Download Economic Growth

Economic Reforms (1978 - )
People’s Republic of China
• 1949-10-01, PRC, Beijing
• Chairman: Mao Zedong
• 5-Star Red Flag
• Republic of China
government retreated to
Taiwan
Mao’s Legacies
• Industrial development in 1950s
– Modeled after the Soviet Union
– Produced enlarged proletariat
– Workers overwhelmingly concentrated in
cities
• Promotion of rural industrialization
– Employees in rural factories not strictly
``workers”
Industrialization in 1950s
Mao Zedong Died in 1976
• Turning point in China’s postwar era
• The 3rd Plenum of the 11th CCP Central
Committee in 1978
– Deng Xiaoping’s ascendancy
– economic modernization became focus
• US-PRC established diplomatic
relationship in 1979
Incentives for High Growth
• International strategic vision
at the top
– links China’s security and
global influence to its economy
– growth must proceed at least
at the overall speed of that of
the East Asian neighbors
Maoist Growth Unsustainable
• Central control over resource allocation
• Prevented flow of information & factors of
production
• Prevented market-determined prices and
competition
• Prevented China from utilizing cheap labor
in the international economy
Strategic Vision
• Short-term growth
– Utilization of relatively cheap labor force
• Long-term growth
– Technological change and dynamism
Structural Imperative
• Decentralization of economic decision
making
– incentive of local officials
• Demographic pressure and employment
problems
– net population growth (108 from 1978-1985)
– massive migration into cities
– aging population
Transition Strategy
• From central planning to indicative
planning
• From indicative planning to market
allocation of goods and services
• ``Grow out of the plan” instead of ``shock
therapy”
• Transition and growth at the same time
Economic Reform Measures
• Sequence
– agricultural production
(late 1970s - )
– international trade and investment (1979 - )
– state-owned enterprises
(early 1980s - )
– “socialist market economy”
(1993 - )
– fiscal reforms
(1994 - )
– privatization and private sector
(1997 - )
– accession into the WTO
(2001)
Outcomes of Reforms in 1980s
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Reforms began smoothly
Economic growth accelerated
Nobody was made obviously worse
Opponents were bought off
Complex interdependence between stateowned enterprises and non-state sector
• Government revenues eroded
Fiscal Reforms
• Replacement of appropriating profits with
taxing profits
– 1983 – 1984
• Fiscal contracting with the provinces
– mid-1980s
• Division of the tax-collection system
– two-tier tax collection system
– 1994
Banking System Reforms
• The People’s Bank of China
– nominally the central bank
– part of the central bureaucratic hierarchy
– at the rank of province/ministry
• “policy” banks and commercial banks
• reduction of provincial leaders’ influence
over bank decisions
• loans to state-owned enterprises
Foreign Trade & Investment
• Encourage investment, export, and import
– preferential treatment for overseas capital
• Gradual opening of the domestic market
• Accession to the WTO (December 2001)
From 1999 to 2011
• Private enterprises [siying]
– increased from 1.5 million to 9.7 million
– investors increased from 3.2 million to 20
million
– employees increased from 20 million to 104
million
• Since 1992 siying GDP grows at 60% a
year and tax grows at 80% a year
Decline of Workers’ Status
• Explosive growth of new (or revived) types
of factories in which workers are
compensated and treated quite poorly
• Erosion of the privileged treatment of
workers in state firms
• Rising complaints, petitions, slow-downs,
strikes, sabotage, physical violence, etc.
• Labor Law was passed in 1994
Challenges Ahead
• Separation of party-state and the economy
– pervasive corruption
• World Trade Organization
– internationally competitive corporations
• social welfare programs
– support of senior and unemployed citizens
• widening gap between rich and poor
– regional divide