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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. 1 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. 2