Coase on Chinese Capitalism in Cato Policy Report

How China Became Capitalist
Ronald Coase and Ning Wang
Cato Policy Report
January 31, 2013

No one foresaw that the “socialist modernization” that the post-Mao Chinese government launched would in 30 years turn into what scholars today have called China’s great economic transformation. How the actions of Chinese peasants, workers, scholars, and policymakers coalesce into this unintended consequence is the story we tried to capture. Today, we don’t need to present any statistical data to convince you the rise of the Chinese economy, even though China still faces enormous challenges ahead. Many Chinese are still poor, far fewer Chinese have access to clean water than to cell phones, and they still face many hurdles in protecting their rights and exercising their freedom. Nonetheless, China has been transformed from the inside out over the past 35 years. This transformation is the story of our time. The struggle of China, in other words, is the struggle of the world.

Against conventional wisdom, we take the end of 1976 as the start of post-Mao reform and argue that China basically became a market economy by the end of the 90s before it joined the World Trade Organization in 2001. In the new millennium, the Chinese economy has kept its growth momentum and become more integrated with the global economy. As an account of how China became capitalist, our book focuses mainly on the first two decades of reform. Within this time frame, our account is split into two parts by a dividing event, the 1989 Student Movement.

The first part of the story is a tale of two reforms. One was designed by Beijing; its goal was to revitalize the state sector and save socialism. The other resulted from grassroots initiatives. The state-led reform came in two phases. The first one started at the end of 1976 under Hua Guofeng. Hua was Maos designated successor, who consolidated his power base after arresting the “Gang of Four” and ending the Cultural Revolution. Even though loyal to Mao, Hua was an economic modernizer.

Faculty: 
Ronald H. Coase