China's rise to power has brought about a lot of debate especially in the contemporary corporate world. In relation to this point, it has been viewed as an harmonious society from the point of view of some while to others see it as to be unpleasant society with an unequal transition. Basically, at the onset of 1978, reformation of china's economic system experience was closely linked to what is commonly known as gradualist transition to a market economy. It has been argued that the rate of development and growth in terms of GDP remain to be a historic example. Following this point, Justin Lin who happens to be a World Bank economist ,points out to China's policies within the three decades as to be a pursuit of a comparative advantage-oriented development strategy. As such, there have been several arguments that have been put forward as far as China's transition is concerned. In this connection, Naughton (2007) puts it that China has been growing out of plan given the thirty year period taken by its growth which is in two phases (p.82). In the light of this point, there has been a concurrence of plan and market ingredients that have been used to support Naughton's point of view.
Basically, within this time, China worked within a dual-track system that was made to involve the aspect of planning and marketing. In order to carry out this plan, a single good was assigned to a two-tier pricing system meant to have a state set price as well as a market price. The former was meant to be low with the market prices being kept typically higher. In line with this, China is pointed out to have made it to keep the central-government materials-allocation plan. As a result, this kept the overall size fixed in a growing plan with led to un-proportionality in terms of the plan thus the economic growth getting out of plan. A planned economy is expected to lead to a proportional growth in terms of output; however, the China's case outgrew the plan. In the light of this point, China's commitment to grow out plan resulted to an alteration of incentives directed to the individual enterprise. Outstandingly, working with fixed plans in China led to enterprises being faced with market prices on the margin. Following the point that the economic growth has decision making being made on the market prices, plan has been made irrelevant.
Arguably, the capacity of planners to comply with the particular directions of the central-government was limited and this is the reason why China had to grow out of plan (Naughton, 2007, p.7). To be more specific, the Chinese central-government ensured that there were individual contracts that were signed by the state-owned enterprise of which there were no regular tax system as an individual enterprise would pay for itself. It is also evident that the central government's monopoly over the industry in most cases was relaxed and due to this factor the industry was flogged by large numbers of start up firms which led to increased competition thus outgrowing the plan.
The growing of China's economy out of plan has also been engineered by the large size and diversified population of China. At the same time, state-sector enterprise performance improved since there was the use of state sector managerial reforms which were used as alternatives (Naughton, 2007, p.95). From a general point of view, it is the plan and the decreased governance as well as dominance of the state that led to the growth of the economy out of plan and thus reliance on market prices was embarked on.
The main factors for China's rapid growth during this period have been attributed to many issues. In this sense, it has been attributed to the fact that China's size is large with a diversified population. Again in this context, Jefferson & Rawski (2003), points out that state-owned enterprises were reform alternatives that led to managers being given autonomy over the research and development, asset planning, product innovation and marketing among others. In the same line of thought, there were many changes that were realized in the area of industrial products allocation, incentives, and the degree of competition among others. There were also some cautious designs that were made to make use of planning output and administrative type of input and output allocation. Another point to note is that there was a shift from planning to market driven kind of an economy.
In fact, between 1980 and 1989 a large share of material outputs rose from 32 percent to 52 percent. Along with this, output sold to the market rose from 49 to 60 percent which is a clear indication that the economy shifted from planning to market economy. Jefferson & Rawski (1994) states that the state-owned enterprises reformed in the autonomy, competition ad incentives of which these are the factors that played the role of engineering China's rapid growth (p.51-53). As a matter of fact, autonomy gave the state-owned enterprise managers authority over decision making process of their variety and quantity outputs, methods of production and in the larger perspective sales price.
In addition to this point, creation of markets increased proportionally with the growth in productivity. More to this point, the use of incentives increased and restructured the link between the financial outcomes, individual reward, enterprise resource control and financial outcomes. Together with this, China's economic growth has also been associated with a change in conduct whereby the state-owned enterprises had to make their businesses for the purposes of making profit. Due to this factor, industrial activity and productivity together have increased translating to increased performance and a resulting development as well as growth of China. Overseas or export trade of China has also contributed to its rapid growth along with the china's rural reforms which comprise of the gradual freedom of the agricultural market goods and decollectivization of the rural society as whole. From a broader point of view, the rapid growth witnessed in China has been factored in by foreign trade and investment, the presence and performance of industry and state SEOs with the examples of township and village enterprises and an inclination towards the market economy (Aslund, 2007, p.89). .
From another point of view, Lin argues that a comparative advantage-oriented development strategy is associated with the economic growth of China. With respect to this point, a comparative advantage oriented development strategy is the one through which a country, firm or a business produces goods or services at a lower opportunity cost. This is to suggest that, more than its competitors; China has managed to produce its goods and services at a lower cost. From a personal point of view, Lin's argument stands out to be a true one in the sense that China has a large size of population which provides cheap labor necessary for industrial growth. The returns given from the township and village enterprises provide a great boost to the industrial growth and development. Needless to say, China is rich in steel production and its agricultural produce play a great role in the economy; a factor that has brought about economic growth.
Besides this point, Naughton (2007) divides the thirty-year reform into two phases with the first one which is estimated to have taken place in 1980s to early 1990s termed as a reform without losers. In this kind of reform, state owned enterprises workers' position was protected along with the fact that both rural and urban residents were well protected. The former gained from dissolution of collectives, improved prices of agriculture and non-agricultural production. Apart from this point, the urban residents gained from the new economic niches as well as the government support to the state enterprise. Reform with losers is the second phase of which Naughton (2007) associates with shift from price stability, sudden downsizing of the state enterprise sector and in the larger perspective acceptance of the restrained privatization. Actually, the first phase dealt with the introduction of markets and incentives while the second majored on the responsibilities of management. Following this point Perkins(1994) would agree with Naughton (2007) that the early reform was a reform without losers. This is given to the reason that Perkins (1994) described the early reform phase as to be associated with high inflation which is translated to a reform without losers. According to Perkins (1994), the second-phase came in as anti-inflation reform and thus this justifies what Naughton stated that the first reform was a reform without losers.
Jefferson & Rawski (1994), concluded that the first phase of enterprise reforms in China with the current stepping up in the pace of industrial reform, with its new spotlight on founding conditions similar to standard market arrangements, may open the way to harnessing China's potential for further increases in industrial efficiency without creating unbearable political tensions or social costs" (p.67). From this point of view, Jefferson & Rawski (1994), did not expect any changes in the industrial reform along with the fact that they did not expect China to direct its focus on conditions that are the same as those of the standard market arrangements. Any anticipated change was rather expected to be in association with social costs along with intolerable tensions in politics.
In this sense, Jefferson & Rawski (1994) support Naughton's pessimistic view that the second phase is a reform with losers as it has a shift from price stability, sudden downsizing of state enterprise and more regulated privatization. Outcomes from policies undertaken in the first phase led to inflation and unstable prices (Aslund, 2007, p.91). . Equally important, the policies were meant to utilize the opportunities for undeveloped economy and thus they worked for that time. On the other hand, subsequent reform policies in the second phase became more focused on the maintenance of a stable and a steady fiscal and financial policies; building of a regulatory environment with the sole aim of reducing fraud, aiding a developed market economy along with a fair and equal economic competition (p.107-108).
The policies embarked on in the second period have been associated with economic insecurity and thus it has been attributed to the inadequacy in the financial system which has been dominated by state-owned banks. This has made the second reform to be more prone to governmental influence along with well connected insiders. There is also some weak accountability in the legal sector together with nonperforming loans as well as bad assets. Additionally, the fiscal potential is limited along with the fact that the regulatory agencies in china being still reliant on the government. The second reform leaves a curtailed China's changeover to a mature, developed market economy. In this sense, the second phase seems to be in a way underdeveloped since China has not yet and fully grown as other developed countries (Naughton, 2007, p.4). In fact, China is still struggling to attain independent regulatory agencies, a stable financial system, strong legal accountabilities, performance in loans and in the larger perspective; it is yet to grow to a point of attaining the standards of a developed and stable market economy.
From a broader point of scrutiny, China's current evolution path is most important of the country toward an equally developed society, which is the most pressing policy goal adopted by the Chinese Communist Party and perceived to be its last Congress. Given to this point, it is the fact a harmonious society from a personal point of view is that there is equality and uniformity in terms of development. The case for China has inequality between the urban and rural income according to Naughton (2007, p.220). However, life expectancy and distribution of social amenities and standards of living have shown a remarkable development and growth towards attaining a harmonious society with development being rather distributed than concentrated in the urban areas. Generally, China will only grow to a harmonious society by; focusing on its geographical income inequality, how that's being helped and also how the state has been using other methods after the downsizing of State owned enterprises (SOEs) so as to continue sustained these SOEs; with policy loans and how to fund the welfare of the population.