The Chinese Economic Transformation by Song, Yixiao Zhou and Luke Hurst

Deepening reform and opening-up for 
China to grow into a high-income country
 Ligang Song, Yixiao Zhou and Luke Hurst
 Searching for new engines of growth
 In the past four decades, the Chinese economy has experienced three growth 
surges. The first took place following the period of ‘reform and opening-up’ from 
the late 1970s; the second occurred following the implementation of taxation 
reforms in 1994; and the third happened after China’s accession to the World 
Trade Organization (WTO) in 2001 (Figure 1.1). Over the entire period of reform 
(1978–2018), the annual growth rate of the economy was more than 9 per cent 
and China’s per capita income reached US$9,600 in 2018. Rapid growth in China 
has led to its economy making up a greater share of both the Asian and the global 
economies. In 1980, China contributed about 2 per cent of the global economy; 
in 2018, this was nearly 16 per cent (Figure 1.2). Furthermore, the importance 
of the Chinese economy is seen not only in its scale, but also in its contribution 
to global economic growth. In 2018, China was the largest contributor to global 
economic growth, at 32 per cent; emerging and developing economies excluding 
China contributed 44 per cent and the advanced economies contributed 24 per cent 
(Figure 1.3).

While growth in China is still robust, it has been slowing since 2010, as a result 
of headwinds (Figure 1.1). A question one may ask is whether those headwinds 
will derail that economic growth and prevent China from reaching high-income 
status or whether there are ways by which China can overcome these headwinds and 
continue to grow, albeit at a slower trajectory, in the next phase of its development. 
In this chapter, we aim to understand some of the causes of the growth slowdown 
and identify new sources of long-term growth through the lens of growth theories. 

The Chinese Economic Transformation