BIZCHINA> Review & Analysis
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BIZCHINA> Review & Analysis
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Lessons other nations can learn from China
By David Dollar (China Daily)
Updated: 2008-11-20 11:47 David Dollar is the World Bank's country director for China and Mongolia When historians look back on this period of history, they will likely identify China's reform and opening to the global economy as the single most important event. China's reform has propelled the country from a poor, backward status to a rank as one of the largest and most important economies in the world.
On the 30th anniversary of the launching of economic reform, it is natural to ask what lessons China offers for other developing countries. Of course, China's experience cannot simply be transferred to other countries. Each country's situation is different. Still, countries can learn from each other, and right now there is more interest in China than in any other developing country. There are many potential lessons from China's success, but I focus on three in particular. The first lesson from China is not about what it did, but about how it went about reform. People sometimes characterize China's reform as "gradual," but I don't think that is accurate, given how much change has actually occurred in a relatively short period of time. "Pragmatic" is a better description. China really has followed the notion of "crossing the river by touching the stones." In many areas of reform, new ideas were first tested on a pilot basis, and things that worked scaled up rapidly. The household responsibility system began as local experimentation and then became national policy. One of the best examples is the opening to trade and foreign investment first in four special zones. Good results led quickly to an expansion of the opening to coastal cities, and then to the Pearl River and Yangtze deltas, and finally the whole country.
Another good example of pragmatic reform is the power sector. In the early period China had serious power shortages. A State Council decree in 1985 allowed new sources of financing - foreign and domestic, state and private - and pricing of this "new power" at a high tariff that allowed a good return to the investment. At the same time, the price of the "old power" from existing plants was kept low. Economists argue that this kind of dual pricing causes distortions, but in China's case it was a pragmatic compromise that allowed expansion of power generation without upsetting all the existing firms dependent on a low price of power. Within a relatively short time the "new power" expanded rapidly, while old power plants were gradually retired. (For more biz stories, please visit Industries)
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