Making Sense of China’s Economic Transformation

Abstract

China’s sustained rapid economic growth in the post-1978 reform era, which is also the era of capitalist globalization, is of worldwide importance. This growth experience has been based mainly on China’s internal dynamics. In the first half of the era, economic growth was driven by improvement in both allocative efficiency and productive efficiency. From the early 1990s until the present time, however, economic growth has been increasingly based on dynamic increasing returns associated with a growth path that is characterized by capital deepening. In both periods, the growth paths and their associated institutional frameworks appear to contradict principles of the free market economy: the mainstream doctrines of globalization. In the form of an analytical overview, this paper seeks to explain and interpret the dynamics and developmental implications of China’s economic transformation. The analytics draws on a range of relevant economic theories including Marxian theory of capital accumulation, post-Keynesian theory of demand determination, and Schumpeterian theory of innovation. It is posited that these alternative theoretical perspectives offer better insights than mainstream neoclassical economics in explaining and interpreting China’s economic transformation. JEL classificationO14, O53, P36,