Macroeconomic Management and System Reform in China

  • Barry Naughton
Part of the Studies on the Chinese Economy book series (STCE)


In a centrally planned economy, the dominant role of the state in the development process is clearly manifest in the nearly total state monopoly of investment. The state’s taxation authority is harnessed to channel resources into new investment, and the mechanism of material balance planning is used to ensure that specific materials are directed to state priority projects. These priorities may include military objectives, but more generally the top priority is the rapid creation of a heavy industrial base through large-scale investment. However, as industrialisation proceeds, the objectives of the national leaders typically become more diversified and expand to include more than the single-minded pursuit of a heavy industrial base. Seeking improved efficiency and a greater diversity of output in order to meet a wider range of society’s needs, such a leadership may contemplate a programme of economic reform. As part of this reform, the government seeks to improve the incentives of enterprises and households by giving them greater control over current income streams, a voice in investment decisions and some claim on the future product of those investment decisions. As a result, the state effectively abandons its monopoly over the investment process.


Monetary Policy Banking System Contractionary Policy Reform Process Bank Credit 
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© Gordon White 1991

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  • Barry Naughton

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