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strategic investment, uncertainty, China, market economy, centrally-planned economy
This paper attempts to provide an explanation to the success of the gradual reform strategy of China by showing that such a strategy can minimize the uncertainty created in the process of transition from a centrally-planned economy to a market economy. In a commitment versus flexibility game, low uncertainty motivates enterprises to adopt a strategy of pre-committing their investment which is crucial in sustaining a faster growth rate in the industry. In addition, Chinas successful use of market forces of competition and entry is also an important factor in the transition process.
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