Comparison of China and Russia's System Changes in the Progress of Economic Transition

Introduction

Both of China's economic system reforms that started in the 1980s and the Soviet Union's reforms initiated in the 1990s are institutional changes that bid farewell to the planned economy and transform into a market economy. There are many similarities between two states in the process of economic transformation. The logical starting point of the economic transformation of China and Russia is the same. The traditional planned economy has seriously hindered the development of the country's economy, unable to integrate into the trend of contemporary world economic development, so the reform is imperative (Liu, 2007). However, the economic transformation of the two countries has moved in different directions. Russia has adopted a radical transformation, while China has adopted a gradual transformation. According to North’s (1994) point of view, there are two main modes of system change. One is mandatory transformation, which relies on the state’s mandatory systematic promotion and implementation. The government is the design and proponent of the system and is responsible for the final result; the other is gradual reform. Institutional changes are driven by market demand. The main institution is often enterprise. The government acts as an advocate and organizer of institutional transformation. Because of the emphasis on speed and freedom, Russia’s system changes gradually departed from the government’s control, leading to an economic recession, political corruption, and serious social problems; China’s reforms emphasized the government’s leadership and national capacity building in stages and steps, pay attention to the dual role of formal systems and informal rules. The reform of the economic system has achieved significant results, the economy has grown steadily, and society has been operating steadily.

In the 1990s, the Russian government accepted the recommendations of the International Monetary Fund and adopted “shock therapy” to carry out the economic transition. To consolidate the newly born bourgeois regime, the government hoped to directly accomplish the system changes of the capitalist market economy through liberalization, stabilization, and privatization (Liu, 2007), from a planned economic system to a market economy. The radical reform measures advanced by Russia, mainly included the following measures: the first is to form a free price system through open prices; the second is to implement strict fiscal policies to tighten money; the third is to carry out large-scale privatization; the fourth is to implement foreign trade system reforms, hoping to break the monopoly of the country's foreign trade and economic system. However, “shock therapy” did not achieve its original purpose. It not only led to poor system quality, but also caused serious degradation of the economic structure, resulting in a severe economic recession and a huge reduction in the level of public welfare. The deterioration of the economic situation has also directly affected various fields such as politics and society. As the government withdrew from the control of economic life, “government expenses have dropped sharply, and the actual wages of government employees have been significantly reduced or even cannot be paid on time. This has led to the failure of government work, the emergence of financial oligarchs, which attempted to manipulate politics, affect the building of national stability. This kind of motivation is good to expect to solve all problems once and for all. Albeit the transformation has failed, causing social and economic chaos, and pushing Russia to the brink of collapse due to the lack of a correct understanding of the reforms and the impact of the cultural environment on society.