicy Research Dina progrss to encong the cr of teas about development iFsx An objectiveof t)esaens a to get the fsrdingsout qukly. evn if thc prtiwonsaTc kss tijn filly polishd thc . papers carry the nanscs Of the authrsandsboudd be sumdandectiedacordingly. T'he flndingi htrpretaos, and cor.dusi0ns are the :as