Economic diversification and growth in rural China: The anatomy of a ‘socialist’ success story

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Abstract
The experiences over the past few years of the transition economies in East‐Central Europe and the former Soviet Union have made it painfully clear that improved incentives and better allocation and use of resources as a result of market‐oriented reforms do not provide an infallible recipe for economic development. When the main mechanisms and factors behind the rapid transformation and development of the rural economy in China after the reforms initiated in 1978 are identified and analysed chronologically, starting as far back as the eve of the revolution, it is found that a number of policy‐ and institutionally‐determined factors combined to create a unique and highly conducive setting for the economic development process prompted by the reforms. The growth process was triggered by a huge boost in demand originating in sharp increases in agricultural incomes in the wake of the reforms. This demand‐led growth was kept in motion by gains in productivity and income derived from the restructuring of the rural economy. At the same time, the rural economy was uniquely well‐positioned to exploit the economic opportunities arising from the increase in the demand. Past policies and systemic factors provided for a classic case of infant industry development, while institutional and organizational factors proved highly conducive to a rapid development of rural enterprises.

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