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Starting 1978, several reforms were introduced in phases in China. First, agriculture, foreign trade and investment sectors were taken up. Commune lands were divided into small plots. These were allotted to individual households for cultivation.
The reforms were expanded to industrial sector. Private firms were allowed to set up manufacturing units. Also, local collectives or cooperatives could produce goods. This meant competition between the newly sanctioned private sector and the old state-owned enterprises.
This kind of reform in China brought in the necessity of dual pricing. This meant the farmers and industrial units were to buy and sell fixed quantities of raw material and products on the basis of prices fixed by the government. As production increased, the material transacted through the open market also rose in quantity. Special Economic Zones (SEZs) were set up in China to attract foreign investors.