China before reform operated a command economic system along the model borrowed from the Soviet Union. Command economies share certain fundamental characteristics, and thus the problem of transition from a command to a market economy poses similar challenges whether carried out in Eastern Europe or China. But China also differs from the European socialist countries, most fundamentally by being a much poorer country. China's lower level of development shaped the character of its pre-reform economic system as well as its reform options and growth prospects. This chapter begins with a brief discussion of the command economy, including the way its interlocking institutions make the problem of economic reform extremely difficult. It then describes the features of the Chinese command economy that served to differentiate it from the Soviet model. On balance, those features tended to make the Chinese planning system less centralized, though decentralization was tempered by rigid controls on economic activity in other respects. The performance and prospects of the Chinese economy are discussed at the end. It is stressed that China's economy was performing poorly on the eve of reform, but that its prospects for growth acceleration were arguably quite good.

The command economy

The Chinese economic system pre-reform was one of the class of Soviet-style economic systems often called command economies. Command economy is a good label, because it captures two of the most basic characteristics of Soviet-style economic systems.