INTRODUCTION

China?s economy has grown at an annual average growth rate of 9% since the market orientated reforms began in 1978 (Huang and Rozelle, 2007), and is now the world?s second largest country with almost 10% of world GDP (World Bank, 2007). Agricultural reform has been ?a major pillar of the fundamental economic reforms undertaken by China since 1978, resulting in a gradual transition from centrally planned economy towards a socialist market economy? (OECD, 2005 pg 1). The aim of this paper is to study what impact the reforms had on China?s economy, focusing particularly on the rural reforms, and the lessons that can be learnt from the Chinese experience.

This paper is organised into four sections. The first section will briefly explore China in the pre-reform period. It will review the main policies China adopted from the Soviet style system of planning and what led China to later abandon the planning system and steer its economy towards the direction of a market economy. Most studies agree that, prior to the reforms, China neglected and starved its agricultural sector from resources in order to industrialise its economy rapidly. This made the agricultural sector operate inefficiently (Harry X. Wu, 1997) and since, for a developing country, the development of industrialisation depends on the performance of the agricultural sector (Cook, Yao and Zhuang, 2000), this inefficiency in the agricultural sector hindered industrialisation and the overall development of the China. Thus, China needed to adopt a different approach which came in the form of gradual liberalisation.

Section 2 will aim to explore the main features of the rural reforms in China. Although the government were keen to introduce market orientated reforms to the economy, the reform was in fact initiated by a group of farmers which later led to adoption of the Household Responsibility System (Perkins, 1988 and Runsheng, 2004). Other reforms include the price reforms where the state procurement prices for major crops were raised. The government also liberalised the planning and marketing of agricultural crops. The successful development of the agricultural sector led to the diversification of the rural economy with the emergence of ?Township and Village Enterprises? (TVEs).

Section 3 will examine the impact the reforms had on China?s economy. The reforms discussed in the previous section have fundamentally led to a gradual transition of China from a centrally planned economy towards a socialist market economy and have essentially increased productivity by providing workers with greater incentives. The predominant view is that the reforms have had a positive impact on China?s economy. However, some scholars, such as Sachs and Woo (2004) argue that the ?pace of reform hampered the pace of growth? (Bramall, 2009, pg 436). They highlight the fact that China developed least rapidly where reforms were slow, for example the liberalisation of SOEs, and development was most rapid where reforms were much more rapidly implemented, for example the decollectivisation and trade liberalisation. However, this paper argues that it was important for China to carry out reforms in a gradual manner for three reasons. First, gradual reforms of the SOEs were necessary to ensure that sufficient employment opportunities are available via the emerging private enterprise so that the labour displaced from the SOEs can be transferred immediately into these enterprises, thereby avoiding large scale unemployment and social distress. Secondly, it allowed the economy to smoothly phase out the planning system without causing major disruptions in the economic activity. Finally, because many government officials ?feared that order would fall into chaos if they left the old track? (Runsheng, pg 2), policymakers needed to show the success of policies in certain regions to convince the party members who initially opposed the reform to give their support to the reform program.

Finally, this paper will conclude that perhaps developing countries can benefit from following China?s approach of gradual reforms. Naughton (1995) points out that the gradual liberalisation and decentralization approach followed by China helped it to grow at an annual rate of nearly 10% unlike the ?shock therapy? approaches of free market and privatization with minimal government intervention as advocated by Eastern Europe, USSR and sub-Saharan Africa which have led to their collapse.