The most recent trajectory for China's economy has been notable for its absence of emphasis on heavy industry. Mao's original plans focused on heavy industry the major driver of Chinese economic growth. Deng, too, had wanted to build out China's capacity in steel and heavy manufacturing industries. In recent years, service industries and light manufacturing have taken a more prominent role in the Chinese economy. The sense is that during the first years of the reforms, it was essential for China to build out its industrial capacity. Having done that, the only role left is to leverage the heavy industry infrastructure in order to help build out the fledgling service industry.

It was the heavy industry that facilitated productivity growth in China in the past couple of decades. Productivity has contributed 13.5% of China's economic growth since the early 1930s (Wu, 2003). Substantial improvements in infrastructure and technology were able to reverse the sluggish productivity growth of the 1990s. Between 1995 and 2002, productivity in China improved an average of 17% per year (Mauldin, 2004). Indeed, this increase in productivity was coupled with decreases in manufacturing jobs.

Conclusion

The first 30 years of the PRC saw little in the way of economic progress, despite some sweeping attempts at reform. The first Five-Year Plan was a good idea -- increase production of key industrial commodities. The Great Leap Forward that followed was disastrous policy made with zero governance, ultimately setting the country back by decades.

Deng's reforms and those of his successors have sparked a phenomenal increase in productivity and the end of the centrally-planned economy. China has had some growing pains. They use social control as a means of economic control, but the country has at times been subject to significant corruption and managerial incompetence. The Chinese government remains in a process of transitioning out of the economy. They do not, as of yet, have an answer for governance. It is governance issues that are the final bottleneck for China. Investors need to feel confident in the protection...

The rule of law needs to become more developed in China as well, in order to facilitate the next stage of China's economic development. Corruption needs to be eliminated. China at this point in time has weak controls over incentives and governance. Better control over economic actors and the installation of a robust legal system will break the bottlenecks and allow for Chinas to continue to grow its economy.
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