Gradualism and Structural Adjustment in the Chinese Political Economy

Abstract

Scholars have long contrasted the gradualist trajectory of China’s economic reforms with the shock therapy implemented in the former USSR. Our research, however, reveals a more nuanced story: China’s path combined gradualism with targeted, bold structural adjustments. We present three key findings. First, gradualism overwhelmingly characterized the reform process. Even at the height of market reforms, the most severe structural adjustments were short-lived, affecting a geographically bounded share of the national economy and population. Second, the specific mix of gradualism and shock therapy was shaped by the pre-reform political economy, particularly developmental legacies and labor relations. For example, provinces that were more industrialized under the planned economy often experienced more radical adjustments. Finally, our analysis indicates that regions subjected to more intensive structural reforms subsequently tended to exhibit slower growth in the following decades.

JEL Classification: B51, B52, P2, P3