1.Introduction policies and their implementation has resulted in substantial

1.Introduction  2018 marks the 40th-anniversary o the economic reform in China. Officially names “reform and opening-up,” the program was started in December 1978 by reformist within the Communist Party of China. Now, China becomes the world second largest economy. Generally speaking, the economic reform has made a huge success, despite many side effects. This paper analyses the significant measures made during the reform and theoretical explanations. Began in 1978, the reform was carried out at two stages: 1978 to 1992, after 1992.  The first stage involved the replacement of planning economy, which was introduced by USSR in the early 1950s. This was the primary economic transition period. The change was fundamentally and systematically crucial to China. The activities such as de-collectivization, de-centralization of agriculture and the invention of a Contract-Responsibility system were discussed in this paper. They liberated the freedom of human capital and other resources then increase the productivity in China.  Later, the second stage from 1992, as well as opening-up part of reform marked the country’s attitude change towards foreign investment and global trade. For example, entrepreneurs were allowed to start businesses, many new technologies were learned from Japan, Europe and USA then copied to apply for Chinese rooted development. These are going to be discussed in this paper.  Furthermore, some African countries and other less developing countries in Asia may learn the 40-year experience from China, since some of them share a similar background. The success of economic policies and their implementation has resulted in substantial changes in Chinese society. By applying the logical and theoretical thinking behind the reform, African and Asian countries can also find their economy reform routes and change themselves.     2-a. The reform of economic system After the collapse of the Eastern Europe socialist and the Soviet Union in 1980s-90s, the question on building an effective economic system has been raised by many people. The transition process of the former socialist nations has provided essential topics that have attracted economists According to the Journal of Economic Literature, many economists have studied various categories of topics on capitalist and socialist systems, transitional economies, socialist institutions and their transitions and so on. Political economy is classified as the subtitle of capitalist systems. It is difficult to build a perfect social mechanism that leads individual economic behavior to achieve socially desirable outcomes. The primary concern is how to reduce conflict between the individual pursuit of interests and the welfare of society.     This debate has already been raised in as early as 17th century. For example, Tomas Hobbes claimed that each person should voluntarily delegate his right to central authority. In contrast, Adam Smith argued the social welfare increases through individual self-interest. Self-interest generates economic growth through invisible hands. Later, Karl Marx argued that people struggle to pursue their self-interest due to unequal distribution of income, resources, and employment. Therefore, he suggested that central planning and public ownership instead of the market mechanism and private ownership should be the essential basis of the productive economic system. The collapse of USSR and the transformation of Eastern European countries suggest that the socialist economic system may not sustainable over the long term. In December 1978, the 3rd session of the 11th Central Committee of Communist Party was held in Beijing, China, which was an event indicating the start of fundamental and systemic changes that transformed China in all aspects, including the establishment of market- economy. The economic transition indicates the transformation changed as well as the switch from planning economy to a market-economy. (Fingleton et al., 1996) A sustainable economic system should be based on the utilization of the human instinct of self-interest, private property rights, and markets. The disadvantages of planning economy are very obvious, such as consumer-bias, low productivity, unbalanced resource allocation. Like the Soviet Union and Eastern Europe, the communist economy in China was mostly closed. Moreover, researchers found that goods provided by government and manufacturers did not sufficiently reflect the consumers’ preferences. (Kornai, 1992; Havrylshyn,2013)   Before 1978, the way enterprises manage their business in China has highly followed the Soviet Union styles. There were two major categories of enterprises in economy planning: one form indicated that the revenues from the business must cover the costs. The other kind of enterprise had no direct need of profitability. (Berliner, 1988)  The managers were rarely sacked even though their enterprises were not profitable. These enterprises were all owned and operated by the state. At management point of view, based on the western management theory, those kinds of enterprises in pre-1978 China and USSR were not categorized as modern enterprises. Because the management culture in those enterprises was based on centralization of economic activities held by the government. (Sutela, 1984) The business activities were primarily influenced by the visions of political decision makers. The decision makers implement their visions into practice by planning mechanism. Such mechanism determined the business ideas and strategic management of enterprises. The old school Soviet mechanism was introduced to China in 1958. It was named as “People’s Commune.” The commune mechanism was conducted within enterprises, agriculture units, townships, as well as combined with local Chinese characters.     The mechanism, as well as the economic pattern, was running till 1978 and then was abolished due to its uncompetitive failure. Here are reasons, such as:a)    Low productivity. Production in planning economy was only served for particular social demands, regardless of market demand from consumers. b)     No profitability. As mentioned above, chasing profit was not the primary objectives both in Soviet Union enterprises and Chinese People’s commune enterprises. Employees and workers can never make more revenue no matter how much they make their efforts.  The ‘Varieties of Capitalism’ (VoC) approach (Hall and Soskice,2001), is one attempt to understand the diversity of a capitalist system. According to this approach, two scenarios are identified as the coordinated market economy (CME) and the liberal market economy (LME). They differ each other based on the extent of reliance on markets. Aoki and Jackson (2008) identify Anglo-American, German, Japanese, and Silicon Valley models. However, Chinese system doesn’t belong to any of them.  The figure below is research areas in economic systems and institutions, presented by Kim (2012) from Seoul National University, in the Journal of Comparative Economic Studies. The bottom is the determining factors. Institutions integrate these factors and increase the probability of reaching agreements. Frequently, economic activities conducted may not lead to desirable outcomes. Coordination mechanisms are required in a market economy.  Thus, institutions coordinated each other and integrate with factors to produce desired performance.     The invention of Contract-Responsibility System is a significant coordination mechanism in China to overcome the drawbacks of planning economy and integrate different factors from the bottom line.  Figure 1: Research Subjects on Economic Systems and Institutions  2-b. The invention of Contract-Responsibility System  The new system was adopted in agriculture and later extended to other sectors of the economy in China. Under new system rules, all lands were still owned by the state, but a lease was given to village households to use the land for agricultural purposes. Once farmers production meets the state quota and the rest was theirs. This change leads to significant increase in agricultural productivity. In 1984, the new system had been applied by 24 million households in China. Their income rose from $47 to $105 per family within a decade. Production rose 5% each year in 1980’s. (Fairbank,1992) It is easy to understand why China did reform its economic pattern and adopted new production system. In the literature on collective economies, researchers suggest that the allocation of resources in collective economies is insufficient. Also, the incentive to work hard is less likely than it is in a privately-owned business. (Alchain and H.Demesetz, 1972)   Within the traditional economic theory, the owners have full freedom to make the best use  of their inputs, as well as competitive advantages to receiving the payment of rewards by selling activity. The higher productivity they have, the more profit they make. In contrast, without regard to productive effort, no incentive would be provided by both owners and workers. Then, private business owners spend more money to upgrade production inputs such as infrastructure, factory buildings, machinery and so on.  By introducing Contract-Responsibility System, collective ownership was established in both urban and village areas. These ownership enterprises were supported by local governments that desired to increase revenue.    To explicitly speaking, an individual can lease land or rent a property for commercial purpose and take all his revenues after deduction. There were opportunities to increase income after reform in agriculture. Unemployment labor moved to other non-state sectors. As a result, the collective and private sector business grew rapidly.     3.Technology power  One of the most important factors that enabled a nation’s economic growth is the ability of the people to successfully absorb knowledge and skills from mature technology and then improving those techniques to fit their economy. The economic miracle did not occur simply from the reform policies, but the substantial upgrade of technology. Many works of literature have studied the relationship between technology and economic growth. Technology determines the physical quantity of output that can be reached and how much contribute to economic growth. In other words, technology can be transformed into productivity gaining by an increase in efficiency and reduction costs. (Hall, 2011) Solow (1956) in his studies illustrated how long-run economic growth depended on technical change by his model.     In general, the competitiveness of a nation’s economy depends on their ability to leverage new technologies in several common ways such as: a)    Direct job creation, for instance, in the US, computer and information technology jobs will grow by 22% in 2020, creating 758,800 new jobs. For each job in the high-tech industry, five additional jobs, on average, are created in other sectors. In Australia, the new fast broadband network industry supports 25,000 jobs annually. b)    The emergence of new services and industries. For instance, in recent years, new public services have become available online and through mobile phones. Information Communication technology enables the emergence of a new sector: the app industry. Research shows that the aggregate value of Facebook app economy exceeds $12 billion.  Furthermore, economists argue that technology without business application has no value. Technology is a vital source of economic growth and high production. Research and Development (R&D) plays a crucial role to accelerate the technology progress. (Linda R. Cohen and Roger G, 1991)  The so-called “new growth theory” emphasizes that economic growth is also promoted by the stock of human capital. Because people in businesses hold knowledge or innovative ideas. This is another reason Chinese government has spent vast sums of R&D fund in universities, technical labs, research institutions since 1978. Empirical evidence suggests that the social return to R&D spending on new technologies is as much as 50% to 100%. (Zvi Griliches, 1992) The ability of the Japanese to imitate the knowledge learned from the Western countries is the crucial factor for Japan’s growth. Between the 1950s to the early 1970s, Japan imported both practical uses of technologies and technological know-how from Europe and USA. At that time, Japan has created new technology, such as low-cost mass production, by combining imported techniques with domestic innovation. Then the new skill was translated into industrial strength and contributed to economic growth. For example, Japan’s steel industry became one of the most durable advantages and solid quality steel used in automobile industry. Japanese cars turned to very competitive in the global market since then.  China also did gain a lesson from Japan’s economic growth after the second world war. For example, similar progress occurred in China after 1978 reform. For instance, the first technology of producing China’s high-speed trains was imported abroad. The Chinese bullet high-speed train is one typical example of the outcome of large R&D investment in human talent and innovation, after absorbing from the mature technology of Japanese Shinkansen, German Siemens, and French Alston. As Africa countries transitions from the outskirt to the mainstream of the global economy, they are suggested to learn from Chinese experience towards technology reverse and innovation.  First of all, African countries should attract more R&D fund, to build good infrastructure and facilities for local entrepreneurs and start-up businesses. This is one of the pre-conditions to construct a centralized technical-hub, like Shenzhen, Zhongguancun in China, and Silicon Valley in the US. Figure 2 indicates the progress of Africa’s emerging tech landscape during recent years. Africa is becoming a hotspot for high-tech investment.  Figure 2: The capital of venture capital to African start-ups in recent years.  Second, reversing mature technology from advanced economies and design tech disrupting development. In recent years, many new technology skills all took significant leaps forward regarding their application. Africa should embrace with China to develop the disruptive technologies. Not every disrupting technology will alter the current landscape but truly do have enormous power to disrupt the status quo and re-shape the existed value chains. For years of technology development, there are a few of top IT enterprises formed and grow up rapidly, beating the old giants such as Nokia. China’s Alibaba, Tencent, US Facebook, Amazon are good examples of disruptive innovation successors. The organization’s information processing ability defines its characters. (Chesborough, 2010; Pavlou and El Sawy 2006). Companies like Amazon, Tencent, Alibaba have changed continuously and upgrading their ranges of services to respond to unpredicted risks. 4.Global trade in international market  Global trade was boosted and shifted from primary goods to manufacture goods after the second world war. (Irwin, 2002) Thanks to the emerging market like China, outsourcing of production processes became possible and led to a rise in both advanced nations and emerging nations. Tracing back the evolution of the theory of global trade, Adam Smith indicated that one country would have an absolute advantage over the other if it can produce the same amount of goods with few resources. (Smith, 1776)     Besides, in Smith’s England once time, with the rapid growth of large-scale industries and captive markets in overseas colonies, had a solid base for lower labor costs and higher efficiency in production, which ensured its competition across the world at that time. Another English economist, David Ricardo (1951) suggested that industry specialization combined with free trade produces positive results. It was the comparative and not absolute advantage, which was considered necessary to ensure mutually profitable trade across nations regarding labor hours used per unit of output. Free trade, as opposed to the policies of protection, was championed by both Smith and other economists as a route to achieve production efficiency. The creation of Special Economic zone in 1979 in China is designated to support integration into the global market. They have permitted experimentation with market-oriented reforms. Within few years, the industrialization was accelerated by attracting technology, assembly line, investment from multinational corporations from Europe, Japan, and the USA.   The idea of the Special economic zone has been proved its credibility. Until 2014, SEZs have contributed 22% of China’s GDP and 60% of exports. (Wordbank, 2014)  SEZs contribute to Chinese economic success based on several factors: (i)    China needs to be connected to the economic opening and capitalize on innovation. (ii)    A bottom-up, economic approach combined with top-down governmental support.   (iii)    Industrial expansion can be promoted by cultivating market leaders, supporting research and development, and building brands. (iv)    Local ideas can be incubated by integrating learning, innovation, and production at local zones. (v)    Special economic zones can bring together resources and expertise from government, industry, and research institutions to create more advanced value chains. African countries can learn from China’s experience, just like what China did from Japan, to adapt their local circumstances. For instance:(i)  good infrastructure (ii) effective organization and management focusing on policy support, investment promotion.  China’s experience indicates that geography, natural and human resources, human resources and capital are all essential for successful development. This suggests that economic zones in African countries should be located in areas with good transport, logistics, and access to resources. Besides, factors for success include a market economy and local industry, a high concentration of talent, supporting policies, and access to quality financial markets and investment facilities are all necessary.    Moreover, many nations and enterprises participate in global trade, to increase their global value chains. Global value chains play an important role. Its rise is, therefore, one possible explanation for why trade grew at a higher rate than GDP. There are different ways of assessing the integration of a nation into global production networks, but recent literature has focused on measures using global input-output tables (Amador and Cabral, 2014). Global input-output tables are used to track value-added flows among different industries and countries.  On input-output tables, upstream means a country’s use of imported goods and services in producing its exports. Downstream captures a country’s exports of goods and services that are subsequently processed by a trading partner. In December 2016, European central bank published a paper focusing on global value chain participation that measures trade flows in different regions. (ECB, 2016) As figure 3 states, global value chain participation increased dramatically from 1996 until 2008. Emerging markets, in particular, joined global production processes, with participation index rising faster than in advanced nations. Figure 3: Global value chain participation, ECB, 2016  However, an increasing number of people raise several arguments for trade protectionism in recent years. Their opinions are backed by many high-profile people including the US president Donald Trump. One argument urges trade protection as a means to defend national security.      It is unlikely to not trade with other countries. Because the decision of the overseas market entry and export made by the firm managers is based on strategic choices. (Reid, 1982) For example, US managers only decide to pull back their businesses to homeland if they perceive the lower costs and higher profit they can make. The fact is, even tax cut reform bill is passed in Congress. Managers are heisting unless they see the tax reduction significantly help them to manage the total cost of production.         China is accused of setting trade barriers to US companies in the international trade market, according to US government. However, the trade failures mostly attribute to the incorrect trade tactics of smaller firms. Because smaller firms not only are unaware of the potential benefits of exporting but also are less confident about their ability to plan for exporting activities( Johanson and Vahlne, 1977). It is why fewer small European and US firms participating in global trade and lose market shares to Chinese companies. In the issue of Business Week, Stephen S. Cohen (1988), stated that very few U.S. companies have the experience and knowledge ‘threshold fear’ used to describe export commitment. In 2018, it is predicted that President Trump will continue to put forward US trade war against many countries including China, Korea, Mexico, Germany, and others. However, his trade war policies will not work due to several reasons such as: a. World Trade Organization rules. According to most favored nation (MFN) principle, WTO members cannot discriminate trade policy against others who are also WTO member. If the US government charges against EU and China on the same product at different tariff rates. It violates the rule of laws in WTO. b. It is American people’s freedom of choice to purchase goods from China. In fact, China uses the revenue from global trade to buy US Treasuries and help to maintain US interest rates low so that US households can have more purchasing power. Within the structure of market-economy, people should have their own choice in consumption. c. According to basic economic theory, trade barriers have an adverse effect on GDP. Because additional tariff causes higher import prices and higher domestic inflation. In addition, the cost of domestic intermediate inputs will also increase. Producing goods at home market becomes more expensive. In any cases, higher interest rates from inflation discourage borrowing and investment. High-interest rate also increases demand for dollar assets then the US dollar appreciates. The prices of US export goods and services rise.    Therefore, even though most people commonly accept the free trade as the primary trend in the global economy, many others support the voices of trade protectionism. Nevertheless, the damages of protectionism overweight the side effect of global free trade.