In the first 30 years after the founding of the PRC in 1949, the Chinese government carried out a system of planned economy, and targets and quotas for various spheres of economic development were set by the "planning committees" of the state. Factories produced goods according to state plans, and farmers planted crops also according to state plans. Commercial departments replenished and sold their stocks according to state plans, and the qualities, quantities and prices of the goods were all fixed by planning departments. This system contributed to the stable, planned development of China's economy, but it also limited the development of the economy and sapped its vitality.
China's economic reforms began first in the rural areas in 1978, when the household contract responsibility system was introduced there. Under this system, farmers got the right to use the land, plan farm work and dispose of products independently. Farmers had more choices for selling their agricultural products. State monopoly of the purchase and marketing of agricultural products was eliminated; the prices of the majority of farm products were freed; many policies restricting agricultural development were abolished; and farmers were allowed to engage in diversified business and set up township enterprises. All this greatly increased farm production.
In 1984, the economic restructuring shifted from the rural areas to the cities, and in 1992, after some 10 years of reform and opening-up and with a clearer orientation toward the implementation of reforms and establishment of a socialist market economic system, the Chinese government set forth main principles for economic structural reform as follows:
The development of diversified economic elements will be encouraged while keeping the public sector of the economy in the dominant position.
To meet the requirements of the market economy, the operations of state-owned enterprises should be changed so that they fit in with the modern enterprise system.
A unified and open market system should be established in the country so as to link the rural and urban markets, and the domestic and international markets, and to promote the optimization of the allocation of resources.
The function of managing the economy by the government should be changed so as to establish a complete macro-control system mainly by indirect means.
A distribution system should be established in which distribution according to work is dominant while giving priority to efficiency with due consideration to fairness. This system will encourage some people and some places to become rich first, and then they may help other people and places to become rich, too.
A social security system, suited to China's situation, for both rural and urban residents shall be worked out so as to promote overall economic development and ensure social stability.
In 1987, the Chinese government set out a clear and definite economic construction objective: The first step was to double the 1980 GNP and ensure that the people have enough food and clothing. China attained this by the end of the 1980s. The second step was to quadruple the 1980 GNP by the end of the 20th century. This was achieved in 1995, ahead of time. The third step is to increase the per-capita GNP to the level of the medium-developed countries by the mid-21st century. At this point, Chinese people will have achieved a high standard of living and modernization basically will be realized.
In 1997, the Chinese government stressed that the non-public sectors of the economy were an important component part of the socialist economy of China, in which profitability was encouraged for elements of production, such as capital and technology. By 2002, reform in various fields was achieving remarkable results. A socialist market economic system has taken shape, and the basic role played by the market has been improved in the sphere of resources allocation. At the same time, the macro-control system continued to be perfected.
In March 2003, following the First Session of the 10th National People's Congress, China restructured these key economic ministries:
The State Development and Planning Commission ("SDPC") was renamed the National Development and Reform Commission ("NDRC") and absorbed the duties of the State Council Office for Economic Restructuring and some functions of other ministries;
The operations of the State Economic and Trade Commission ("SETC") and the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") were folded into a new Ministry of Commerce responsible for oversight of all domestic and foreign trade.
A new State Assets Management Commission ("SAMC") assumed responsibility for managing and restructuring state-owned enterprises ("SOEs").
A new China Banking Regulatory Commission ("CBRC") was given responsibility for supervision and regulation of the banking sector.
The pattern in which the public sector of the economy plays the main role and coexists with non-public sectors of the economy such as individual economy and privately owned economy for common development has basically been formed.