China’s Economic Evolution: How Liberalization Reformed a Nation for the Better

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Before China’s growing modern economy in today’s world, at one point, they were working under a strict, centrally planned economy. In short, it is an economy where the government decides who, what, and where resources will go—not the market. Resource allocation was so strict that the farmers, factories, and managers were set and owned by the central planners of the government. With this system put in place, there wasn’t any competition within the economy — prices were fixed, and consumers had little to no choice. For example, compared to a market-determined economy, the quantity and price of a bicycle would be fixed within the year, despite how much demand would fluctuate. For China in the 1700s, they were known for being one of “the world’s biggest single-entity economies,” but if you could guess by how China’s economy is thriving now, that system didn’t last (Xu Bin, 2023). In the long run, a centrally planned economy doesn’t work out because the government also assigns people’s jobs and homes. So in response, workers are typically guaranteed lifetime employment with fixed wages. Fixed wages give people little incentive to work harder, so the economy's overall productivity would definitely decrease due to discouraged innovation.

Remember what I mentioned about the government owning its farms and factories? Well, that was called collective farming, where villagers worked together on larger communes called People’s Communes. In the large communes, everything (tools, food, labor) was shared amongst each other. The government would, of course, collect almost all of the grain created and would distribute it across the country according to plan. This type of system was pushed to an extreme during Mao Zedong’s Great Leap Forward (1958–1962), where the Chinese Communist Party tried to convert its agrarian society into a modern industrialized and communist society. This period of time is known to be one of the worst man-made disasters in history because the aftermath was so bad. In the process of increasing steel production, they were mainly being smelted in homemade furnaces, which led to poor-quality steel and the destruction of specific tools. In addition, false production reports were being exaggerated to impress higher-ups. In response, a massive famine killed tens of millions from starvation.

Shortly after this, Mao Zedong’s influence declined, and China’s economy was rigid, inefficient, and cut off from global trade. This system needed urgent reformation, so that’s what led to China’s liberalization in 1978 from a centrally planned economy to a mixed economy. Post-1978 liberalization led to a bunch of new perks for its citizens. One was introducing the Household Responsibility System in the late 1970s. Farmers were allowed to keep and sell surplus crops even after hitting quotas, compared to pre-liberalization when they had to do the opposite. Another thing was the introduction of Special Economic Zones (SEZs), where cities like Shenzhen were open to foreign investment and market-based policies. These zones were known for being the hotspots for exports, manufacturing, and job growth. Later, private businesses became legalized in 1980, and State-Owned Enterprises started operating for profit goals. In short, in 2001, China was able to enter the global trade market yet again, along with prices being adjusted to the market and no longer set by the state. GDP growth was often over 10% in the 2000s and lifted hundreds out of poverty. Competition later increased and efficiency improved, especially in the real estate and architecture sector.

As China began collaborating with foreign investors, designers, and architects, the country focused on defining and implementing its new reform agenda to support its market-based economic policies. International hotels emerged as one of the most significant drivers of China's reform post-liberalization, as they wanted to increase their tourist industry. Between 1978 and 1979, the tourist population increased from 1.8 to 4.2 million people (Cole Roskam, 2021). These new five-star hotels were being built in Beijing, Shanghai, etc., which supported the growth of their tourist industry and economic expansion. Hotels had to cater to foreign travelers with amenities and atmospheres unavailable to most of China’s own residents. Collectively, hotels quickly transformed the skylines and built environments around the country, marking China’s rapid financial success.