China must tap the potential of its huge domestic market for economic growth to become a truly modern nation
- To reach its centenary goal of being a ‘great socialist country’, China needs another three decades of strong growth. This is possible only if it transforms its growth model to spur a sharp and sustainable increase in home-grown demand
The first step towards answering this question is to understand what has driven China’s past successes.
The People’s Republic did not thrive from the very start. On the contrary, Mao Zedong’s highly dogmatic and centralised approach, embodied in the disastrous Great Leap Forward and fanatical Cultural Revolution, not only prevented the country from advancing technologically; it pushed the economy to the brink of collapse.
Everything changed in 1978, when Mao’s successor Deng Xiaoping launched his strategy of “reform and opening up”. Thanks to that change of course – which emphasised constant experimentation, monitoring and adaptation – China shifted onto the fast track towards industrialisation, fuelled by strong export growth and guided by lessons from countries that had recently become high-performing economies.
During this process, China’s government encouraged inflows of foreign capital to spur growth in sectors with potential comparative advantages. As those sectors became globally competitive, they helped to drive gradual structural change, capital accumulation, and productivity and employment growth.
