The Attaché

Yunkai Xu | Originally Published: 21 March 2026

Artwork by Attache Commentary’s Political Cartoonist, Amelia Dease

50 years after the Chinese Civil War, China has transformed from one of the poorest countries to the world’s second-largest economy. Scholars attribute the source of China’s rapid economic growth to Deng Xiaoping’s “Open Door” policy in 1978. Two economic policy prescriptions underpin this study: the Beijing Consensus argues that China’s economic explosion was achieved through central planning, whereas the Washington Consensus contends that free market capitalism and a limited state are crucial to economic growth. I argue that neither the Washington Consensus nor the Beijing Consensus alone is sufficient to explain China’s rapid economic development under Deng, because both economic liberalization and state strategic planning mutually sustained growth. 

Between 1978 and 1984, Deng Xiaoping’s “Open Door” policy drastically liberalized China’s centrally planned economy previously conducted under Mao.  From the early 1950s to 1976, the Chinese Communist Party dictated economic output, production goals, prices, and resource allocation. Policies during this period, such as collective farming (1958-1962) and the “responsibility system” (1966-1976), caused famine and widespread resource wastage. Because of the poor living conditions of much of the population, Deng’s leadership was under the pressure to improve living standards. He abandoned Mao’s isolationist trade policies and aimed to integrate China into the global economy. As described by Huan, under the “Open Door” policy, the government introduced a “double exchange rate,” making Chinese currency 50% cheaper in foreign exchange than in domestic markets. It also established special economic zones (SEZs) with lower taxes and tariffs to attract foreign investment. Most notably, prices in the SEZs are not fixed but are set by markets, responding directly to international supply and demand. Additionally, in his article, Huang reveals that collective Township and Village Enterprises (TVEs) were privatized, and Rural Credit Cooperatives (RCCs) experimented with interest-rate liberalization to support start-up businesses. Overall, as asserted by Huan, the “Open Door” policy proved highly successful, with China’s foreign trade rising from $21.11 billion in 1978 to $51.78 billion in 1984 

Despite the Beijing Consensus’ characterization of China’s economic development as centrally planned, China experienced decentralization under Deng. As described by Lo and Shevtsova, statism, or the stability and the consolidation of political power, are the foundation of all economic progress under the Beijing Consensus. Under Chinese statism, citizens are obliged to obey the state, but the government’s legitimacy rests on its ability to produce good economic results. Then, once the state makes a decision, it must be carried out at all bureaucratic levels in accordance with the central plan. In this view, Deng’s liberalization was not “free” because the state retained centralized planning authority by directing private-sector investments into specific sectors and tightly regulating the banking, financial, and natural resource sectors. However, notable liberalizing changes did occur through privatizing businesses, reducing price control, and delegating most decision-making authority to provincial governments and municipal officials. These transformations demonstrate that the “Open door” era was “freer” in the sense that the state liberalized the centrally-planned economy. Evidently, two dichotomous economic ideologies, statism and liberalism,  coexisted during the “Open Door” era. 

While the Beijing Consensus neglects economic freedom, the Washington Consensus captures the importance of free markets in economic development. Here, we can turn to Milton Friedman’s work, “The Fragility of Freedom,” which was foundational to the Washington Consensus and focused heavily on state paternalism. In “The Fragility of Freedom,” Friedman explains that state paternalism, which justifies taking away citizens’ money to provide what the state thinks they need, not only infringes on private property rights but also produces unintended consequences. This fallacy is reflected by collective farming, in which the noble ideal of equality under the collectivization of means of production demotivated workers. When freedom and clear property rights are absent, economic development is hindered. Therefore, Friedman concludes in “A Monetarist View” that economic freedom is essential because “people get to keep a larger fraction of their income, so they do not have to work from January through May to pay the expenses of the government”. 

Moreover, liberal economists, such as Austrian economist Friedrich Hayek, have critcized that the core issue with economic planning is that a central planner cannot observe all the specific changes occurring constantly in an economy. Therefore, attempts at central planning risk misallocation of resources. For instance, the misallocation of labour and resources under Mao’s central redistribution was due to the difficulty of acquiring local knowledge. Hayek presents decentralization as the solution to this difficulty, stating that knowledge is most efficiently transmitted through decentralization. In Hayek’s view, a decentralized economy’s price system coordinates self-interested individuals to act in the general interest. 

Indeed, Deng’s “Open Door” policy achieved economic development through the greater economic and personal freedom. It expanded property rights, increased business privatization, lowered taxes, and empowered local decision-making. In 1979, China’s GDP per capita grew by -3.1%. However, when the “Open-Door” policy began to take effect between 1979 and 1988, GDP per capita grew at an average annual rate of 8.5%.  Using GDP per capita as an indicator, greater economic freedom under Deng proved to be substantially more efficient at improving the standard of living, and corroborates Friedman’s thesis that economic freedom is instrumental to productivity, which sustains economic development. 

Although the Washington Consensus addresses decentralization in its analysis of China’s rapid economic development, it undervalues the role of state intervention. Both Friedman and Hayek’s approach are limited in explaining economic growth under Deng’s “Open Door” policy as decentralization and state intervention were implemented alongside eachother. While the “Open Door” era relaxes price controls in cities and interest rates in the RCCs, Huan suggets that, throughout this decentralization process, the government retained control over key market allocations in the SEZ and strategically designed fiscal policies to attract foreign investment. Additionally, both Friedamn and Hayek also fails to consider that key industries, such as export manufacturing, may benefit significantly from state intervention, especially given their globalized nature and reliance on economies of scale. In sum, while decentralization facilitated efficient economic activities, state strategic intervention materialized those activities into optimal outcomes. Thereby, unlike the Washington Consensus, which prioritizes decentralization over state intervention, Deng’s policy balanced both to produce economic growth.   

The “Open Door” Policy is best explained through Keynesianism, as it acknowledges the importance of strategic government intervention. British economist John Maynard Keynes stated in The General Theory of Employment, Interest and Money that only a “comprehensive socialization of investment” can achieve near full employment . This does not mean the state replaces the market; rather, it guides the market to ensure efficient consumption and investment at the macro-level. Likewise, the “Open Door” policy reduced the state’s ownership of means of production and focused on directing investments to achieve more efficient macro outcomes. Deng recognized China’s comparative advantages in the global market in natural and human resources, thus channelling investment into labour- and resource-intensive industries. By maintaining strict control over a “double exchange rate” and wages, he built a strong export economy. Notably, the first four SEZs, Shenzhen, Zhuhai, Xiamen, and Shantou, are all coastal cities with the lowest wages. China’s state-directed investment proved highly effective, with final consumption rising from $91.04 billion USD in 1978 to $230.38 billion in 1990 (World Bank Group). Therefore, the “Open Door” policy fits the Keynesian explanation of economic growth, as the state retained strategic control at the macro- level to ensure efficient and sustainable growth.  

Ultimately, although economic liberalization under Deng opened the door to new economic opportunities, the state’s strategic intervention ensured those opportunities materialized into efficient growth. Adler’s article on South Korean industrial policy provides insight into the importance of state strategic investment; the state “allocates capital to favored sectors and firms, provides access to easy, if not free, credit, and grants protection from imports. But at the same time, as described by Adler, firms are subject to relentless ‘discipline’ by the state bureaucracy”. 

Similar to Keynesianism, industrial policy emphasizes collaboration between the public and private sectors to sustain growth. Under the “Open Door” policy, the state subsidizes key industries, but businesses must meet state targets to keep their subsidies, while competition for government subsidies drives innovation. Therefore, Adler contends that when the private sector is responsible for economic development, the economy tends to develop incoherently, leaving behind legacy sectors such as energy, transport, construction, and manufacturing. In contrast, state strategic investments under “Open Door” ensure that the country’s key industries and infrastructure, such as transportation, develop efficiently to support robust trade activities. In retrospect, China’s economic development was twofold: economic liberalization and state strategic planning mutually sustained growth. China’s development model also provides valuable lessons for modern economists: economic development is best achieved when the state works strategically with the private sector rather than one subjugating the other.

In conclusion, aspects of financial liberalization in the Washington Consensus and state strategic planning in the Beijing Consensus mutually propelled economic growth under the “Open Door” policy. While decentralization facilitated trade, the state played a vital role in the coordination of investments and resources across key export sectors. Keynesianism appropriately explains China’s developmental model, which encourages strategic state intervention through macroeconomic policies to achieve efficient development. Ultimately, although China’s communist authoritarian regime provides an inherent source of policy stability, the real driver of Deng’s success is dynamism, where state policies evolved and adapted to changing domestic and global circumstances.