Between the Invisible Hand and the Grabbing Hand: The Ebb and Flow of China's Growth

Xiaodong Zhu

Working Papers from University of Toronto, Department of Economics

Abstract: Contrary to popular belief, the rise of China over the past half century was not driven by industrial or mercantilist policies. The economy grew fastest when the government played a more passive role, allowing market forces and bottom-up initiatives from farmers, local officials, and private entrepreneurs to shape economic development. China’s vast size and extensive markets created strong incentives for entrepreneurial innovation. However, the government remained committed to preserving its political system and a dominant state sector, imposing clear limits on private sector and market development. Whenever private entrepreneurs sought to push these boundaries, the government responded forcefully. Over the last five decades, China’s economic trajectory has been shaped by the tension between these two forces.

Keywords: China's Economic Growth; Market Forces vs State Intervention; Policy Cycles; Bottom-up Reforms; Top-down Industrial Policies; Private Sector Development; State-Owned Enterprises; Political Economy of Reform (search for similar items in EconPapers)
JEL-codes: O25 O43 P30 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2026-01-31
New Economics Papers: this item is included in nep-cna and nep-his
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