China\'s Economic Policy the People\'s

China's Economic Policy

The People's Republic of China has seen a number of different economic policies in its history. The PRC began with a Communist ideology, something that was reflected in early policies, which were laid out in grand, nation-wide plans. The first major plan came in the form of the Great Leap Forward. This period saw China attempt to move from a primarily agricultural economy to a more industrial one. Initiated in 1957, the Great Leap Forward saw a number of reforms. The first was the collectivization of agriculture, in line with Communist economic philosophy. The second component of the Great Leap Forward was extensive government spending on the development of heavy industry. This spending rose from 38% in 1956 to 56% in 1958. In addition, the people were enlisted to help with the industrialization process, as backyard furnaces were built, theoretically to produce steel but in reality to produce pig iron. Over 100 million peasants were enlisted to build water conservation works (Harms, 1996).

The end result of the Great Leap Forward was famine and massive social upheaval as people began to move around the country in search of food. A reduction in central control over agriculture followed the Great Leap but China's economy developed little, while the central government imposed its will on social policy via the Cultural Revolution.

Following's Mao's death in 1976, a power struggle followed and Deng Xiaoping eventually came to power. He initiated the reforms that started China on the current economic path. Among the reforms that Deng introduced was the introduction of Special Economic Zones (SEZs) to foster trade. The central government maintained control over the process of opening up China's markets. Reforms were sweeping, involving issues of taxation, finance, trade, price controls and with respect to the management of state-owned enterprises. The country retained control over the banking system in particular, and has exerted strong control over key elements of the macroeconomic environment.

Financial reform in the 1990s restructured the banking industry. These reforms increased the role of the central bank, and divided banks into commercial banks, policy banks and cooperative banks, each with its own function in the economy. There are four major commercial banks in the Chinese system. Later reforms separated state enterprises from commercial banks. The close links between these two sets of entities had been a component of earlier market reform, but those links have become weakened (Fernandez, n.d.).