China’s rapid economic growth was driven not by the triumph of “free markets” but by the deliberate creation of public goods—markets, infrastructure, institutions, coordination mechanisms, and carefully sequenced reforms—by a capable state. As Yi Wen demonstrates in The Making of an Economic Superpower: Unlocking China’s Secret of Rapid Industrialization (2016), China’s government actively engineered these foundational public goods, enabling private entrepreneurship to flourish. Ha-Joon Chang, in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2007) and Kicking Away the Ladder: An Unofficial History of Capitalism, Especially in Britain and the United States (2002), provides a historical and theoretical framework showing that markets are not natural but costly public goods that require deliberate state creation. Together, these works underscore that China’s success stemmed from building the preconditions for industrialization—rather than waiting for growth to generate them—challenging the Washington Consensus notion that privatization and minimal state intervention are sufficient for development.
1. Markets as Engineered Public Goods: China’s Deliberate Creation of Economic Foundations
Market creation stands at the heart of economic development, yet it is often misunderstood as a spontaneous process. In pre-1978 China, as in most agrarian societies, markets were fragmented, trust was low, and transaction costs were prohibitively high. Without a wealthy merchant class or institutional mechanisms to coordinate exchange, the notion of “letting the market work” was meaningless: no functioning market existed. Yi Wen, in The Making of an Economic Superpower: Unlocking China’s Secret of Rapid Industrialization (2016), argues that the market itself is the most fundamental public good—one that is costly to build and cannot emerge naturally.
To overcome these structural constraints, Chinese local governments assumed the role of “public merchants,” deliberately engineering markets where none existed. They organized Township and Village Enterprises (TVEs), established trade and distribution networks, provided informal credit, enforced contracts, and coordinated production and exchange in the absence of formal legal and financial institutions. These interventions created the foundation for private entrepreneurship to thrive, demonstrating that markets are not preexisting entities but constructed institutions requiring sustained state effort. As Yi Wen notes, “The ‘free’ market is not free. It is a fundamental public good that is extremely costly to create.”
Ha-Joon Chang, in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2007), provides historical validation for this perspective. He rejects the notion that markets arise spontaneously or independently of politics. Instead, all markets are political constructs grounded in state-defined property rights, regulatory standards, and enforcement mechanisms. Successful industrialization, Chang emphasizes, has always required deliberate state intervention to establish the conditions necessary for functioning markets.
Historical examples illustrate this principle. In Britain, Henry VII and Robert Walpole built a national market through protectionist policies, infrastructure investment, and quality regulation. In the United States, the federal government unified regional markets through canals, railroads, and tariffs. Similarly, Japan and Korea relied on state coordination to integrate fragmented local economies before allowing private enterprise to expand. In each case, markets were deliberately created rather than assumed to exist naturally.
China’s approach mirrors these historical precedents. By acting as “public merchants,” local governments created the essential infrastructure of trade, finance, and coordination that markets require to function. This deliberate market creation demonstrates that the state can and must provide the foundational public goods that enable industrialization. The Chinese experience confirms that markets are not merely passive arenas for exchange but actively engineered institutions—public goods that, once established, sustain economic growth and innovation.
2. Infrastructure as Strategic and Productive Public Capital in China’s Development
Infrastructure plays a central role in economic development, not as mere consumption or public spending, but as a strategic, productive input that enables markets, trade, and industrialization. Both Yi Wen, in The Making of an Economic Superpower: Unlocking China’s Secret of Rapid Industrialization (2016), and Ha-Joon Chang, in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2007), emphasize that without deliberate state investment in infrastructure, economies remain fragmented, transaction costs remain high, and industrial growth stalls.
Yi Wen documents China’s extensive investments in physical public goods across multiple decades. Mao-era rural infrastructure, including irrigation systems, dams, and flood control projects, laid the foundation for agricultural productivity and rural stability. After 1978, profits from Township and Village Enterprises (TVEs) were reinvested by local governments to build roads, electricity networks, water systems, and logistics infrastructure. These projects reduced transaction costs, integrated regional economies, and made mass production feasible. By the 2010s, China had achieved world-class logistics capacity, an unusual achievement for a developing country.
Ha-Joon Chang reinforces this perspective by critiquing the neoliberal focus on “fiscal prudence” that discourages infrastructure investment in developing economies. He highlights Korea’s POSCO, a state-built steel producer initially rejected by the World Bank, which provided inexpensive, high-quality inputs crucial for industrial growth. Chang also cites postwar France, where state-owned enterprises constructed railways, energy networks, and telecommunications systems, illustrating how public infrastructure can catalyze rapid economic expansion. He warns that austerity measures and premature infrastructure cuts trap poorer nations in low-productivity equilibria.
China’s highways, ports, power grids, high-speed rail, and digital networks exemplify the type of strategic public investments Chang identifies as prerequisites for industrialization. These projects were not wasteful or ornamental; they were deliberate, capacity-building measures that provided the backbone for manufacturing, trade, and regional integration. China’s experience demonstrates that infrastructure must be understood as a productive public good, a deliberate and essential tool of state-led economic development rather than a byproduct of market activity.
3. Institutional Public Goods: Coordination, Standards, and Trust in Economic Development
Beyond physical infrastructure, economic development depends critically on institutional and social public goods—mechanisms that are often invisible but essential for coordination, trust, and stability. Yi Wen, in The Making of an Economic Superpower: Unlocking China’s Secret of Rapid Industrialization (2016), emphasizes that China overcame early-stage development challenges by providing precisely these institutional supports. Social trust, generated through collective ownership and village-level governance, lowered transaction costs and enabled cooperation among dispersed actors. Local officials coordinated labor, inputs, and production, functioning as de facto boards of directors, while political continuity ensured stability, preventing the institutional collapse seen in other transitioning economies.
This state-backed coordination filled gaps that private actors could not bridge. In the absence of robust legal and financial systems, formal markets alone could not organize complex economic activity. By embedding trust, enforcing standards, and directing resources, China’s local cadres created the institutional foundations necessary for private enterprise to expand. These mechanisms illustrate that economic development relies as much on invisible organizational and social capital as on physical investment.
Ha-Joon Chang, in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2007), and Kicking Away the Ladder: An Unofficial History of Capitalism (2002), documents the historical parallels to this approach. Britain imposed textile quality standards to protect national reputation abroad. Japan and Korea coordinated industrial supply chains through state agencies, while Singapore’s statutory boards and government-linked companies orchestrated entire industrial ecosystems rather than simply regulating them. In each case, early industrializers relied on state-backed coordination, trust, and standard-setting to overcome the weaknesses of nascent markets.
China’s experience mirrors these historical precedents. Township and Village Enterprises, guided by local cadres, and the broader system of state coordination functioned as institutional public goods, enabling the economy to operate efficiently despite underdeveloped legal and market structures. By providing coordination, enforcing standards, and fostering trust, China replicated the historical role of the state in Britain, Japan, Korea, and Singapore—acting as the architect of economic activity where markets alone could not suffice. These institutional public goods proved decisive in sustaining industrialization and long-term growth.
4. Sequencing Public Goods: Aligning Investment with Development Stages
A key determinant of China’s economic success was the sequenced provision of public goods, aligning investments with the country’s evolving stage of industrial development. Yi Wen, in The Making of an Economic Superpower: Unlocking China’s Secret of Rapid Industrialization (2016), emphasizes that China did not distribute resources indiscriminately. Instead, the government strategically matched infrastructure, institutional supports, and market-building initiatives to each phase of industrialization. During proto-industrialization, rural roads, irrigation, and micro-credit systems facilitated the growth of Township and Village Enterprises (TVEs). As light industry expanded, national highways, ports, and power grids enabled textile and electronics production. Later, high-speed rail, mega-ports, and digital infrastructure supported heavy industry and integration into global supply chains.
This staged approach avoided the frequent development pitfall of constructing capital-intensive industries before demand and institutional capacity existed. By carefully sequencing investments, China ensured that each successive layer of industrial capability built upon a robust foundation of productive public goods, allowing markets and enterprises to thrive in a structured, sustainable manner.
Ha-Joon Chang, in Kicking Away the Ladder: An Unofficial History of Capitalism, Especially in Britain and the United States (2002), documents a strikingly similar principle in historical experience. Britain protected its infant industries for nearly a century before embracing free trade, while the United States used tariffs for over 130 years to nurture domestic manufacturing. By contrast, premature liberalization in Latin America and Africa destroyed nascent industries that had not yet developed the capabilities to compete internationally. Chang’s metaphor of educating a child before exposing them to the labor market captures the same logic: capabilities must be developed before liberalization or market exposure occurs.
China’s gradual and carefully staged reforms exemplify this sequencing strategy. By providing public goods in alignment with industrial stages, the state ensured that each policy intervention—whether in infrastructure, market creation, or institutional coordination—was effective and mutually reinforcing. This deliberate sequencing mirrors historical best practices highlighted by Chang and demonstrates that timing and order of public goods provision are as critical as their quantity or quality in driving successful industrialization.
5. Public Provision Versus Premature Privatization: Lessons from China’s SOEs
A critical element of China’s economic strategy was the prudent management of state-owned enterprises (SOEs), demonstrating the importance of public provision over premature privatization. Yi Wen, in The Making of an Economic Superpower: Unlocking China’s Secret of Rapid Industrialization (2016), shows that SOEs under Mao were unprofitable not because of public ownership, but because markets were too thin to sustain large-scale industrial operations. As markets deepened in the 1990s, many SOEs became highly profitable, illustrating that public enterprises can thrive when supported by the right economic environment. By avoiding “shock therapy” approaches like Russia’s rapid privatization, China preserved both organizational and institutional capital, allowing its industrial system to grow sustainably.
Ha-Joon Chang, in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2007), and Kicking Away the Ladder (2002), provides global evidence supporting this approach. He cites world-class SOEs such as Korea’s POSCO, Singapore Airlines, Brazil’s EMBRAER, and Petrobras in Brazil, showing that state-led enterprises can be highly effective when designed strategically. In contrast, premature privatization often results in asset stripping, cronyism, or foreign capture, undermining long-term industrial capability.
China’s decision to retain state capacity while gradually reforming SOEs reflects Chang’s central insight: state institutions must be preserved long enough to create markets, rather than dismantled prematurely in the name of ideological efficiency. This careful sequencing ensured that SOEs could serve as both engines of growth and vehicles for strategic public investment, highlighting the broader lesson that public provision—when well-managed—is a foundational tool of economic development.
6. Conclusion: Public Goods as the Engine of China’s Growth
Yi Wen provides the theoretical mechanism; Ha-Joon Chang provides the historical proof. Together, they show that China’s growth was not market-led in the neoliberal sense, but state-engineered through deliberate public goods provision.
China succeeded because it:
- Treated markets themselves as public goods to be built,
- Invested heavily in productive infrastructure,
- Supplied institutional coordination, trust, and standards,
- Sequenced reforms to match development stages,
- Used state ownership pragmatically rather than ideologically.
Chang calls this resisting the attempt to “kick away the ladder.” Yi Wen shows how China actually climbed it.
China’s leaders did not wait for markets to appear. Like the successful developers before them, they created the conditions for markets to exist. That—not laissez-faire—was the true foundation of China’s economic miracle.
References
- Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. By Ha-Joon Chang, 2007
- Kicking Away the Ladder: An Unofficial History of Capitalism, Especially in Britain and the United States. By Ha-Joon Chang, 2002
- The Making of an Economic Superpower: Unlocking China’s Secret of Rapid Industrialization. Yi Wen, World Scientific. 2016