Since the economic reforms and open door policies began in the late 1970s,China has become the fastest growing economy in the world.The average annual growth rate of GDP in the past two decades after the reform was close to 10 percent,rivaling the record achieved by the four Small Dragons—the creators of the East Asian Miracle—in their fast growing period.In par ticular,in China's coastal provinces where the area and population are,respectively,five and four times of those of the four Small Dragons,the annual growth rate reached 12 percent,out performing the records of the four Small Dragons.China is likely to become once again the world's largest economy in the 21st century.

Chapter 1 of this book provides a general picture of China's reforms and development and forecasts when China is likely to become the world's largest economy.The chapter also outlines the four main questions that the book attempts to address:Why China's economic per formances in the pre reform era and post reform period are so much different？What are the fundamental causes for the boom and bust cycle in spite of the success of China's reforms,and what is the way out for the cycle？How can China—the awakening Giant—create the miracle of climbing up to the apex of human civilization after dropping to the trough from the pinnacle？Finally,what are the general implications of China's experiences of reforms for other reforming economies？

Chapter 2 to 4 compare,theoretically and empirically,two different types of development strategy and reach the main conclusion of the book that the growth performance in an economy depends crucially on the choice of develop ment strategy in that economy.Chapter 2 provides a historical overview and a logic analysis of the formation of China's traditional economic system before the reforms.The trinity of the traditional economic system—namely the distorted macro policy environment,the planned resource allocation system,and the puppet like micro management institution—was adopted to facilitate the devel opment of heavy industries when China was a capital scarce economy.In order to lower the costs for the development of heavy industries,the Chinese government artificially suppressed the prices of credit,foreign exchange,energy,raw mate rial,labor and living necessities.Such a distorted macro policy environment resulted in overall economic shortages.A planned resource allocation system was adopted to secure the scarce resources for the development of heavy industries.Furthermore,to ensure that the surplus created by the distorted macro policy environment would be used according to the state's strategic goals,the institution of state ownership and people's commune was adopted.The micro unit was deprived of managerial autonomy in such an institution.The economic system resulted in a distorted industrial structure,poor work incentives,and low allocative efficiency.

Chapter 3 reviews the economic performance of China and other countries with a similar development strategy.The economic performance was dismal in all socialist countries because they all adopted a similar“forging ahead”develop ment strategy.If a capitalist developing economy with a similar endowment structure adopted the same development strategy,it also had a similar macro policy environment,resource allocation system and micro management institution and similar development performance.

Chapter 4 analyzes the causes for the success of Japan and the four Small Dragons in Asia.The main reasons for their success are the following:they had put their own comparative advantages into full play in each stage of their devel opment.Therefore,these economies were very competitive.After the reform started in the late 1970s,China's economic performance improved also because the economy had developed more consistently with the comparative advantages of theeconomy.The most important factor for an economy to realizeits compar ative advantages is a price system that can reflect the relative scarcities of factors and product in the economy.Such prices induce the producers,under competition pressure and profit motives,to make full use of the relatively rich,thus relatively cheap factors while making frugal use of the relatively scarce,thus relatively expensive ones.The sharp contrast between China's economic stagnation in the pre reform period when the forging ahead strategy was pursued and the rapid economic growth in the last 20 years when the economy relied more on its comparative advantages suggests that the change of development strategy is the key to a sustained growth in China.

Chapter 5 provides an overview of China's reform process.The ex post analysis shows,although China's reform is based on the philosophy of“groping stones to cross the river”,the overall direction of the reforms has been fairly clear.First of all,the incentive structure in the micro management units was improved by delegating administrative power and allowing an increasingly larger portion of profits to be retained in the micro management units.Secondly,the rigidity of planned resource allocation system was relaxed and later reformed to allow the newly generated resources to be allocated to the sectors which had been suppressed under the traditional economic system.As a result,the economic structure was improved and the growth rate was accelerated.Finally,when the conflicts among the distorted macro policy environment and the reformed micro management institution and resource allocation system arose,the reforms were deepened to the macro policy environment.

Chapter 6 outlines the main achievements of China's economic reforms:（1）The improvement in the micro incentive mechanism greatly increased workers'work enthusiasm and thus labor's contribution to economic growth.（2）Prompted by competition pressure and profit motives,enterprises paid more attention to market conditions in their choice of products and technologies.The change turned around the trend of negative total factor productivity and the old pattern of growth that depended solely on increasing inputs.（3）The non state owned enterprises,which utilized better the comparative advantages of relative abundant labor,expanded rapidly after the gradual liberalization of commodity prices and foreign exchange rate,and the lifting of the ban on labor market.The rapid development of non state owned enterprises in turn solved the problem in the socialist system that the economy's employment structure lagged far behind its industrial structure.The chapter concludes that a big socialist country can also realize economic takeoff and prosperity by adopting the strategy of relying on her comparative advantages.

Chapter 7 devotes to a systematic analysis for the causes of the problems emerging in the period of the reforms,such as the vicious boom and bust cycle,rampant rent seeking behavior,widening regional disparities,the deteriorating performance of state owned enterprises,and so on.The traditional economic system consisted of a set of mutually consistent institutional arrangements.The reforms,starting from the micro management institution,will inevitably put pressure on the reforms in the resource allocation system,and further prompt for the reforms in the macro policy environment.However,the state has not completely abandoned the heavy industry oriented development strategy.It still attempted to protect the large and middle sized state owned enterprises,which embodied the goal of forging ahead development strategy,by the low input prices.Because the reforms in macro policies,especially those regarding the interest rate policy,lagged behind the reforms in the resource allocation system and micro management institutions,the internal institutional arrangements become incompatible.The above mentioned problems were consequences of the institutional incompatibility.

Chapter 8 discusses the arduousness and the urgency of speeding up the change of development strategy.The fundamental solution for the problems out lined in Chapter 7 is to reform the macro policy environment so as to eliminate the institutional incompatibility,uproot the much stubborn economic malpractice,and prevent the possibility of a financial crisis.The change of devel opment strategy is also required for a sustained dynamic growth in China.

Chapter 9 summarizes the experiences of China's reforms and its theoretical contributions.China's reform began from the micro management institution by increasing the managerial autonomy.The improvement in the micro incentives created a new stream of resources.On one hand,the allocation of the newly created resources by the autonomous micro management unit prompted for the reforms in resource allocation mechanism and macro policy environment and made the reform proceed in a way that is consistent with the internal logic.On the other hand,the allocation of resources to the suppressed sectors increased the micro management unit's profits and the state's tax without impinging on the benefits of any vested interest group,therefore,the reforms enjoyed overall support and became irreversible.When the reforms proceeded to the macro policy environment,the society had the ability to compensate the losers of the price reforms.Therefore,the price reforms were carried out safely by transfor ming the nature of reforms from“non Pareto improvement”to“Kaldor im provement”.The macro policy environment reforms were carried out in response to the demands arising from the reforms in the micro management institutions and resource allocation system.The price reforms adopted the dual track systems as a transitional measure,under which the planned prices were adjusted and the market prices were allowed to grow.The price liberalization will not have great risk when the plan prices have been adjusted close to the market equi librium level and the share of the resource allocated under the market price track have become dominant.Therefore,the approach makes it possible to across a chasm by two leaps.Such a gradual reform gives the society continuous opportu nities for making choices.Therefore,the society can maintain a balance between speed and stability during the process of reforms and prevent the occurrence of political radicalism and social shocks.As the analysis in the book demonstrated,all the reforming economies adopted a similar development strategy in the past,which resulted in a similar economic system and similar economic problems.Therefore,the success experiences of China's reforms provide useful lessons for other reforming economies.

Chapter 10 is a summary of the whole book and answers the four questions raised in the first chapter:（1）The fundamental reason for China's dismal economic performance before the reform was the adoption of the heavy industry oriented development strategy.The key to the rapid growth after the reform was the increasing reliance on China's comparative advantages.（2）A series of prob lems appeared after the reform because the reforms in the macro policy environ ment lagged behind the reforms in other elements of the trinity of the traditional economic system.The key to a sustained growth in China is abandoning the heavy industry oriented development strategy and pushing the reforms further to the macro policy environment.（3）As long as China can carry out the reforms along the direction of exploiting her comparative advantages,China will be able to overcome the obstacles for sustained growth.It is likely that China will over take the United States and Japan to become the largest economy in the world.The Chinese civilization may thus become the first civilization in the human his tory to drop from the pinnacle to the trough and then recover to the apex.（4）All the reforming economies adopting a similar development strategy had a similar economic system and encountered similar economic problems.Therefore,the experience of China's reforms provides useful lessons for other reforming economies.