Market reforms enter new era

With the introduction of reform and opening-up in 1978 and its deepening since 1993, the People's Republic of China has been successfully accelerating its economic development. Over the last 35 years, China has imported know-how and reaped productivity gains by shifting underemployed workers in agriculture to export-oriented manufacturing, to become the second-largest economy in the world while substantially reducing poverty. More recently, after the global financial crisis, growth has depended more on domestic consumption and investment. There has also been impressive progress in many social areas, such as education, healthcare, pensions, and gender equality, to name a few.

However, for any economy, the period of high growth through industrialization does not last forever. Eventually, the pool of underemployed rural labor will be drained, and the advantage of technological catching up diminished. Changes are needed to restructure the economy and diversify the sources of growth. Countries that fail to adjust their growth pattern face the risk of stagnation, a phenomenon known as "the middle income trap".

This challenge is especially relevant to China today. Chinese policymakers are therefore planning the implementation of far-reaching reforms to restructure the economy and build a "moderately prosperous society by 2020". In this context, the reform plan released after the Third Plenary Session of the 18th Central Committee of the Communist Party of China in November is comprehensive and full of profound ideas. I particularly support the plan to provide the market a "decisive role" in the allocation of resources. If we look closely at the scope and implications of this seemingly rather simple policy statement, we can see that the successful implementation of the forthcoming reforms will indeed bring China a new era of socioeconomic development.