4.8 Conclusions and Case Study 4: China — Understanding a Development “Miracle”

China’s Dual-Track Strategy

Maintaining both planned and market systems during transition, allowing experimentation and stability.

Township and Village Enterprises (TVEs)

Local industrial firms that drove China’s early rural industrialization and job creation.

Gradual Reform Approach

China’s step-by-step transition rather than sudden liberalization, reducing disruption and learning from experience.

Pragmatic Government Intervention

The government’s active but flexible role in promoting markets, guiding investment, and managing reform.

High Savings and Investment Rates

Major contributors to rapid capital accumulation and growth.

Institutional Experimentation

Testing and scaling policies regionally before implementing them nationally.

Financial Repression

Government control over interest rates and credit allocation that restricted financial sector development but supported industrial policy.

Environmental Challenges

Negative side effects of rapid industrialization, such as pollution and resource depletion.

Rising Inequality

Growing gap between coastal and inland regions, and between rural and urban populations.

Middle-Income Challenge

The risk that countries like China may stagnate after rapid growth unless they shift to innovation-driven development.