In 1986 the government introduced a policy package which is often referred as economic reform (Doi Moi). It combined government planning with free-market incentives and encouraged the establishment of private businesses and foreign investment, including foreign-owned enterprises. Both countries began their economic development from their agriculture sector, and in both cases, their attempts to build a Soviet-style economy failed, during their pre-reform period (Vu, 2009) Today both countries are major players in the global economy, where Vietnam is the world's leading exporter of pepper, seafood, rice, coffee (Backman, 2007) and China is the second largest economy in the world after U.S. One might ask, how both of these countries with a Communist government could achieve such high level of economic growth, hence in order to understand how their transformation led to today's development, it is important to compare and contrast gradualism with shock therapy economic reform approaches.
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A big bang or shock therapy approach implements various reforms on (monetary policy, privatization, trade and exchange rates etc.) quickly, whereas the gradualist approach spreads various reforms over an extended period of time. There are several arguments in support of big-bang approach to various types of reform. First, in the context of privatization, a big-bang approach provides a critical scale of privatized sector in the economy so that the privatized firms will be efficient (Roland and Verdier, 1992) Second, a big bang may increases the credibility of a reform (Lipton and Sachs, 1990) Third, the gradualist alternative gives time to reform opponents to organize themselves and thus invites a more formidable resistance (Krueger, 1993) In addition, in the context of price reforms, a gradual reform is undesirable, because it may induce an intertemporal speculation (van Wijnbergen, 1992). Finally, a big-bang approach brings the benefits more quickly (World Bank, 1991).