China's Economic Growth Model Transition

Key Insight

Since reforms began in 1979, China has achieved extraordinary economic success, primarily through a growth model based on the mobilization of resources, particularly capital. Leveraging an abundant and relatively well-educated labor supply, the nation focused on putting more resources to use, essentially installing the assets required for a modern economy. This involved a complex shift from a state-dominated planned economy to a dynamic mixed economy, with market forces and the private sector playing increasingly significant roles through intricate reforms in financial, fiscal, enterprise, governance, and legal systems.

Today, China faces a paramount challenge: transitioning from this resource-mobilization model to one driven mainly by the efficiency of resource use. The core task is no longer simply accumulating assets but maximizing the return on those already installed. This means prioritizing efficiency gains over sheer capital input. Corruption, which was paradoxically tolerated in the stock-building phase, becomes far more detrimental and 'cancerous' in an efficiency-oriented economy. Therefore, achieving this ambitious economic restructuring necessitates a fundamental reform of the governing structure, which includes permanently reducing the level of corruption to enhance overall efficiency.

Xi Jinping's massive anticorruption campaign, launched in 2012-2013, can be seen as an integral part of this broader governance strategy aimed at facilitating the economic growth model transition. By targeting 'tigers and flies'—high and low-level offenders—the campaign works to dismantle resistance to future major reforms, particularly in local government and state-owned enterprises. At its deepest level, it attempts to renegotiate the implicit political-economy bargain that traded some corruption tolerance for economic growth, recognizing that an efficiency-driven economy cannot sustain high levels of graft. This comprehensive effort to bring corruption under control is viewed as a prerequisite for achieving the ambitious restructuring necessary for China's future economic development.