China's post-Mao economic reforms have generated rapid and sustained economic growth, unprecedented rises in real income and living standards, and have transformed what was once one of the world's most insular economies into a major trading nation. The contrast between China's transitional economy and those in Eastern Europe and the former Soviet Union could not be more striking. Where the latter struggle with severe recessions and pronounced declines in real income, China has looked more like a sprinting East Asian “tiger” than a plodding Soviet-style dinosaur mired in the swamps of transition. The realization that reform measures and energetic growth continue even after the political crisis of 1989 has made China a subject of intense interest far outside the customary confines of the China field. Understood increasingly as a genuine success story, it is moving to the centre of international policy debates about what is to be done to transform the stagnating economies of Eastern Europe, and various aspects of its case now figure prominently in academic analyses ranging from theories of the firm and property rights to the political foundations of economic growth.

Pressures for change are inherent in leadership succession under any political system. In China, because of his longevity and close involvement in major strategic initiatives, Mao Zedong's passing was bound to intensify such pressures. When he died in September 1976, Mao had held supreme power, largely unchallenged, for four decades. Since 1949, China's economic development had been uniquely, if not consistently, influenced by his personal prejudices and idiosyncratic view of how best to realize the country's development potential.

Why has China been so much more successful than the former Soviet Union and its East European satellites in making the transition away from a centrally planned economy? While other articles address a wide range of explanations of China's success, this one explores the possible contri- bution of China's grass roots social organization, and particularly its family and kinship structures. Attention is drawn to social factors by the obvious fact that China, through its spectacular recent growth, has taken its place among other Chinese (and Chinese cultural orbit) populations in East Asia, reinforcing the position of this region as the most dynamic portion of the world economy. Could China share with other Chinese populations, despite more than 30 years of collectivist socialism, grass roots social structures that are conducive to economic growth under the proper conditions - social structures that are different in strategically important ways from those in the former Soviet Union and Eastern Europe?

Since the late 1970s the Chinese government has taken major steps to open up domestic markets and promote the development of commerce. Policies during the reform period have included reducing the scope of commercial planning, eliminating state commercial monopolies, and permitting individuals, collectives and enterprises to buy and sell at mutually acceptable, market-based prices. The effects of such measures are evident in the busy retail districts of China's cities and in the lively market fairs in the countryside.

The ever-greater roles played by markets and pecuniary incentives, and the increasing decision-making authority of localities, enterprises and individuals, have been central elements of China's economic reforms. Compared with these radical departures from the past, change in the area of property rights has been ambiguous. Depending on one's perspective, China might be seen as on its way to establishing a socialist market economy, in which public and collective ownership forms are predominant, or well along the path to a radical transformation of property rights, including a de facto private agriculture, massive private foreign investment, stock markets and the growth of private enterprise. What role property rights have played in the successes and problems of China's reforming economy is similarly debatable. The view that property rights have remained largely “social” leaves open interpretive possibilities ranging from the conclusion that China offers evidence of the viability of a market socialist option, to arguments that the transformation of property rights remains a major hurdle on the road to an economy that can support sustained growth. The quite different view that sectors experiencing substantial privatization have been the main contributors to the achievements of the reform economy, and that those maintaining public ownership have held back economic growth, is also taken by some.

The nature of the property rights that have characterized China's economy during the years of economic reform, and the influence of property rights and property rights reform on the performance of the economy during that era are the subjects of this article.

In the almost two decades since economic reform began in China the role of the foreign sector has burgeoned in ways that no one anticipated. The volume of foreign trade and the role of foreign capital are both far greater than could have been foreseen based on the modest Chinese economic reforms initiated in the late 1970s. By the mid-1990s China had become one of the world's largest trading nations, the recipient of more foreign direct investment than any other country in the world, the largest borrower from the World Bank, the largest recipient of official development assistance in the form of low-interest, long-term concessionary loans from industrialized countries, and, except for the Czech Republic, the only transition economy with ready access to international capital and equity markets.

Is macroeconomic stability the Achilles heel of the Chinese economy? Recurrent bouts of inflationary disorder lead some observers to worry that the Chinese government is unable to control the economy. Macroeconomic difficulties show up in a pattern of repeated boom and bust cycles, in which each boom is accompanied by an acute inflationary phase and significant disruption. Moreover, since the reform era began, the peak annual inflation rate of each successive cycle has been higher than that of the preceding one. The most recent attempts to cool off the economy have only led to additional questions. An austerity policy was decreed at the end of June 1993, yet inflation actually accelerated in 1994, and it was not until mid-1995 that it dropped to the levels of mid-1993. The Chinese government was engaged in a quest for an economic “soft landing” for two years without a net reduction in the inflation rate!

As the People's Republic of China approaches a half century of existence, it seems to be an anomaly. Not only has it survived “the mass extinction of Leninist regimes,” it also continues along the path of reform. And this is despite the widely accepted assumption that Soviet-style systems are, by their very nature, incompatible with the assumptions of systemic reform - namely, the gradual and incremental transformation of economic and political systems by leaders who “use and build upon the existing structures of society.”

All states have a role in development, but this varies widely. The spectrum is defined at one end by the laissez faire minimalist state whose role is limited to ensuring a stable and secure environment so that contracts, property rights and other institutions of the market can be honoured. At the opposite end are the centrally planned Leninist states that directly replace the market with bureaucratic allocation and planning. Between these two extremes are the capitalist developmental states of Japan and the East Asian Newly Industrializing Countries (NICs) that are neither Communist nor laissez faire, but exhibit characteristics of both. The state plays an activist, rather than a minimalist, role; there is planning, but it is geared toward creating maximum competitive and comparative advantage for manufacturers within a market economy.

As reform approaches the end of its second decade, the prospect of an interpretive summary of China's recent economic experience becomes irresistible. The analyst may plausibly hope to separate trend from cycle and pick out key elements in the kaleidoscopic jumble of events. China's unique combination of enormous size, large and unexpected economic gains, unorthodox policies, hybrid institutional structures and formidable challenges to future economic advance adds to the promise of such a review. This article begins with a summary of reform outcomes, followed by discussions of the reform process, the implications of recent reform experience and China's economic prospects. It concludes with a hesitant excursion into the realm of “lessons” from China's reform experience.