1 china’s development model what’s china’s development model in the urban industrial sector...
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China’s Development Model
What’s China’s development model in the urban industrial sector today?
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China’s Development Model
What elements define a development model?
Again, look at Property rights (private vs. public) Markets (free vs. plan-set prices)
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Readings
Whiting Property rights in small-scale industry
How close to private property rights? How widespread?
Huang What is the role of state vs. private
ownership in reform China? How has it changed over time? Is state or private more successful?
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Urban Economic Reform
How did China change From planned economy To mixed state-private economy?
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Theory and Policy Debates
“Shock Therapy” vs. Gradual Reform Russia vs. China
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“Shock Therapy” vs. Gradual Reforms
Shock Therapy Western economists
like Harvard’s Jeffrey Sachs and the IMF staff recommended that every element in the old
system be simultaneously eliminated, to be replaced by
private property, free markets, individual rights and representative government— in that order of importance.
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‘sounds like: Washington Consensus
Huang, p. 3 Private property rights Economic opening
Free trade and free prices Financial reforms Macroeconomic stability Political liberalization
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“Shock Therapy” in Russia
On July l, 1991, the central planning agencies, Gosplan and Gossnab, were abolished. Supply relationships were thrown into disarray.
On January 2, 1992, all price controls were lifted Prices increased 25-fold in one year. Price increases far outpaced wage increases
Industrial production collapsed because enterprises were unable to get credit By the end of 1992 Russia’s G.D.P. had fallen by
22 percent Insight: there’s no such thing as a “free”
market (Karl Polnayi)
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A 1993 joke in Moscow went:
“What has one year of capitalism achieved in Russia that seventy years of Communism were unable to accomplish?
Answer: It has made Communism look good.”
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Gradual Reform in China
Recall core elements of the planned economy: Planners’ preferences State monopoly ownership of industry/collective ag State control over prices
Reform in China Plan continues to exist No immediate privatization
Rather, allow new entry/competition adjust managers’ incentives
No immediate price de-control Rather, “dual-track” price reform
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Gradual Reform in China
Note China’s multiple sources of economic growth Note that the former Soviet Union had long-
ago made the developmental transition from an agricultural to an industrial economy
China simultaneously made the gradual transition from plan to market
better incentives, higher efficiency agriculture to industry
big opportunity for growth
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Gradual Reform in China
Successful rural reform served as model for urban reforms
legitimacy fromimproved living
standards, improved rural incomes
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Gradual Reform in China
Ag reform Revealed surplus labor
For alternative employment in industry Increased household savings
For alternative investments in industry
Develop rural industry 2nd major success
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Loans to Township- and Village-run Enterprises and Rural Household Savings Deposits Agriculture Bank Agriculture Bank Loans to TVEs Rural Household Savings Deposits
Year
Total loans (billion current yuan)
Total loans (percent increase)
Year
Household deposits (billion current yuan)
Household deposits (percent increase)
1979 2.99 1979 2.12 1980 5.30 77.3 1980 3.22 51.9 1981 6.21 17.2 1981 4.26 32.3 1982 7.34 18.2 1982 5.38 26.3 1983 8.00 9.0 1983 6.70 24.5 1984 15.77 97.1 1984 10.05 50.0 1985 18.80 19.2 1985 15.53 54.5 1986 28.79 53.1 1986 25.77 65.9 1987 35.01 21.6 1987 42.62 65.4 1988 40.77 16.5 1988 59.37 39.3 1989 42.06 3.2 1989 84.85 42.9 1990 46.22 9.9 1990 121.21 42.9 1991 49.80 7.7 1991 157.76 30.2 1992 58.25 17.0 1992 197.24 25.0 1993 77.46 33.0 1993 253.30 28.4 1994 93.84 21.1 1994 356.46 40.7 1995 110.55 17.8 1995 481.34 35.0
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Gradual Reform in ChinaCollective Enterprises: TVEs
Develop rural collective enterprises Run by townships and villages (former communes and production
brigades) Legacy of Great Leap Forward
walking on 2 legs: agriculture and industry Use surplus labor Invest savings deposited in state-run banks Redefine role for local officials Reduce tax/fee burden on farm households
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Gradual Reform in ChinaPrivate enterprises
Emergence of private enterprises Absorb surplus labor Use private savings to invest
Especially where few state/collective resources available
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Gradual Reform in ChinaPrivate enterprises
QUESTION: Would you invest your family’s life
savings in a private enterprise only five years after the death of Mao?
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Gradual Reform in ChinaPrivate Enterprises
(1981) State Council allows individual household firms (getihu 个体户 )
1982 constitutional revision to recognize individual household firms
1987 “primary stage of socialism” 1988 further constitutional revision
and State Council regulations for larger private firms
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Political conflict over reform
Elite policy conflict in lead-up to Tiananmen Square (1989)
1989-1991 Conservative backlash 1992 Deng’s Southern Tour”
People’s Daily: “Without Reform There is No Way Out”
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Gradual Reform in China
Private Enterprises: Changing Ideological Justifications
1992 14th Party Congress “socialist market economy”
1997 15th Party Congress Private sector “important”
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Increase in share of private enterprise, Songjiang County, 1994-97
Songjiang County, Shanghai
Township-run collective
Village-run collective
Private, individual, and other
Songjiang County, Shanghai
Township-run collectiveVillage-run collective
Private, Individual, and other
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Increase in share of private enterprise, Wuxi County, 1994-97 (known as a “bastion of collectivism”)
Wuxi County, Wuxi
Township-run collective
Village-run collective
Private, Individual, and other
Wuxi County, Wuxi
Township-run collectiveVillage-run collective
Private, Individual, and other
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Gradual Reform in China
Private Enterprises: Changing Ideological Justifications
2001 private entrepreneurs allowed in CCP
2004 further constitutional revision Private sector not just permitted;
encouraged
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Gradual Reform in ChinaState-owned Industry
gradual reform competition for SOEs from new entry of
non-state enterprises (TVEs) early reforms to increase efficiency of
SOEs no privatization initially contrast gradual reform in China
with “shock therapy”
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Gradual Reform in ChinaState-owned Industry
competition for state sector from new entry of Collective enterprises (TVEs) Private enterprises Foreign enterprises
Early competition in labor-intensive sectors:
garments, toys, shoes, consumer electronics
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Gradual Reform in ChinaState-owned Industry
SOE and Price Reform limit plan, expand market
dual-track price system: 1984 Freeze plan obligations in place Allow sale on market of above-plan-quota
output gradual approach to price reform
Use information from marginal prices on above-plan-quota sales
most prices at market levels by ~1992
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Gradual Reform in ChinaState-owned Industry
measures to improve authority and incentives of SOE managers factory manager responsibility system
(reduce influence of party-sec) managerial incentives -- long-term
contracts changes in labor management
contrast w/“shock therapy”
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Gradual Reform in ChinaState-owned Industry
Large share of SOEs losing money in 1990s began selective privatization and
bankruptcy for state and collective enterprises
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Reading: Huang
What is the “Beijing Consensus”? What is wrong with the “Beijing
Consensus,” according to Huang? What part of China’s economy
comes closest to the Washington Censensus?