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Last Updated: Friday, 3 November 2006, 11:44 GMT
Quick guide: China's economic reform
China has the world's fastest-growing major economy but it has been a rocky road from socialism to consumerism.

Quick guides are concise explanations of topics or issues in the news.

When Communist Party leader Mao Zedong took power in 1949 he was determined to transform China from a rural economy into an industrial giant.

Farms were collectivised into large communes and resources shifted to heavy industry, which was nationalised.

But by Mao's death in 1976 it was clear these reforms had failed, leaving China impoverished and isolated.

Opening up

In 1978 Deng Xiaoping became leader and began an ambitious programme of economic reform aimed at raising rates of foreign investment and growth.

China map showing special economic zones
Map of China showing special economic zones
He ended collective farming, initiating a "responsibility system" which freed farmers to choose what crops to grow and to sell any surplus for profit.

Deng encouraged foreign trade and investment through joint ventures.

In the south, zones were created giving investors tax concessions in exchange for revenue and technical knowledge.

Cooling off

Deng's reforms led to rapid growth and a more market-based economy.

Other cities were allowed to operate more liberal trade policies to attract investment in the same way as the special economic zones (SEZs) in the south.

But the system was unable to restrain large-scale corruption or control inflation, which shot to 18.5% in 1988.

So to drastically reduce growth, in the middle of 1988, Beijing adopted several austerity measures - limiting foreign joint ventures, slashing investment and tightening monetary controls.

Renewed growth

The decision to slow economic growth was followed by several years of conservative monetary policy.

But in 1992 Deng toured the SEZs of the south and appealed for renewed economic freedom and fast-paced development.

His call kick-started the stagnant economy and persuaded foreign firms to invest in China as never before.

Growth has continued apace and in 2001 China joined the World Trade Organization (WTO), committing itself to further economic liberalisation.

Economic giant

China now has one of the 10 largest economies and is an important engine for economic growth across the globe.

China consumes more steel, coal, meat and grain than any other nation.

It is also the world's fifth largest exporter, trading extensively with the EU, Japan and the US. In 2006, 80% of the world's consumer electronics were made in China.

Have we missed anything out? Do you want to suggest a subject for a Quick Guide?

The rapid economic progress has transformed cities and coastal areas.

But for those in China's underdeveloped rural interior life remains difficult. The gap between rich and poor in China is one of the biggest in the world.

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