The turning point occurred after December 1978 when the leaders decided to shift the policy focus from political struggle to economic construction. Then, China was one of the poorest countries in the world. Today, it is the world’s second largest economy, the largest goods exporter and the number one industrial producer, with a high middle-income level — though its per capita income is still just 18 per cent that of Australia. This dramatic improvement was mainly attributable to the reform and open-door policy and departure from the central planning model.

The exact role played by the state in China’s recent economic success, however, remains controversial, both at home and abroad. This issue is at the centre of the current trade war between China and the United States. So-called ‘state capitalism’, however, needs to be evaluated from a more pragmatic not an ideological standpoint.

On one hand, many Chinese policy interventions were initially introduced to ensure a smooth transition from the central planning system to a free market economy. Therefore they were, and some still are, transitional phenomena, not a permanent feature of the Chinese economic system. On the other hand, some policy interventions actually bring more social benefit by helping overcome the problems of market failure.

Take the financial sector for example. The government still intervenes quite extensively in financial markets, in the determination of interest rates and exchange rates, and in credit allocation and cross-border capital flows. Empirical analyses suggest that these repressive financial policies actually boosted economic growth during the early decades of economic reform by effectively converting savings into investment and underpinning financial stability. The counterfactual analysis reveals that, were China to have completely liberalised the financial system in 1978, its GDP growth in the 1980s would have been reduced by about 0.8 percentage points a year.

Because it takes time for the market mechanisms to take root, it’s unwise to advise the government to immediately abandon all of interventions as it undertakes large-scale economic reforms. It’s equally wrong to perpetuate these policy interventions as the Chinese economic system transitions to efficient marketisation. The same analysis finds that more aggressive financial liberalisation would have increased China’s GDP growth in the 2000s. This implies that it should now be beneficial to push ahead market-oriented financial reform more decisively.

In 2012 the Chinese leadership reiterated the two Centennial Goals. The first is to double the 2010 GDP and per capita income for both urban and rural residents by 2021, the year when the Chinese Communist Party (CCP) celebrates its centenary. The second is to build China into a fully developed country that is prosperous, powerful, democratic, culturally advanced and harmonious by 2049, the year when the PRC celebrates its centenary. It looks like China is on track to achieve the first Centennial Goal as real GDP grew by an average of 7.4 per cent from 2010 to 2018. Achieving the second Centennial Goal will be more challenging as the country has lost its low-cost advantage in the international marketplace, is experiencing dramatic population ageing and faces anti-globalisation externally.

The only way to sustain robust economic growth over the coming three decades is to pursue higher quality reform and open-door policies. Higher quality reform means that China should complete its transition to the free market system, although the trajectory of the transition needs to remain pragmatic. Policy discrimination against the private enterprises, for instance, did not prevent China from achieving rapid economic growth in the past, but now it is a major hurdle to rapid growth because private enterprises account for 70 per cent of domestic patents and 80 per cent of urban employment. The government should now consider ending the ‘dual-track reform strategy’ so as to achieve competitive neutrality between private firms and the state and to let market forces play the decisive role in national resource allocation.

Higher quality open-door policy means that China should aim at adopting an external policy regime of ‘zero tariffs, zero barriers and zero subsidies’. China has been one of the main beneficiaries of globalisation during the past four decades. It has a very large stake in maintaining the open international economic system. Chinese efforts to continue to liberalise, even if unilaterally, will benefit the world economy as well as the Chinese economy.

China should consider giving up its ‘developing country’ status under international trade law. While China is still a developing country in fact, its size and its policies already have major global effects that shape the way the whole system now works. By giving up ‘developing country’ status, China would not only benefit greatly from further liberalisation itself but also assume a leadership role in supporting the open international economic system.

Celebration of the seventieth anniversary of the PRC provides a chance to reflect on its economic policy choices today. China’s experiment with the central planning system largely failed but adoption of the reform and open-door policies delivered an ‘economic miracle’ of unprecedented scale. The Chinese economy is at another important turning point. If the government can pragmatically adopt higher quality reform and open-door policies, it is highly likely that by 2049, China’s GDP per capita would reach two-thirds of that of the United States, although its GDP growth might moderate considerably to 2.7–4.2 percent. This would ensure that the country achieves its second Centennial Goal.

Yiping Huang is Professor of Economics and Finance at the National School of Development and Director of the Institute of Digital Finance, Peking University.