Abstract

This study shows that China’s post-1949 state-led industrialization has closely followed an underlying path that began in the late nineteenth century. It was initiated by the pressing national defense needs and has since been motivated by the same strong incentives for a faster catch up with the West despite radical regime shifts. Government-determined and influenced resource allocation benefited selected industries and hence nurtured vested interest groups connecting and integrating with the ruling elite, which have strengthened and sustained the path. I argue that this should be the key to the understanding of the structural changes of the economy over the last century. This also means that the path is inherently inefficient which is evidenced by a growth accounting exercise in this study using a newly constructed data set.