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Regular version of the site

Book chapter

China’s Institutional “Miracle”— Party-State in the Transition to Market Economy: Potential and Limits of Systemic Sustainability

P. 107-138.

The concept of “Chinese Miracle” comprises two dimensions. The first one is obvious
and purely economic in nature: 9 percent annual GDP growth rate over quarter of a
century. The second one is less obvious, but no less important and is institutional: the
ruling Leninist one-party state not only survived apparently successful transition to
the market economy, but even consolidated its institutional grip in the wake of this
transition. This fact looks indeed extraordinary and even paradoxical in the light of the
catastrophic fate of all other communist party-states in the former USSR and its East-
Central European satellites, which—in different times and to different degrees - also
initiated market reforms. The explanation of this paradox lies in the specific constellation
of social, demographic and historic factors in China. The practical embodiment
of this constellation was the unparalleled price reform, carried out in the 1980-90s.
This reform transformed decentralized directive pricing, which existed between the
1950s and the 1980s, into a system of agreed pricing. However, party-state institutions
remained the key players in defining the conditions of pricing agreements. Their
positions of the biggest financial monopolist, lender of last resort as well as that of
the sole macroeconomic controller also remained basically intact. The potential of the
Chinese party-state to exhibit institutional resilience in the process of “market transition”
turned out to be unexpectedly significant. However, the basic limitation of such
resilience is that the principle of soft-budget constraint still dominates the behavior of
key economic and administrative players, constantly invoking the specter of macroeconomic
chaos with unpredictable institutional consequences.

In book

Budapest: Budapest Business School University of Applied Sciences, 2018.