ogram (1991-2000) called for average annual GNP growth of 6 percent. It was hoped that over the decade, the rate of population increase could be restricted to an average of 1.25 percent per year. Economic reforms were to continue, and the planned economy was to be combined with market regulation. In 1978, a process of reform (the open door policy), was introduced to decentralize the economic system and to attract overseas investment. The state monopoly on foreign trade was gradually relinquished, commercial links were diversified, and the special economic zones were established. Measures to reduce the resultant high rates of inflation were introduced in September 1988, followed by additional austerity programs implemented in July 1993.
On the surface, China's transformation from a centrally directed to a "socialist market" economy appeared to be a success. According to the World Bank, China now boasts the third-largest economy in the world. Since 1978, gross domestic product has increased tenfold, and real growth rates above 10 percent annually have been common in recent years. China has opened its economy to foreign trade and investment and currently exports more to the United States than any country other than Hong Kong. Indeed, since Deng's liberalization began, China's external trade has ballooned from $10 billion to nearly $300 billion, while foreign investment has jumped from virtually nothing to more than $30 billion in 1994.
But the Chinese "economic miracle" also has its dark side. Rapid growth has been accompanied by rapid inflation, with consumer prices rising 17 percent in 1993 and 27 percent in 1994. Nearly one-half of the state-owned enterprises (SOEs) are losing money, and plans to restructure and privatize these entities have stirred strong resistance from both the Communist party (which dominates the management of the SOEs) and workers (who fear the loss of secure employment plus the inexpensive hous...