Problems of economic and political transition

CHINA'S SOCIALIST ECONOMIC reform began in 1978. Its history can be divided into three stages. The first lasted from 1978 to 1992, and was mainly characterised by the introduction of a system of contract responsibility system, as well as the use of monetary incentives. The second can be dated from 1992 to 2001; its chief characteristic was the introduction of a market system, regulating the productive activity of enterprises through market information. The third stage began in 2001, and is still in progress; its defining feature was the joining of the World Trade Organisation (WTO) and a more general linking up with the trends of globalisation. The logic of China's socialist economic reform necessitated the move from the first to the second stage, that is the replacement of hierarchic central planning by central planning combined with the market. At the same time the principle of allocation has been changed from allocation according to contribution to a combination of this rule with allocation on the basis of inputs to production (including capital). In connection with these two changes, the problem of social security has become more acute.

The transformation of productive ownership

The problem of public ownership was already apparent at the first stage of the reform, and as soon as the new system of contract responsibility was set up, the problem of property rights arose both in rural and urban areas. After the beginning of the second stage, that is from 1992 onwards, China's economic development was faster than in the first stage due to the activation of markets; however, the market system caused serious difficulties for public property (that is, the state-owned and collective-owned enterprises); simple monetary incentives, which could serve as lubricants for the first stage of reform, did not work, or even thwarted their original purpose in the second stage. Monetary incentive motivation, combined with contract responsibility, is limited by unclear property rights.

In rural areas, where property rights to land belong to collectives, family contract responsibility has – in some contexts and in different areas – been slowly replaced by sub-contract procedures and concentrated in the hands of a few families. This is one way for peasants to deal with collective property rights and the limits they impose on contract.