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The Causes of and Solutions to the Two Economic Downturns in Early Days of New China (No 134, 2015)


——A Study of Historical Experience of Making Progress while Maintaining Stability

By Jiang Yu, Research Department of Macro-economy, DRC

Research Report No 134, 2015 (Total 4819)


For years from the early days of its founding to the end of 20th century China had witnessed several swift drops in GDP growth for three years in a row or in a short period of time. Making an analysis on the causes of and solutions to these downturns is useful for China in making economic progress while maintaining stability in recent days. In 1950, China experienced economic depression for the first time since the establishment of New China. It was triggered by a dependent economic structure and ceasing false demands brought by speculations. The government dealt with it by facilitating urban-rural material exchanges, raising farmers’ income, increasing manufacturing orders by the state, replacing shrinking false demands with real demands of the state and rural areas and eliminating disordered competition by enhancing collaboration among enterprises. In 1958, while exploring decentralization under a centrally planned economic system, China encountered a disruption in comprehensive equilibrium due to a rash decentralization, too much focus on reform speed and subjective initiatives. Comprehensive equilibrium was later restored by prioritized development of basic industries, reducing infrastructure construction projects and enhanced centralized planning. These are lessons that we can draw on today while addressing problems like insufficiency in domestic demand, rural demand in particular, disordered competition among certain businesses and squeezed growth in consumption spelled by overheated investment.