The Third Plenum of the Chinese Communist Party's 11th Central Committee that convened in December 1978 marked the beginning of a new phase in China's economic development. This article examines the major development policies and broad economic trends since 1978, and assesses the prospects for future growth. Section I sketches the economic legacies of the 1970s that shaped the economic policies and performance of the current period. Section II outlines the new development strategy and compares it with the strategies of the past. The rate of economic growth and structural changes are discussed in Section III. Section IV summarizes the findings and concludes with brief comments on the major constraints on future economic growth. One important issue, economic reform of the system, has been deliberately omitted because (with the exception of those in the agricultural sector) they are still in an experimental stage. While the focus of this study is on macro-economic policies and trends, these issues are closely related to micro-economic developments because economic policies are based on the leadership's perspective on developments at the micro level and economic trends reflect the implementation of macro policies by the micro-economic units.

The period 1978–83 saw swift escalation of earlier policies to promote rapid fertility decline in China. The government attempted to remove pronatalist economic incentives and replace them with economic benefits to one-child families and economic penalties for those bearing two or more children. China's family planning programme became increasingly compulsory in tone and coercive in methods. The single-minded pursuit of low fertility and low population growth rates has thus far been successful, though an effective political reaction against the policy is possible in the future. Meanwhile, the field of demography, the scientific study of population, has once again become respectable in China and the country's demographers are gaining rapidly in sophistication. After three decades of statistical secrecy, the government has begun to release relatively detailed demographic data, thus greatly increasing world understanding of China's population situation.

The goal of the Chinese Government is to make China an efficient, modern economy by the end of the century. This goal was articulated by Premier Zhou Enlai in 1964 and 1975, and made public by Premier Hua Guofeng in February 1978, but a serious attempt at fundamental change was not begun until the strategic shift in economic policy following the Third Plenum of the 11th Party Central Committee in December 1978. Since then the Chinese have undertaken a bewildering variety of experiments and reforms in industrial enterprises. These experiments started on an extremely small scale, primarily in Sichuan, and then spread rapidly throughout the country. In 1982, however, after five years' effort, one enterprise in four was still operating at a loss.

During the period of the Readjustment China has faced numerous and difficult problems in the sphere of energy. The two greatest difficulties now confronting the Chinese are energy supply and energy transport. Even if we put aside for a moment the long-range aspects of these problems, the immediate issues are complex. At present energy investment is directed towards securing the supply in the long run, but while this is occurring shortages remain acute, and conservation and increased efficiency of utilization are critical.

The main aim of China's agricultural policy during the Readjustment has been to raise the production of all branches of the sector in order to increase employment and incomes and to reduce the country's growing dependence on foreign agricultural imports, especially sugar, cotton and edible oil. In adopting this policy the government has recognized and accepted the need to maintain and even to increase foreign grain imports during the foreseeable future.

There are three aspects of China's foreign economic relations which are important to our efforts to understand the Readjustment of 1979–84. These are: (a) the government's general orientation towards foreign economic relations; (b) quantitative trends in investment and trade flows; and, (c) the nature of trade organization and international economic links. The general orientation to trade is critical in a planned economy where central preferences (essentially political) are easily reflected throughout the system. Stalin's policy of autarchy transformed the international role of the Soviet economy, while in China, Mao Zedong's willingness to trade with the Soviet Union and the Eastern Bloc profoundly changed the character of the Chinese economy between 1953 and 1959. Large-scale plant imports created new industries and enlarged heavy industries established – particularly in the north-east – before 1949. This phase of policy had exhausted itself in China towards the end of the 1950s, although import data for 1959 reflect prior commitments and give little sign of this. However, the reality was that China's capacity to absorb imported capital goods, and the agricultural capacity to sustain foreign exchange earnings at the necessary level, were both weakening even before the dislocations of the Great Leap radically changed the role of foreign trade by converting China from a net food exporter to a net importer.

Marxist economists and socialist planners share the view that the major objective of socialist economic development is to meet the needs of mass consumption. During the debates that followed the death of Mao Zedong in 1976 there was a searching examination of the extent to which development policy in the previous two or more decades had succeeded in raising living standards. A central premise of the policies of reform and Readjustment that emerged by the late 1970s from this debate was that consumption growth since the 1950s had been too slow. What was the evidence to support this contention? In what ways has policy since 1978 sought to redirect economic growth towards increased levels of consumption? Have these policies been successful and to what extent are they likely to continue to raise living standards?