China: Financial Reform: 1979-1994

Abstract

A new world power is emerging. China, the land of 1.2 billion "descendants of the Dragon," is impressing the whole world with its expedient growth in recent years. Media all over the globe attribute this to the economic reforms that have been taking place since 1978. The reforms have brought a variety of new, market-oriented constituents into the previously sluggish economy. Private firms, collective enterprises, joint-stock enterprises, non-bank financial institutions, ( i.e. urban/rural credit unions, mutual funds, insurance companies, stock exchange markets) and many other non-traditional economic entities have proliferated during this period. These new economic forms, along with the somewhat revitalized public sector have injected new energy into the old system. As a result, the country has been able to realize an average GDP growth of 9.5 percent per year ( World Bank, 1990, p. xii ) from 1978 to 1990, and has realized double-digit growth in the more recent years. The impacts of the reforms are substantial and manifold. Monetarily, it is not only the Chinese people who have benefited from these reforms, but a great number of foreign investors and entrepreneurs as well. A great many multinational companies have chosen China as their immediate target for investments. Medium and even small sized investors from Hong Kong, Taiwan, and Japan rushed into the country to realize their dreams of immediate high returns. China has become the honey pot for investors all around the world. The reason is simple — China has a market of 1.2 billion people whose purchasing power is increasing rapidly. The Chinese government is also willing to put forward more flexible policies to attract foreign investments, according to the "open door" policy adopted since 1979. The amount of contracted foreign investment in 1992 was 68.5 billion U.S. dollars. Politically, China is the only country (with the exception of Vietnam) that is still implementing socialistic economic reforms. With the breakdown of the former Soviet Union, China now stands as the strongest socialistic country in the world. Ideologically, intense debates have been focused upon the definition of a socialist society. As the reforms went further, private enterprises, securities exchange markets, and other new markets have generally weakened the governmental controls over the economic system. The underlying foundation of a socialist structure were shaken when the ownership of resources became the center of debate. These impacts will surely reverberate throughout the future developments of the Chinese economy.