Although the decentralization of the economic system since 1957 has substantially enhanced the role of local governments in economic management, the empirical evidence presented in this study suggests that many basic planning decisions have remained relatively centralized. Despite the policy debates referred to in the last chapter, Peking has continued to use centralized policy instruments, such as redistributing investment resources from rich to poor regions, subsidizing the social expenditures of less-developed areas, controlling the interindustry and interregional structure of wages to mitigate income inequality in the industrial sector, and regulating the terms of trade between industry and agriculture so as to transfer sizable income to the poorer rural population. How has the application of these relatively centralized policy instruments affected the character of China's development, particularly as compared with other countries? More important, what is the relevance of China's experience for less-developed countries that are grappling with the interrelated problems of economic growth and income distribution?

The character of China's development

A fundamental characteristic of the Chinese approach to development is its preference for eschewing the use of markets when distributive outcomes are at stake.