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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 • • • • • 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