As a result, China changed overnight from the world's most closed economy to one that has a higher percentage of trade in its GDP than most OECD Member countries. Huge trade surpluses resulted in a build-up of foreign-exchange reserves which peaked at $3.8 trillion early last year. While that meant China could pay for many months (3 months is the usual benchmark) without having to export anything, it also meant that much national wealth was tied up in investment with a low return (mostly U.S. treasury bonds).
There is now a thriving private sector in which innovation and customer service are starting to be driven by competition, although much still needs to be done to lower barriers to entry that continue to favor state-owned enterprises.
The removal of political constraints on consumption and the demonstration effect of goods produced in China for the world market that were previously unavailable have enabled hundreds of millions of consumers to enjoy products and services of which they would not even have been aware in earlier decades. The government's strong encouragement of leisure and consumption has only recently attracted world attention, but it began back in the 1990s with the introduction of the 5-day work week (unusual in a developing economy) and the expansion of short holidays into "golden weeks".
And freedom of choice has long been extended to jobs and housing.
I remember when graduating students were "allocated" (fenpei) jobs regardless of their recorded preferences. There has long been a labor market that is so free that employers complain of the high turnover.
I remember when urban dwellers lived in occupational apartment blocks. The rents were minimal, but so was the maintenance paid for by them. China's housing market reform was successful, though one result has been the increase in house prices that has caused the current affordability problem.
I could mention the steep increase in household incomes, the lifting of hundreds of millions of people out of poverty in record time, but I expect you already know all this and by now you want to hear my take on China's current slowdown.
As space is limited, let me just point out that there are two things happening that need to be understood and addressed.
The first is a much overdue and entirely necessary long-term structural adjustment that inevitably shifts growth to a lower plane, almost certainly well below the current 6.9 percent per annum GDP expansion.
The second is systemic risk of debt crisis, which the authorities have been working hard to prevent.
I will go into these issues more deeply in future articles.
The author Ken Davies is president of Growing Capacity, Inc, an economic policy consultancy. He is former chief economist, Asia for the Economist Intelligence Unit and head of global relations in the OECD's Investment Division.
