Recap | How China Escaped the Poverty Trap

China's rapid economic development
Yuen Yuen Ang presents findings from her new book “How China Escaped the Poverty Trap.”

China’s rapid economic development has stunned theorists everywhere. After all, economic success isn’t supposed to be possible under a dictatorship, and yet over the past 30 years China has managed to pull 800 million people out of poverty through national development alone, while still maintaining its autocratic regime. In 1980, China was an impoverished country, with a GDP lower than traditionally poor countries like Chad and Malawi. Today, its global prowess has Americans worried about losing their number-one slot.

Yuen Yuen Ang, associate professor of political science at the University of Michigan, gave a lecture at the Tower Center to explain China’s success. In her new book “How China Escaped the Poverty Trap,” Ang credits China’s rapid rise to its use of “directed improvisation,” which she defines as the combination of top-down direction and bottom-up improvisation within the party state. Central authorities direct, while local authorities improvise local solutions to local problems. Within this environment, she explained that China’s development process unfolded in three steps.

Step one: Use weak institutions to build markets

China harnessed weak (by traditional Western standards) institutions to build markets at the local level.  For example, China had collective property rights instead of private property rights, partial regulation instead of impartial regulation, incentives for extraction, etc. Normally, all of these elements would usually be considered an awful start. But instead of importing best practices from abroad or attempting to modernize in one step, the Chinese Communist Party (CCP) encouraged local officials to use their existing institutions, even if normatively weak, such as personal relations, to kick-start markets.

Step two: Emerging markets stimulate strong institutions

Once markets emerged, the goals of development evolved: from rapid, coarse growth to higher-quality development. Available resources change too. Ang argues that efforts to copy strong institutions found in developed economies without a sufficient level of economic development are typically fruitless. China pragmatically focused on adapting its existing institutions, including communist features and personalist networks, to build markets first.

Step three: Strong institutions preserve markets

This third step, Ang argues, is the widely accepted argument in “Why Nations Fail” by Daron Acemoglu and James Robinson. Acemoglu and Robinson concluded that economic success is driven by the presence of “inclusive and non-extractive” institutions. Ang agrees with this development theory, but points out that this is a theory that applies to advanced market economies. It took China 30 years to get close to this step. In the West and in the United States, it took centuries.

China’s ruthless pursuit for economic growth, however, has negative consequences. The environment is in ruin and not everyone benefited equally from economic growth. Ang argues that the CCP was aware of these shortcomings, but in the beginning, desired economic growth at all costs.

Ang concluded her talk arguing that this three-step development process is not unique to China. Nigeria, for example, built Nollywood, the world’s third largest movie industry, without established intellectual property rights, by using piracy to their advantage. Other weak states like Afghanistan, Ang believes, can also learn from the Chinese example by adapting their existing institutions, even religion and tribalism, to serve developmental goals.

For a detailed summary of Ang’s book, see Duncan Green’s review at the Oxfam blog.