Download Book Review: The Economic System of China

Book Review: The Economic System of China ∗
by Steven N.S. Cheung
Chuan Qin
2/12/2013
Before I read this book, I was skeptical about whether a book with fewer than 100 pages
like this can well explain the economic system of China. After I finished this book and reread
it again, I must say that Cheung offers a really distinctive insight into the complicate Chinese
economic system. Also, his English writing is very clear and concise. Some economics
learning resources highlight the importance of English writing and suggest that students
should read some articles by Samuelson, Alchain, Coase and other economists. But I had
no ideas about what a good writing looks like until I finished this book. From then on, I
planned to read more works by those economists and to improve my writing skills to their
level.
Now, let me start the book review by clearing up a matter of terminology. Cheung
classifies Chinese localities as consisting of seven layers, all geographically determined: The
top layer is the country, then the provinces, the cities, the xians, the towns, the villages, and
finally the households. The xians have the chief economic power because they possess the
right to decide and allocate the use of lands which are owned by the state (45).
The secret of Chinese miraculous development is the efficiency of land use. The xian
officals were encouraged to rent the state-owned land to the most profitable companies, who
can not only save a lot of money in local banks, but pay a substantial amount of tax to
the xian government. On the other hands, the xians are play the role of landlords and
companies are the sharecroppers — this arrangement was proved to be efficient in Cheung’s
The Theory of Share Tenant. Some xians can even offer land at a negative real price to
attract the best companies. How did they do that? Some xian officals cleared up the land,
built the infrastructures, or even hired some ready-to-go workers for the tenant companies;
the cost was not covered by the land price — it would be covered by tax in future.
Cheung lauded that economic system as the best one ever in Chinese history because
it solves the problem of the allocation of land, which is always the bane of social unrests.
I myself subscribe to the argument that the current Chinese economic system succeed in
allocating land efficiently. However, I should point out that the system fails to prevent some
problems, especially the redundant construction.
∗
Cheung, Steven N.S. 2009. The Economic System of China. Hong Kong: Arcadia Press.
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In fact, I don’t worry too much about the pollution in China. If the central government
knows it is necessary to combat with pollution, it can simply send out the red tape to the
xians and list environmental indicators as the evaluation of the officals’ performance. Those
xian officals will rush to the frontline to combat with those polluters.
But, redundant construction is hard to measure. Even the central government command
the xian officals not to dismantle a building that was built only years ago. The xian officals
can find many reasons to evade this command. For example, they may lie to the central
government that the building is not safe for any use, thereby must be dismantled. Redundant
construction brings many problems, including excess waste of resource and corruption. And
more importantly, the central government may be acquiescent to redundant construction
because it can increase the GDP!
That is why I can’t agree with Cheung’s optimism. After decades of rapid development,
with the help of cheap land, Chinese economy currently faces many new challenges. Many
violent events had cropped out as some peasants or households refused to sell their land to
the xian government at a cheap price. These events rung the alarm for Chinese economy —
Does the land finance reach a bottleneck? What is the next policy when all land are rented
out?
But, as Cheung put at the beginning of this book, what he wants to show us is what China
has done right over past decades, not on the dark sides of Chinese economy. He believes that
preserving the correct part of current economic system is more important than criticizing the
whole system (15). I agree with him here and recommend this book to anyone who wants to
know the essence of Chinese Style Socialism. In this book, Cheung also discusses many real
examples and details about the Chinese economic system; they are also worth reading, but
I am not going to review them here: They all based on the land policy that I have reviewed
in previous paragraphs.
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