The Interaction of the State and the Market In a Developing Transition Economy: The Experience of China

This paper assesses how the particular form of interactions between the state and the market may have had its impact on China’s overall success in the past two decades in economic reform and development. In doing so, the question of development economics, i.e., the role of the state and the market in development, is discussed in a context of transition economics. Some key components of China’s reform experience are examined to illustrate the way the state interacts with market forces, including ownership transformation of people’s communes and state owned enterprises, regional decentralization, price reform, financial sector reform and capital market development, and bankruptcy regime. In interacting with market forces in some “transition institutions”, the state seemed to have played positive roles in ensuring political and social feasibility of reform measures, supporting the market to achieve initial improvement in efficiency, and maintaining the momentum of reform