Back to the Future? The Changing Role of Government in China’s Economic Development

Abstract

This paper reviews the changing role of government in China’s economic development during the last four decades. It argues that China’s outstanding economic performance has been largely caused by draining three “quake lakes” created by the command economy, thus releasing a huge potential locked in by the old system. It shows that just like what happened in the early years of reform when modest policy shifts could produce big steps forward, seemingly minor policy changes could also result in big steps backward. Backtracking can be self-reinforcing and “ex post coherent”, and reforms can run into the danger of sliding “back to the future” if the right lessons of China’s 40 years of reforms are not learnt.