ment would be larger in industrial economies than in agricultural economies.

It is known that a large agricultural sector in developing economies could be regarded as a reserve of underemployment. The agricultural sector could provide burgeoning non-state enterprises with its surplus labor force. This is what happened particularly in China in the case of well-known township-and-village enterprises (TVEs).

We must emphasize here that the steady growth of the agricultural sector in China played a significant role in providing with increasing demand and adequate domestic saving in addition to labor force. Note that the increase in domestic saving has been accomplished with a parallel increase in monetary asset holding, which must have contributed to domestic investment through financial intermediation. Therefore, agricultural growth supported not only the supply-side, but also the demand-side of the economy.

## 2 -3-2 Macroeconomic Situations

If we focus on the recent efforts in economic reforms in the late 1980s, macroeconomic situations at the start of the reform were found to be far worse in Eastern Europe than in China. Real growth rates were either seriously stagnant or simply negative, exports were slowed down, current account deficits increased and consequently external debt piled up. China, in contrast, grew at not remarkable but significantly positive rates, and its external debt was virtually negligible.

The heavy external borrowing had not only postponed necessary domestic adjustments, but also enlarged the degree of those adjustments accelerating. Then, the international debt crisis halted the debt flow to developing economies so that they were forced to cut their domestic consumption levels abruptly. This is an additional demand-side factor that could explain the sharp and persistent fall of total output in Eastern Europe.

## 2 -3-3 Pre-Reform Regimes

The degree of pervasiveness of central planning varied across economies. First, the presence of state-owned enterprises (SOEs) was far greater in Eastern Europe than in China. Output by and employment in SOEs had a share of more than 80 percent in the former, but of less than 20 percent in the latter (see Table 1-I-1). Thus, there is no wonder that the negative impacts of price liberalization, fiscal reforms, and monetary restraints through SOEs must have been relatively larger in Eastern Europe.

Second, agriculture had been decentralized earlier in China than in Eastern Europe so that agricultural development had started prior to industrial growth. This could make the transition process easier through relatively smooth transfers of resources across sectors.

Third, the share of CMEA trade was explicitly larger in Eastern Europe (and Vietnam) than in China, so that the collapse of the CMEA had a more serious negative impact on external trade in the former than in the latter. Note that this is only a short-run impact effect like terms-of-trade changes, while the CMEA regime itself gave a long-term negative effect through misguided industrial structures based on distorted prices.

## 2 -4 Transition Strategies

In this final section, we discuss the role of policy factors in generating the wide range of