Unlocking China’s Economic Miracle: How Central Planning Thrived Where Others Failed

By: Dr. Atef Al-Shabrawy

Central planning has been one of the most contested economic models of the 20th century.

Many countries adopted it as a shortcut to rapid development and broad-based growth.

Most of those experiments, however, failed, undermined by economic stagnation, corruption or political collapse, as seen in the Soviet Union, Eastern Europe and parts of the developing world.

China stands out as a notable exception. While central planning fell out of favour elsewhere, Beijing transformed it into a powerful engine of growth, helping propel the country from one of the world’s poorest nations to the second-largest economy globally.

A distinctive Chinese approach

The contrast raises a central question: why did central planning work in China but not in most other countries?

Part of the answer lies in the way China applied the model. Unlike the rigid systems used by traditional socialist economies, Beijing pursued a more flexible approach.

Since reforms launched by Deng Xiaoping in the late 1970s, China has operated a hybrid system that combines market mechanisms with strong central direction over long-term strategy.

A “socialist market economy”

Under what Beijing calls a “socialist market economy,” the state sets broad development goals while allowing private firms and local governments considerable operational freedom.

Central planning functions less as a constraint on markets than as a framework that guides competition and sets priorities.

Planning with room to adapt

Another factor has been China’s emphasis on adaptability. Five-year plans are treated as living documents, adjusted as economic conditions evolve. Policies are often tested locally before being rolled out nationwide, reducing the risk of large-scale policy mistakes.

This approach has allowed authorities to respond quickly during periods of stress, including the 2015 economic slowdown and disruptions linked to the COVID-19 pandemic, when policymakers adjusted regulations, introduced stimulus measures and moved to contain financial risks.

Strong state, empowered local governments

China’s institutional capacity has also played a role. The central government maintains tight control over strategic direction, while local authorities enjoy wide latitude to implement projects and attract investment.

This balance has fostered competition among provinces and cities, encouraging faster growth and policy innovation within a unified national framework. The result has been a system that combines central oversight with local initiative.

Social cohesion and collective effort

Cultural factors have reinforced this model. China’s emphasis on collective action and respect for state institutions has made it easier to mobilise resources for large-scale projects, from infrastructure development to poverty alleviation campaigns.

A performance-based bureaucracy

A defining feature of China’s governance model is its merit-oriented bureaucracy. Advancement within the system depends heavily on measurable economic and social outcomes, including growth, investment inflows and improvements in living standards.

Senior officials are regularly assessed, and performance reviews play a key role in career progression.

Supporters argue this system has produced an administrative elite capable of delivering complex projects efficiently, unlike in countries where central planning was weakened by patronage and corruption.

President Xi Jinping’s career reflects this path. The son of a veteran revolutionary, Xi spent years working in provincial and local leadership roles before rising to national office, accumulating experience across different regions and levels of government.

Policy continuity and long-term vision

China’s planning model has also benefited from policy stability. Unlike countries where priorities shift with electoral cycles, Beijing has maintained consistent long-term goals, enabling sustained investment in infrastructure, education, technology and energy over decades.

This continuity has underpinned the development of a durable economic base that would have been difficult to achieve in a more volatile political environment.

Open to global markets

China’s success, however, has not been driven by central planning alone. The country paired state direction with openness to global trade and investment, joining the World Trade Organization, integrating into global supply chains and absorbing technology from multinational companies.

By blending the discipline of central planning with the dynamism of global markets, China forged a model that defies easy replication.

While not universally transferable, the experience suggests central planning can work when supported by strong institutions, clear objectives and a capacity to adapt in a rapidly changing world.