Learning from the best: Lessons from China’s Development Path

by Admin (Posted on March 21, 2023)

By Daniel Balongoofu and Ndamaje Francis

Just like Uganda, China was predominantly an agricultural economy with basic traits of home consumption right before the country started to undergo a series of guided reforms that ushered the economy into a modern-day market-based economy that China inherits. However, China’s success story paints an independent model of transitioning alien to the largely western fronted capitalistic reform strategy by the I.M.F and World Bank which on the contradictory registered some shortfalls in underscoring the agendas of how a market-based economy is groomed. This henceforth invited criticism for example the Poland and Soviet Union implementation in 1990-91. Just like the end’s-based strategy, a notion that emphasizes the results to justify the means, China’s economic might as of present is worth bench marking.

The world’s second largest economy has evolved from events not so alien to Uganda and Africa at large. Right from colonialism, socialism and being war tone by civil wars. Following Uganda’s story in a time like 1986 right after the civil war, Uganda’s economy had literally collapsed with inflation levels up to 240% and the economy literally depending on mostly coffee which contributed 50% of tax revenues and 90% of export earnings. With the private sector contributing only 9% to the general G.D.P, hence a huge need to revamp the economy henceforth leading to economic reforms of 1987 by the government.  The worldwide reformist strategy followed a delegate meeting from 44 countries at Bretton Woods in the United States to discuss the future of the world economies right after the devastations of World War II chaired by the International Monetary Funds and World Bank in 1944 which fronted reforms like mass privatization and neutralizing institutionalism in the economies of the world as some of the mechanisms to revive the already failing economies around the world.

However, I take interest in some of the alien mechanisms Beijing took that are indifferent with the I.M.F and World Bank Standard. In the 1950’s, China was a largely capital scarce country prior the reforms that gave birth to a market economy with the nation pre-dominantly being socialist, the economy was state centric, institutionalized and with large productive firms governed by the state, within this system, production was monitored and profit maximization not being the ultimate driver. Here, a number of commodities were to be produced as stipulated by the state and the market and supply of commodities still dictated and implemented by the state with no consideration for the surplus market.

To begin with, China implemented several micro-management reforms and the most notable ones being the replacement of collective farming with house hold based system that agriculture was now done at a family level as opposed to the previous community- socialistic kind. This was later accompanied by up to a 15year lease to the land for cultivation and by 1993, this reform had widely been implemented across the country and for the record, buffer harvests were noted and empirical estimates show that almost half of the 42.2%  growth of output in the cropping sector in the years 1978-84 was driven by productivity  brought by the reforms hence highlighting loopholes in the prior-existing socialist farming strategy that was characterized by mis-management and had discouraged most famers.

Beijing further took reforms in the state- owned enterprises with the first gradual process being from 1979 that emphasized several experimental initiatives that were intended to enlarge enterprise autonomy and to expand the role of financial incentives within the traditional economic systems, for example the state-owned enterprises were then allowed to produce outside the mandatory state plan. This was pivotal that it begun to encourage competitiveness and urged to occupy virgin markets hence breeding the profit-oriented capitalism economy. To note however, is the double price track strategy that state owned enterprises in the bid to occupy new markets had to agree on the price policy according to the population and the privately owned enterprises for a favorable price. This was aimed to deter out competition by the rich state funded enterprises hence promoting competitiveness with favorable prices and environment.

State owned enterprises were also allowed to produce for export with the government at the helm of marketing the produce. The state as well monitored re-investment of the surplus profit retained from both exports and new markets with an idea that capital resettlement was done in those specific locations of the very state-owned enterprises. The state introduced a reward strategy that was based on merit and productivity that productive state-owned enterprises were awarded quarterly and annually with more incentives for example with more improved machinery.  To the employees, salary increment policies were introduced as opposed to the old standard that now increment was based on how productive individuals were to profit maximization. Recruitment was also based on merit, education and skills as opposed to the prior mechanism that was based on the relationships, political affiliation and age.

The increase in enterprise autonomy put pressure on the distribution system hence a driver for resource allocation mechanism reforms that now the state started to decentralize credit rationing to the local banks. This was a major turning point for the sprouting private enterprises that needed some capital stimulation for healthy competition. The steady progress in competition between state owned enterprises and private entities became the major driver for tapping into other competitive but rather virgin sectors like energy production for the successful privately owned that had accumulated capital and other mechanized sectors while other private entities as a result of competition opted for more labor-intensive small industries hence creating a balance for development that these also employed a huge percentage of the countries labor force.

In conclusion, it should be noted that the Chinese model entailed a serries of guided gradual steps that struck a balance in preserving and the special socialistic traits of the nation with a larger capitalistic out look to the realization of a market economy, highlighting faint state visibility that the state at every point granted more autonomy to enterprises especially to the state-owned enterprises.

With the largest number of developing countries, Africa has a lot to learn from China, not necessarily copying and pasting everything, but the Chinese model has proved to be the most ideal to developing countries.  Most important to note is that Chinese path to modernization offers a new type of development option for the countries seeking development while maintaining independence and self-reliance at the same time.

Daniel Balongoofu is  a Research fellow at Sino-Uganda Research Centre, Ndamaje Francis is Board Chairman, Isimba Community Hub

 

 

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