Paul Lachine

Demystifying the Chinese Economy

Some may think that the performance of a country as unique as China, with more than 1.3 billion people, cannot be replicated. But every developing country can sustain rapid growth for several decades and reduce poverty dramatically if it exploits the benefits of backwardness, imports technology, and upgrades its industries.

WASHINGTON, DC – China had an advanced and prosperous civilization for millennia until the eighteenth century, but then degenerated into a very poor country for 150 years. Now it has resurged to become the world’s most dynamic economy since launching its transition to a market economy in 1979. What drove these fateful changes? 

In my recent book Demystifying the Chinese Economy, I argue that, for any country at any time, the foundation for sustained growth is technological innovation. Prior to the Industrial Revolution, craftsmen and farmers were the main source of innovation. With the largest population in the world, China was a leader in technological innovation and economic development throughout most of its history because it had a large pool of craftsmen and farmers.

The Industrial Revolution accelerated the pace of Western progress by replacing experience-based technological innovation with controlled experiments conducted by scientists and engineers in laboratories. This paradigm shift marked the coming of modern economic growth, and contributed to the global economy’s “Great Divergence.”

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