## Chapter II The Experiences of Five Asian Transitional Economies

## 1 Introduction

In this report, the transition process from centrally planned economies to market-oriented ones in Cambodia, China, Laos, Mongolia and Vietnam is analyzed. These countries started their reform and transition process at different times. Some, like China and Vietnam, started rather early while others like Mongolia started rather late. As is explained later, the reform processes have taken different courses with varied performance. The economic performance of these countries is relatively good compared with that of Russia and the Eastern European countries. There are many plausible reasons for this: historical background of the countries, speed and method of reform, geographical location, political system, social structure and so on. But we have to look more closely at the link between the reform process and economic performance in these countries.

Taking into account the above, we have tried to analyze the transition process from both country-specific aspects and common issues associated with the transition process, such as macroeconomic stabilization and institutional reform.

It should be noted that there are other economies in Asia which are in transition process. Countries such as Bhutan, India and Nepal, though those economies were by no means market-oriented, were not operating under strict centrally-planned systems so their reform processes are not comparable to those of the countries analyzed here. The Central Asian Republics after independence went through similar transition processes as Russia and the Eastern European countries but information about the Central Asian Republics is limited. The transition process in Myanmar has not yet advanced. We will therefore concentrate our analysis on the aforementioned five countries.

## 2 Background

Although the timing and the process of the reforms differ from one country to another, still it is common to all the transitional economies that they were faced with the economic difficulties: stagnation of production, inefficiency of the economy, and macroeconomic imbalances when they started the reforms. These economic difficulties are attributable to the demerits of the planned economy, namely the lack of an efficient resource allocation mechanism and the lack of incentive. In addition, the inefficiency of the international transaction system among these economies was a negative factor (see Chapter I 1-2).

Transitional economies started their reforms to tackle and correct such defects. However, outcomes or macroeconomic performances very much differ by country, reflecting the differences in the reform process and other background conditions among them. Leaving the analysis of the relationship between reform process and economic performance to the following sections, we will mention briefly the differences in background conditions of the reforms.

Roughly comparing to Eastern Europe, we can point out the following three points as the general characteristics of Asian transitional economies.

The first is the political continuity. In the case of the Eastern European countries, political reform led the transition process, reflecting Eastern European priority of political