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How Did China Maintain Macroeconomic Stability During 1978–2018?

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  • Ming Feng
  • David Daokui Li
  • Shuyu Wu

Abstract

In this paper, we analyze the role of macroeconomic management in developing countries’ economic take‐off and structural transformation. We argue that developing countries face three leading challenges: market immaturity, lack of a developed financial system, and severe information asymmetry between international investors and domestic players. If not properly dealt with, these challenges can lead to macroeconomic volatility and fragility in economic development. Therefore, the government must intervene appropriately to address these challenges. By analyzing China's experiences in the era of reform and opening up (1978–2018), we find three important lessons: (i) It is important for the government to facilitate the entry and exit of enterprises in macroeconomic cycles, relying not only on market signals but also on administrative orders and measures of institutional reform; (ii) Financial reforms should be implemented in order to promote financial deepening and channel savings into investment; and (iii) The government should carefully manage capital account liberalization in order to preserve financial stability while promoting foreign investment, international trade, and industrial upgrading.

Suggested Citation

  • Ming Feng & David Daokui Li & Shuyu Wu, 2021. "How Did China Maintain Macroeconomic Stability During 1978–2018?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(3), pages 55-82, May.
    • Handle: RePEc:bla:chinae:v:29:y:2021:i:3:p:55-82
    DOI: 10.1111/cwe.12376
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