Creation of a modern financial system is essential if China is to achieve the central goal of its economic reform program improving the efficiency with which capital is allocated and utilized. In the pre-reform era, the rate of investment increased from about 25 percent of gross domestic product in the first Five-Year Plan (1953-57) to an average of just over 30 percent in the 1960s and 1970s. But the average annual rate of real economic growth fell from about 7 or 8 percent in the 1950s to only about 4 percent in the 1960s and 1970s. Deng Xiaoping began the process of economic reform in the late 1970s in order to improve economic efficiency and place China on a path to more sustainable growth.

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