The essentials
The People's Republic of China was established in 1949 after the communist revolution led by Mao Zedong. Its early economy was based on the Soviet model: state-owned industry, collective farming and limited contact with the world market. Growth was slow, and large programmes such as the Great Leap Forward had serious problems.
From 1978, under Deng Xiaoping, China adopted the "open door" policy and economic reforms. China did not apply shock therapy; it opened its economy step by step. Agriculture was privatised in 1982 and industry from 1998. Special Economic Zones (SEZs) were set up where foreign firms could invest on attractive terms, and trade barriers were gradually removed.
Key points
- China joined the World Trade Organisation in 2001.
- Privatisation of agriculture raised farm output and rural incomes; rural industries also grew.
- Foreign direct investment and exports became major engines of growth.
- The political system remained under the Communist Party while the economy was opened.
- Challenges included unemployment, regional and rural–urban inequality, and environmental damage.
- China became a major trading partner for many countries and an important economic centre in Asia.
Exam tips
Remember the sequence: 1949 revolution, 1978 open door policy, 1982 agriculture, 1998 industry, 2001 WTO. Compare China's gradual reforms with the shock therapy of Russia, a common question.
Common mistakes
- Saying China introduced multiparty democracy along with economic reform. Economic change came without a change in the one-party system.
- Mixing up Mao Zedong (revolution of 1949) with Deng Xiaoping (reforms from 1978).