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“Reform and opening” started from the top with the seminal leadership transition from Mao to Deng. Deng Xiaoping heralded China’s boom in late 1978 when he called for experiments with “economic democracy” and “emancipation” from orthodox ideas. But the boom was not simply a top-down, state-orchestrated phenomenon. In fact, the biggest contribution of the state, especially in the first phase of growth, was to get out of the way. Farmers were liberated from collectives, sparking a wildfire of capitalism in the countryside. Urban markets and industry were freed to “grow out of the plan,” making profits on surplus production and creating powerful incentives for rapid growth.

One Child Policy Stimulated Growth

Period: Emancipation (1978-84)

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  • One Child Policy Stimulated Growth

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  • Deng Understood That the World Had Changed

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Meettheexpert

Michael Pettis

Senior Associate, Carnegie Endowment for International Peace

Michael Pettis is a senior associate at the Carnegie Endowment for International Peace and a finance professor at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught at Tsinghua University’s School of Economics and Management and at Columbia University’s Graduate School of Business.

Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Besides trading and capital markets, Pettis has been involved in sovereign advisory work, advising a number of countries on restructuring their banking systems and debt.

Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.

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And then, from '78 onwards, something changed. Now, one of the things that's very interesting, you don't want to overstate demographics, but, it's very interesting that from basically the early 50s until the mid-1970s, China had a real demographic problem. And that is that the share of the population that works, that is between the ages, let's say we can use between the ages of 18 and 65 as proxy, was contracting quite rapidly. And in a lot of countries, we've seen that when this dependency ratio deteriorates, there is economic stagnation. And there was something very close, I wouldn't call it stagnation, but there was very weak growth in China during that period. Beginning around the mid 1970s, the dependency ratio began improving very rapidly largely because of the one-child policy. The dependents are the old and the young and, when you eliminate the young, the working population is a much bigger share of the total population. So the dependency ratio in China, and I'm speaking off the top of my head, improved from roughly 50% in the mid-70s to somewhere in the low 70s in the next 3 or 4 years, it peaks out. After that it begins deteriorating very dramatically and one thing about the improvement in the dependency ratio, it means that while the overall population may have been growing by around half a percent a year, the working population was actually growing at something like 2% a year, at a much much faster rate. And I think we shouldn't underestimate the impact of that tremendous improvement in demographics. And if I'm right, then the next 30 to 40 years, we're going to see a great slowdown in growth, because that demographic sweet spot is reversing, and we're now going to see the working population contract much faster than the total population, which, will be stable to slightly down. That was very important, but other things happened there too, and I sort of divide the 30 years of growth into, broadly speaking, three periods, and we're at the end of the third and we're now going to enter into the fourth period, a much more difficult period. And those periods are: In the 1980s when there was the first spurt of growth, much of the growth was really achieved by unwinding economic policies that were, quite frankly, idiotic. A lot of the stagnation that took place, took place because of very poor economic policies and very poor economic planning, so that even simple things, like, after 1978, it no longer marked you as a criminal to sell stuff in the street. Now, decriminalizing market activity has a huge impact on the underlying economy. Other things that happened was that a small portion of the collectivized land was turned over to households, and they were able to keep everything they grew on that land above some quota that they had to give to the government. Before that, of course, everything that you grew was given to the government, and a portion of that was given back to you. So, there were all sorts of problems with that, but among other things, there was no incentive to really increase productivity, because if you did, what you gave to the government would simply increase by exactly that amount. Once peasant households were able to retain a portion of what they grew, not surprisingly, productivity nearly doubled, and nearly doubled for all of it, even though what was given over to the peasants was probably less than 5% of the land. So, things like that had a huge impact on growth. And the healthiest period of Chinese growth was really in the 1980s, where you really did see an elimination of a whole series of rules that constrained economic growth, and productivity shot up.

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Cite this Source >>
“One Child Policy Stimulated Growth | Michael Pettis | Emancipation | The China Boom Project.”
The China Boom Project.
The Asia Society Center on US-China Relations.
1 June 2010.
Web.
09 May 2025.
<https://chinaboom.asiasociety.org/period/emancipation/0/118>.
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  • Capitalism
  • Globalization
  • The Party
  • Crisis Management
  • Inheritance (Pre-1978)
  • Emancipation (1978-1984)
  • Reckoning (1985-1989)
  • Rebirth (1990s)
  • Overdrive (2000s)
  • Prospects
  • Mao's Failure, Deng's Success
  • China Boom: Rural China in the 1980s

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