Fast forward 21 years and the combined market capitalisation of the mainland's Shanghai and Shenzhen stock exchanges is now the fourth largest in the world. Hundreds of state-owned and privately owned mainland companies have also listed in Hong Kong, New York, London and on other foreign bourses, with their shares eagerly snapped up by international investors.

It's proof that late paramount leader Deng Xiaoping was on to something when he told his comrades to immerse themselves in market economics as if they were 'crossing the river by feeling the stones'.

Former Communist Party officials who knew little about economics are now hailed as capable managers of some of the world's largest conglomerates. And Beijing has been praised for its successful macroeconomic management - turning the world's largest developing economy into its second largest in the past decade. China's economic boom has dazzled investors and captivated the world with a long list of much-envied accomplishments. The world's fastest-growing major economy, it now boasts the biggest foreign reserves, worth US$3 trillion, the longest and fastest high-speed rail system and largest car market.

Along the way, the Communist Party has defied predictions that it would collapse after China's admission to the World Trade Organisation in 2001. And it also appears to have put to rest the fears of some economists that the Chinese bubble is about to burst.

After seizing power in 1949, the Communist Party began reconstruction of the war-torn economy of one of the world's poorest countries with the help of Soviet advisers. In the early stages, the new government succeeded in reining in ruinous inflation, rebuilding heavy industry on the Soviet model and boosting agricultural production. But the economy faltered under Mao Zedong's infamous Great Leap Forward of the late 1950s and early '60s, and his Great Proletarian Cultural Revolution between 1966 and 1976.

Even in the early years of reform, from 1978 to the end of the 1980s, the party's economic policy swung one way and then the other as its right wing, led by the reformist Deng, battled it out with the left, led by his arch-rival Chen Yun , a conservative architect of central planning.

True capitalist-style economic reform only emerged after Deng's trip to the south in early 1991, when he ruled that anything that was capitalist could be introduced as long as it helped to develop the economy and improve people's livelihoods.

In the years since, China had gradually shed its Stalinist-era planned economy for one that incorporates many of the characteristics of laissez-faire capitalism.

John Lee, a China-watcher with the Centre for Independent Studies in Sydney and the Hudson Institute in Washington DC, said the partial free-market reforms and opening up to foreign investment were the two pillar policies that accounted for the phenomenal economic growth.

'The rise of China as a destination for foreign direct investment has been particularly important since it has facilitated rapid technology transfer from more advanced economies,' Lee said. 'This has helped economic advancement in the country.'

Tim Condon, chief economist with ING Asia, said Deng's open-door policy began to reverse more than 200 years of economic underperformance and had 'delivered excellent economic performance'.

Zhuang Jian, senior economist with the Asian Development Bank's China resident mission, said the government's consistent pursuit of free-market economic reforms - from rural areas to urban areas and from the restructuring of state-owned enterprises to the encouragement of private enterprises - had created incentives for all market participants and ignited their enthusiasm.

And the country's integration with the rest of world through its accession to the World Trade Organisation in 2001 introduced competition between domestic and foreign companies, encouraging the former to learn up-to-date skills and management from the latter, Zhuang said.

Chen Yannan, executive vice-president of the China Executive Leadership Academy in Yanan, a training ground for senior cadres run by the Communist Party Central Committee's powerful Organisation Department, said the spirit of 'seeking truth from facts' and 'crossing the river by feeling the stones' was behind the party's success in running the economy. 'Overall, China's approach has been progressive but sensible, a philosophy that was famously described by Mao and Deng,' Chen said. 'We learn and adapt to new situations, and we adopt all things that are useful to help develop China.'

He cited the party's recruitment of all kinds of talent into its ranks and the way it sought advice from foreign experts and international institutions like the IMF and World Bank.

But while some hail its success as a model that could be followed by other developing nations, others caution that it is unstable and unsustainable. Nevertheless, most agree that it is a development path characterised by strong government intervention, state monopolies accompanied by steady market reform, opening up to the outside world and domestic transformation.

Condon said he was concerned that the excellent performance of the past few decades was the result of the steady implementation of pro-market reforms, but there had been no more reform since China joined the WTO in 2001.

916

The number of companies listed on the Shanghai exchange today

- It has a market capitalisation of 18.06 billion yuan (HK$21.67 billion)