Overview of China’s Economic Miracle

Before 1978, China’s economy and society were shaped by a highly centralized planned system. After the founding of the People’s Republic of China in 1949, the government adopted a Soviet-style model. This model emphasized state ownership, collective agriculture, and price controls (Encyclopedia Britannica). This system led to inefficiency, low productivity, and shortages for goods. During the Great Leap Forward and the Cultural Revolution, economic growth stagnated, the education system collapsed, and people lived in fear. 

This turning point came in December 1978. At the Third Plenary Session of the 11th Central Committee, the Chinese Communist Party officially launched the policy of reform and opening up (Wikipedia). Under the leadership of Deng Xiaoping and other reformers in the CCP, the aim of reform and opening-up was to shift from an inefficient planned economy to a market-oriented economy integrated within the global economy. Over the 40 years, these reforms reshaped China’s economy, society, and global role, changing from an isolated state to the world’s second largest economy. 

The earliest reforms began in rural areas. The introduction of the household responsibility system replaced collective farming, allowing farmers to choose crop types and sell the remaining grain after reaching the annual collection standard. Agricultural productivity rose sharply, food shortages declined, and rural incomes increased, providing foundation for future urbanization. 

The introduction of Foreign Direct Investment was an important factor in the rapid development of China’s economy. China began to attract FDI in 1979, from 80,000 USD in 1979 to 344.07 billion USD in 2021 (World Bank). China also began opening to the global economy through Special Economic Zones. These zones offered tax incentives and other benefits to attract foreign investment. Shenzhen transformed into a world-class metropolis from a small fishing village. 

Economic reform deeply affected society. Started in 1977, the government restored Gaokao, revived universities and encouraged overseas studies; these policies have raised the education level of the next generation of Chinese people and also enabled China to cultivate talents in all fields. With the development of the economy, more voices emerged. Women and LGBTQ community have also begun to speak out for themselves. 

China’s reform path deliberately separated economic liberalization from political liberalization. The sequencing of FDI openness before the SOEs reform and legalization of private enterprise contributed to strengthening the state instead of losing the central power (Gallagher). While some political reforms were introduced in the 1980s, the Tiananmen crisis brought an end to China’s democratization process.

China’s reform and opening up can be defined as a fundamental change in the structure of the state. It constructed China from a relatively closed, centrally planned economy to a globally dynamic economy. It reshaped the economy, social structure and people’s lives. Yet it preserved the Chinese Communist Party’s power and created new challenges for the country. Overall, the positive effects of reform and opening up outweigh the negative ones. Today, China’s economic boom, institutional style, and its global role are all consequences attributed to the reform and opening up.

Gallagher, Mary E. “‘Reform and Openness’: Why China’s Economic Reforms Have Delayed Democracy.” World Politics, vol. 54, no. 3, 2002, pp. 338–72. JSTOR, http://www.jstor.org/stable/25054191. Accessed 4 Nov. 2025.

Liu, James T.C., "China". Encyclopedia Britannica, 4 Jan. 2026, https://www.britannica.com/place/China. Accessed 5 January 2026.

Wikipedia, “Reform and Opening Up.” Wikipedia, Wikimedia Foundation, 23 Dec. 2025, en.wikipedia.org/wiki/Reform_and_opening_up.

World Bank, “Foreign Direct Investment, Net Inflows (BOP, Current US$) - China.” World Bank Open Data, data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=CN. Accessed 5 Jan. 2026.