Evolution of government and market under China’s reform era: through the perspective of state capacity

There are two main stream theories explaining China’s rapid economic development in the reform era: new institutionalism and developmental state theory. Realizing the weaknesses of two main stream theories and based on China’s unique experience as both a transitional economy and developing economy that experienced rapid industrialization and marketization, scholars also developed other theories with some revisions of the above two mainstream theories. While these theories have very different focuses, they agree on the importance of state capacity. The author argues that the Chinese Communist Party composes the institutional foundation of state capacities to promote economic growth and build market institutions, and discusses three important aspects of how party strength and state capacity helped the market transition, government restructuring and enterprise reform. The future challenges are discussed in the conclusion.