Curtailing subsidies would have produced many losers who used their power to resist this outcome. Failure to curtail subsidies, however, cut off the potential supply of labor and other factors to new emerging firms. China s state enterprises have not performed as well as the rest of the Chinese economy and do not explain its success. The rapid growth of the Chinese economy was possible because the large agricultural sector contained vast surplus labor, and did not enjoy subsidies and soft budget constraints. Once constraints on migration across regions and jobs were removed, this labor was available to fuel expansion in new industries.
China is a special case.
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