The Complex Task of Evaluating China’s Economic Reforms

Scholars, practitioners and many others regularly comment on the pace of China’s economic reforms, but there is no consensus on what constitutes slow or fast, partial or complete economic reform, either in China or in any other country. Economists often include in equations used to explain gross domestic product (GDP) growth a variable that purports to measure reform. Often this variable is based on surveys of ‘informed individuals’ or businesspeople, most of whom cannot possibly have the ability to make comparative judgements of more than two or three countries, if that. Total factor productivity (TFP) in growth equations is also sometimes used to measure whether or not economic reform is having an impact, but TFP is a residual that is high or low for a variety of possible reasons. Alternatively, many analysts of China’s economy base their assessment of the pace of reform on reform in one or another sector that they think is critical to overall reform. The pace at which state-owned enterprises are made to face full domestic and international competition or the pace at which they are being privatised are often used. Others, particularly foreign observers, focus on financial reforms, ranging from the degree to which capital markets are open to the degree to which banks are managed and regulated according to practices widely used in high-income countries. None of these partial explanations comes close to capturing the complexity of fundamentally changing an economy from one kind of system to another. In this chapter, I will attempt to outline the main components of economic reform in China and will give my views —where I have some basis for judgement — on the pace of reform in these components.