How China Escaped Shock Therapy
The Market Reform Debate
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China has become deeply integrated into the world economy. Yet, gradual marketization has facilitated the country’s rise without leading to its wholesale assimilation to global neoliberalism. This book uncovers the fierce contest about economic reforms that shaped China’s path. In the first post-Mao decade, China’s reformers were sharply divided. They agreed that China had to reform its economic system and move toward more marketization—but struggled over how to go about it. Should China destroy the core of the socialist system through shock therapy, or should it use the institutions of the planned economy as market creators? With hindsight, the historical record proves the high stakes behind the question: China embarked on an economic expansion commonly described as unprecedented in scope and pace, whereas Russia’s economy collapsed under shock therapy. Based on extensive research, including interviews with key Chinese and international proponents and World Bank officials as well as insights gleaned from unpublished documents, the book charts the debate that ultimately enabled China to follow a path to gradual reindustrialization. Beyond shedding light on the crossroads of the 1980s, it reveals the intellectual foundations of state-market relations in reform-era China through a longue durée lens. Overall, the book delivers an original perspective on China’s economic model and its continuing contestations from within and from without.
Table of Contents
Part I: Modes of Market Creation and Price Regulation
1. China’s Tradition of Bureaucratic Market Participation: Guanzi and the Salt and Iron Debate
2. From Market to War Economy and Back: American Price Control during World War II and Its Aftermath
3. Re-creating the Economy through State Commerce: Price Stabilization and the Communist Revolution
Part II: China’s Market Reform Debate
4. The Starting Point: Price Control in the Maoist Economy and the Urge for Reform
5. Rehabilitating the Market in Theory and Practice: Chinese Economists, the World Bank, and Eastern European Émigrés
6. Market Creation versus Price Liberalisation: Rural Reform, Young Intellectuals and the Dual-Track Price System
7. Debunking Shock Therapy: The Clash of Two Market Reform Paradigms
8. Escaping Shock Therapy: Causes and Consequences of the 1988 Inflation Conclusion
Isabella Weber is Assistant Professor of economics at the University of Massachusetts, Amherst, and Research Leader for China at the Political Economy Research Institute.
One of the most consequential economic debates in China over the direction of reform took place in the 1980s and focused on how markets should be created. The outcome of that debate set the pattern for much of China’s subsequent economic reforms. Isabella Weber drawing on interviews of the participants and others together with many new sources of unpublished and published information does a masterful job of explaining how this debate evolved and its ultimate impact.
Dwight H. Perkins, Harold Hitchings Burbank Research Professor of Political Economy, Harvard University, former director of the Harvard Institute for International Development
This superb book presents the most compelling interpretation I have read of the sources of Chinese gradualism and its success in fostering economic growth and transformation while preserving enough social cohesion to hold the Chinese society together. It is the product of an independent, inquisitive, open mind – the only type that can hope to grasp the phenomenon that is modern China. It is also the work of a first-rate economist, in the best sense of that term.
James K. Galbraith, Lloyd M. Bentsen Jr. Chair, The University of Texas at Austin, former chief technical adviser to China's State Planning Commission for macroeconomic reform
Isabella Weber's book gives an excellent historical overview of China's economic statecraft bringing the reader to the crucial period of market reforms and to the decision to avoid the full implementation of the neoliberal agenda, thus setting the stage for the fastest and longest growth in world history.
Branko Milanovic, London School of Economics Centennial Professor, City University New York and Former Lead Economist, World Bank Research Department
China’s debates in the 1980s about reform of the non-market economy are centrally important to understanding global political economy in the 21st century. The resolution of the debates about the ‘Big Bang’ set China on the course of pragmatic system reform (‘groping for stones to cross the river’) that has remained in place ever since. Isabella Weber’s study is unique. It uses information not only from a wide array of written documents but also from extensive interviews with participants in the debates. Her remarkable book provides a rich, balanced and scholarly analysis which illuminates the complex reality of this critically important period in modern world history.
Peter Nolan, Director, China Centre, Jesus College, Cambridge, and Founding Director, Centre of Development Studies, University of Cambridge
Isabella Weber succeeds in offering a powerful account of China’s reform-era market creation that is of acute interest to economists and historians alike. Her book is a call to economists to ponder the relevance of political economy with its European roots in classical economics of the early modern era and with Chinese roots in a period almost two millennia earlier.
R. Bin Wong, Director of the UCLA Asia Institute and Distinguished Professor of History