Chinese economic reform 改革开放 - Deng´s reforms

The Chinese economic reform (改革开放; literally Reform and Opening) refers to the program of economic reforms called "Socialism with Chinese characteristics" in the People's Republic of China (PRC) that were started in December 1978 by reformists within the Communist Party of China (CPC) led by Deng Xiaoping.

First stage

The first stage, in the late 1970s and early 1980s, involved the decollectivization of agriculture; the Household-responsibility system, which divided the land of the People's communes into private plots. Farmers were able to keep the land's output after paying a share to the state. This move increased agricultural production, increased the living standards of hundreds of millions of farmers and stimulated rural industry.

Reforms were also implemented in urban industry to increase productivity. A dual price system was introduced, in which state-owned industries were allowed to sell any production above the plan quota, and commodities were sold at both plan and market prices, allowing citizens to avoid the shortages of the Maoist era. Private businesses were allowed to operate for the first time since the Communist takeover, and they gradually began to make up a greater percentage of industrial output. Price flexibility was also increased, expanding the service sector.

The opening up of the country to foreign investment. The country was opened to foreign investment. Deng created a series of special economic zones for foreign investment that were relatively free of the bureaucratic regulations and interventions that hampered economic growth. These regions became engines of growth for the national economy.

Second stage

Permission for entrepreneurs to start up businesses Controls on private businesses and government intervention continued to decrease, and there was small-scale privatization of state enterprises which had become unviable. A notable development was the decentralization of state control, leaving local provincial leaders to experiment with ways to increase economic growth and privatize the state sector. Township and village enterprises, firms nominally owned by local governments but effectively private, began to gain market share at the expense of the state sector.

Corruption and increased inflation increased discontent, contributing to the Tiananmen Square protests of 1989 and a conservative backlash after that event which ousted several key reformers and threatened to reverse many of Deng's reforms. However, Deng stood by his reforms and in 1992, he affirmed the need to continue reforms in his southern tour. He also reopened the Shanghai Stock Exchange closed by Mao 40 years earlier.

Although the economy grew quickly during this period, economic troubles in the inefficient state sector increased. Heavy losses had to be made up by state revenues and acted as a drain upon the economy.Inflation became problematic in 1985, 1988 and 1992 Privatizations began to accelerate after 1992, and the private sector surpassed the state sector in share of GDP for the first time in the mid-1990s. China's government slowly expanded recognition of the private economy, first as a "complement" to the state sector (1988) and then as an "important component" (1999) of the socialist market economy