Soviet Union Vs China Essay

China and Successor countries of USSR’s economic growth and opening up, followed by continuing integration to the global economy , is indispensably linked to transition from centrally planned economy to market based economy, albeit in their own path. The policymakers in these countries formulated transition strategies that focused on macroeconomic stabilization and microeconomic restructuring, along with institutional reforms. The implementation of these strategies varied across these countries in speed and specifics. Let us start the discussion by examining the differences between the conditions of at the initial period of transition between China & Soviet Union from three different dimensions.

a) Level of economic development & industrialization

The military expenditure was 17.5% of GDP in the early transition period compared to 2.7% of GDP in case of China. China was predominantly an agrarian economy. Soviet Union on the other hand had established industrial presence. In Soviet Union, agriculture was through collectives & state owned and not effective. Agriculture in China was already in private hands and was running efficiently. There was a huge labor surplus in China but Soviet Union was experiencing labor shortages. The Chinese agriculture was in private hands and very productive. Further, economy of former Soviet Union was highly energy intensive. This was unlike in China, where it was not energy

This strategy relied on the following main policies: macroeconomic stabilization, domestic and external liberalization of economy, privatization and economic restructuring, institutional and legal reforms, social safety net and political reforms. During the initial period of transition, the Soviet economy was experiencing the high inflation. This required some urgent measures for macroeconomic stabilization. These measures included reducing subsidies, rationalizing government expenditure, introducing normal tax based systems, creating additional fiscal room for providing safety net, stopping quasi fiscal activities of the central bank, actively managing supply of money and inflation, among others. The next important step involved liberalization of the economy. This included price de-regulation, unification of exchange rate, introduction current account and capital account convertibility among others. The privatization of the public sector companies was aimed at not only opening the doors for the new private enterprise but also restructure the state owned enterprise according the market needs. The institutional reforms were aimed at building various market support institutions and adopting market oriented legislation. The mechanism for the enforcement of these legislations was also strengthened. There was a demand for