The Party-state chose reform, set its pace and kept control of key sectors. Its gradual approach avoided collapse.
The Communist Party kept control throughout. Reform was a policy chosen by the state, not a collapse of state power.
Reform was gradual and experimental. Deng called it "crossing the river by feeling for the stones". Policies were tested locally and spread if they worked, such as farm contracts in Anhui and the SEZs in Guangdong.
Local governments drove growth. They kept a share of the taxes they raised, so they competed to attract investment and ran township and village enterprises.
The state kept the "commanding heights". Banks, energy, steel and other heavy industry stayed state-owned. State banks lent to state firms, often unwisely, which built up bad loans.
The state also managed money and risk. It unified the exchange rate in 1994 and kept controls on the movement of capital. These controls helped shield China from the Asian Financial Crisis of 1997.
Politics set limits. After the Tiananmen crackdown of June 1989, conservatives slowed reform until Deng's Southern Tour of 1992.
- Gradualism
- Test locally, then spread.
- Local governments
- Kept a share of taxes; competed for investment.
- 1997
- Capital controls shield China from the Asian Financial Crisis.
Worked example: State and market together
How did the state shape reform?
- Choice: the Party decided to reform in 1978.
- Method: local experiments, then national rollout.
- Control: the state kept banks and heavy industry.
- Pace: politics slowed reform after 1989 and relaunched it in 1992.
Watch out for this
Growth happened because the state withdrew from the economy.
The state changed its role rather than withdrawing. It created markets, guided investment and kept key sectors under its control.
Check your understanding
What did "crossing the river by feeling for the stones" mean?
- Reform step by step, testing policies before spreading them
- Rapid, complete reform all at once
- Closing China's borders