This comprehensive overview of the modern Chinese economy by a noted expert on China's economic development offers a quality and breadth of coverage not found in any other English-language text. In The Chinese Economy, Barry Naughton provides both an engaging, broadly focused introduction to China's economy since 1949 and original insights based on his own extensive research. The book will be an essential resource for students, teachers, scholars, business people, and policymakers. It is suitable for classroom use for undergraduate or graduate courses.
After presenting background material on the pre-1949 economy and the industrialization, reform, and market transition that have taken place since, the book examines different aspects of the modern Chinese economy. It analyzes patterns of growth and development, including population growth and the one-child family policy; the rural economy, including agriculture and rural industrialization; industrial and technological development in urban areas; international trade and foreign investment; macroeconomic trends and cycles and the financial system; and the largely unaddressed problems of environmental quality and the sustainability of growth.
The text is notable also for placing China's economy in interesting comparative contexts, discussing it in relation to other transitional or developing economies and to such advanced industrial countries as the United States and Japan. It provides both a broad historical and macro perspective as well as a focused examination of the actual workings of China's complex and dynamic economic development. Interest in the Chinese economy will only grow as China becomes an increasingly important player on the world's stage. This book will be the standard reference for understanding and teaching about the next economic superpower.
Table Of Contents
Acknowledgments xv
INTRODUCTION 1
From Transition to Development 3
The Distance Traveled 4
The Dual Transition 5
China's Growth Performance 6
Becoming a "Normal" Country 8
China to the Future 10
Using This Textbook 12
Bibliography 13
I. LEGACIES AND SETTING 15
1. The Geographical Setting 17
1.1 Landforms 18
1.2 Climate and Water 20
1.3 Provinces and Regions 22
1.4 Mineral Resources 28
1.5 Conclusion: Regional Differentiation 29
Bibliography 31
2. The Chinese Economy Before 1949 33
2.1 The Traditional Chinese Economy, 1127-1911 34
2.1.1 High-Productivity Traditional Architecture 34
2.1.2 The Commercialized Countryside 36
2.1.2.1 Sophisticated Institutions 36
2.1.2.2 Competitive Markets 37
2.1.2.3 Small-Scale, "Bottom-Heavy" Economy 37
2.1.3 Crisis of the Traditional Economy? 38
2.1.4 The Failed Response to the West and Japan 40
2.2 The Beginnings of Industrialization, 1912-1937 43
2.2.1 Industry 43
2.2.2 Evaluation: How Broad Was Development in the 1912-1937 Period? 45
2.3 War and Civil War, 1937-1949 47
2.3.1 The Rise and Fall of a Japan-Centered East Asian Economy 47
2.3.2 The Rise of Manchuria 48
2.3.3 Increased State Intervention 49
2.3.4 Inflation 49
2.4 Legacies of the Pre-1949 Economy 50
2.4.1 Legacy for the Socialist Era (1949-1978) 50
2.4.2 Legacy for the Post-1978 Market Economy 51
Bibliography 53
3. The Socialist Era, 1949-1978:
Big Push Industrialization and Policy Instability 55
3.1 The Big Push Development Strategy 56
3.2 The Command Economic System in China 59
3.3 Policy Instability 62
3.3.1 Economic Recovery, 1949-1952 64
3.3.2 1953 and 1956: The Twin Peaks of the First Five-Year Plan 65
3.3.3 Retrenchment: The "Hundred Flowers" of 1956-1957 67
3.3.4 The Great Leap Forward, 1958-1960 69
3.3.5 Retrenchment: Crisis and "Readjustment," 1961-1963 72
3.3.6 Launch of the Third Front, 1964-1966:
New Expansion Hijacked by Radicalism 73
3.3.7 Retrenchment: The Cultural Revolution, 1967-1969 74
3.3.8 The Maoist Model: A New Leap in 1970 75
3.3.9 Retrenchment: Consolidation and Drift, 1972-1976 76
3.3.10 The Leap Outward: 1978 and the End of Maoism 77
3.3.11 A Final Turning Point:
The Third Plenum and the Beginning of Economic Reform 79
3.4 Legacies of the Socialist Period 79
3.4.1 The Legacy of Policy Instability 79
3.4.2 The Shortcomings of the Development Strategy 80
3.4.3 Human Capital Base 82
Bibliography 83
4. Market Transition: Strategy and Process 85
4.1 The Chinese Approach to Transition 86
4.2 How Did Reform Start?
The Initial Breakthrough in the Countryside 88
4.3 A Two-Phase Framework of Economic Reform 90
4.4 Elements of China's Transition Through 1992 91
4.4.1 Dual-Track System 91
4.4.2 Growing Out of the Plan 92
4.4.3 Paticularistic Contracts 94
4.4.4 Entry 94
4.4.5 Prices Equating Supply and Demand 94
4.4.6 Incremental Managerial Reforms Instead of Privatization 95
4.4.7 Disarticulation 95
4.4.8 Initial Macroeconomic Stabilization Achieved Through the Plan 96
4.4.9 Continued High Saving and Investment 96
4.4.10 Conclusion of First-Phase Reforms 97
4.5 The Tiananmen Square Interlude 98
4.6 The Second Phase of Reform, 1993-Present 100
4.6.1 Prerequisites 101
4.6.1.1 Market Reunification 101
4.6.1.2 Recentralization
4.6.1.3 Macroeconomic Austerity 102
4.6.2 Regulatory Approach and Administrative Restructuring 102
4.6.2.1 Fiscal and Tax System 103
4.6.2.2 Banking and Financial System 103
4.6.2.3 Corporate Governance 104
4.6.2.4 External Sector:
Membership in the World Trade Organization 104
4.6.3 Outcomes 105
4.6.3.1 From Inflation to Price Stability 105
4.6.3.2 State Enterprise Restructuring and Downsizing 105
4.6.3.3 Privatization 106
4.6.3.4 Reform with Losers 106
4.7 Contemporary Challenges 107
Bibliography 110
5. The Urban-Rural Divide 113
5.1 A Dualistic System:
The Division Between Urban and Rural 114
5.1.1 Origins of the Urban-Rural Divide 114
5.1.2 The Urban Economic System 116
5.1.2.1 The Danwei 116
5.1.2.2 Urban Property Rights 118
5.1.3 The Rural Economic System 119
5.1.3.1 Rural Collectives 119
5.1.3.3 "Fuzzy" Property Rights and Land-Use Disputes 121
5.1.4 The Evolution of the Rural and Urban Systems During Market Transition 122
5.1.5 Invisible Walls: Administrative Barriers Today 124
5.2 Urbanization 126
5.3 Rural-Urban Migration 129
5.3.1 Overview of Migration 129
5.3.2 Characteristics of Migrants 131
5.4 Economic Consequences of the Urban-Rural Divide 131
5.4.1 Living Standards and Restrictions on Mobility 132
5.4.2 Addressing the Urban-Rural Divide 134
5.5 Conclusion 134
Bibliography 135
II. PATTERNS OF GROWTH AND DEVELOPMENT 137
6. Growth and Structural Change 139
6.1 Growth 139
6.1.1 Data and the Measurement of Growth 140
6.1.2 Growth in Comparative Perspective 142
6.1.3 Instability in Growth 143
6.2 Investment 143
6.3 Structural Change: Common Patterns 148
6.4 Structural Change in China: Labor 151
6.5 Structural Change in China: GDP 153
6.6 Structural Change and Globalization 156
6.7 Conclusion 157
Bibliography 158
7. Population Growth and the One-Child Family 161
7.1 The Demographic Transition 161
7.2 China's Demographic Transition 164
7.3 The Role of Government Policy 167
7.4 Consequences of the One-Child Policy 170
7.5 Changing Age Structure of the Population 172
7.6 Conclusion 177
Bibliography 177
8. Labor and Human Capital 179
8.1 The Institutional Transformation of Chinese Labor 180
8.1.1 The Labor Force
8.1.2 Employment: Ownership and Labor Mobility 181
8.1.3 Employment, Unemployment, and State-Sector Downsizing 185
8.1.4 The Informal Sector:
Emerging Dualism Within Urban Labor Markets 189
8.1.5 Rural Labor Markets 191
8.2 How Well Do Labor Markets Function in China Today? 192
8.2.1 Returns to Education 192
8.2.2 Human Capital and Educational Attainment 195
8.2.3 Other Attributes 198
8.2.4 The Migration Decision 199
8.2.5 Labor Markets Concluded 201
8.3 Social Security 202
8.4 Conclusion 206
Bibliography 206
9. Living Standards: Incomes, Inequality, and Poverty 209
9.1 Income Growth 210
9.2 Poverty 212
9.2.1 Rural Poverty 212
9.2.1.1 Official Poverty Line 212
9.2.1.2 World Bank Internationally Comparable Poverty Line 212
9.2.1.3 Explaining Poverty Trends 214
9.2.2 Urban Poverty 216
9.2.3 Overall Poverty 216
9.3 Inequality 217
9.3.1 Accounting for All Income Sources 220
9.4 Physical Quality of Life Indicators 221
9.4.1 Life Expectancy at Birth 222
9.4.2 Other Health-Related Indicators 222
9.4.3 Education 223
9.4.4 Human Development Index 223
9.5 Income, GDP per Capita. and Purchasing Power Parity Once Again 225
9.6 Conclusion 226
Bibliography 227
III. THE RURAL ECONOMY 229
10. Rural Organization 231
10.1 The Chinese Village 231
10.2 Agricultural Collectives 233
10.2.1 Features of the Agricultural Collectives 234
10.2.2 Discussion of Collectives 236
10.2.3 The Agricultural Policy Environment of the Collectives:
"Grain First" 239
10.3 The Second Revolution in the Countryside:
Rural Reforms, 1979-1984 240
10.3.1 Production Surges in the Wake of Rural Organizational Change 242
10.3.2 The Side Effect of Change:
Rural Public Services Decline 243
10.4 The Emergence of Rural Land Markets 246
Bibliography 248
11. Agriculture: Output, Inputs, and Technology 251
11.1 Overview of Post-1949 Agriculture 252
11.2 Technology Choice and Technical Innovation in Agriculture 254
11.3 The Green Revolution 258
11.3.1 Irrigation 258
11.3.2 Agricultural Chemicals 260
11.3.3 Seeds 261
11.4 Motive Power in the Countryside 263
11.5 Output and Yields; The Challenge of Intensification 265
11.6 Diversification and the Challenge of the Future 266
11.7 Genetically Modified Organisms 267
11.8 Globalization 268
Bibliography 269
12. Rural Industrialization: Township and Village Enterprises 271
12.1 Origins of the TVEs 272
12.2 The Golden Age of TVE Development 274
12.3 Causes of Rapid Growth 275
12.4 Diverse Regioal Models of TVE Development 282
12.4.1 The Southern Jiangsu (Sunan) Model 282
12.4.2 The Wenzhou Model 283
12.4.3 The Pearl River Delta Model 284
12.4.4 Failed or Absent TVE Development 284
102.5 The Transformation of TVEs in the New Century 285
12.5.1 The Changing Economic Environment of TVEs 285
12.5.2 TVE Restructuring: The Great Privatization 286
12.5.2.1 National Policy and Local Models 288
12.5.2.2 Market Conditions and Privatization 288
12.5.2.3 Insider Privatization 289
12.5.2.4 Local Variation in the Privatization Process 291
12.6 Emergence of New Forms of Rural Industry in the Twenty-First Century 292
Bibliography 293
IV. THE URBAN ECONOMY 295
13. Industry: Ownership and Governance 297
13.1 Ownesrhip Change: A Diverse Industrial Base 298
13.1.1 Ownership Change in the First Period of Transition 299
13.1.2 Ownership Change from 1996 Through the Present 301
13.2 Industrial Finance 304
13.3 Transforming Corporate Governance in the State Sector 308
13.3.1 Creating Corporate Governance: Transition A 310
13.3.2 Creating Corporations: Transition B 313
13.3.2.1 Corporatization and the Company Law: Objectives and Principles 314
13.3.2.2 The Chinese System in Practice 316
13.3.2.3 Typology of Corporate Governance Systems 319
13.4 Privatization and Hybrid Ownership 323
13.5 Conclusion 325
Bibliography 326
14. Structural Change: Industry, Energy, and Infrastructure 329
14.1 Growth and Structural Change in Manufacturing 329
14.1.1 Regional Growth Patterns 333
14.2 Energy 333
14.2.1 Energy Efficiency of the Economy 336
14.2.2 The Three Main Energy Sectors 338
14.2.2.1 Coal 338
14.2.2.2 Oil and Gas 339
14.2.2.3 Electric Power 341
14.2.3 Energy Security, Diversification, and Imports 341
14.3 Telecommunications 343
14.4 Common Features: Infrastructure Investment 345
14.5 Conclusion 347
Bibliography 347
15. Technology Policy and the Knowledge-based Economy 349
15.1 pursuing Critical Technologies: The R&D Effort 353
15.1.1 The Trajectory of China's Technology Effort 353
15.1.2 Strategies of R&D Investment 356
15.1.2.1 Do It Yourself 356
15.1.2.2 Buy It 357
15.1.2.3 Bargain for It 357
15.1.2.4 Seed It 358
15.1.2.5 Encourage Spin-offs 359
15.1.2.6 Open Up to Foreign Direct Investment 359
15.1.2.7 Support Domestic Entrepreneurship 360
15.2 Human Capital Resource Base 361
15.3 The Output of the R&D Effort 363
15.4 Redefining Government Technology Policy in the Twenty-First Century 365
15.4.1 Aligning Incentives in Favor of High-Technology Development 366
15.4.2 Deeper Integration into Global Political Networks 368
15.5 Conclusion 371
Bibliography 372
V. CHINA AND THE WORLD ECONOMY 375
16. International Trade 377
16.1 Background 379
16.2 The Process of Trade Reform 380
16.2.1 Initial Reform Steps 381
16.2.2 Liberalizing the Foreign-Trade System 382
16.3 A Dualist Trade Regime:
The Export-Processing System 386
16.4 Toward an Open Economy 388
16.4.1 Currency Convertibility 388
16.4.2 World Trade Organization Membership 389
16.4.3 Openness Revisited 391
16.5 Outcomes: Rapid Growth and Structural Change 392
16.5.1 Exports 393
16.5.2 Imports 394
16.5.3 High Technology Trade 394
16.6 Regional Composition of Trade Within China 396
16.7 Conclusion 398
Bibliography 399
17. Foreign Investment 401
17.1 FDI in the Chinese Economy 402
17.2 "Zones": The Gradual Liberalization of the Investment Regime 406
17.3 The Investment Regime Today 410
17.4 Sources of Investment in China 413
17.5 The China Circle 416
17.6 FDI in Context 419
17.6.1 Sectoral Composition of FDI:
The WTO Impact 419
17.6.2 Modes of Capital Inflow 420
17.7 Conclusion 422
Bibliography 423
VI. MACROECONOMICS ANDFINANCE 425
18. Macroeconomic Trends and Cycles 427
18.1 Trends in National Saving 428
18.2 The Fiscal System and Fiscal Reform 430
18.2.1 Reversing Fiscal Erosion 433
18.2.2 Broadening the Tax Base: Horizontal Equity 433
18.2.3 Restructuring Central-Local Relations 434
18.3 The Fiscal System Today 436
18.3.1 Intergovernmental Fiscal Relations: Principles 436
18.3.2 Inadequacy of Local Government Revenue in Rural Areas 437
18.3.3 Extrabudgetary Funds, Levies, and Charges 438
18.3.4 Abolishing Local Taxes and Stepping Up Transfers 439
18.3.5 Arbitrary Nature of Transfers 440
18.4 Fiscal Deficits and Fiscal Policy 441
18.5 Inflation and Macroeconomic Cycles 442
18.6 Monetary Policy 444
18.7 Conclusion 445
Bibliography 446
19. Financial System 449
19.1 The Financial System in the Planned Economy and Under Reform 451
19.2 The Banking System 454
19.2.1 State-Owned Commercial Banks 454
19.2.2 Joint-Stock Commercial Banks 456
19.2.3 City Banks 457
19.2.4 Other Banks 457
19.2.4.1 Policy Banks 457
19.2.4.2 Rural Credit Cooperatives 458
19.2.4.3 The Fringe 458
19.2.5 Central Bank and Regulatory Apparatus 460
19.3 Weakness of the Banking System 460
19.3.1 Measures to Reduce the Stock of Nonperforming Loans 462
19.3.2 The "Flow"Problem:
Ensuring Good Lending Decisions 464
19.3.3 Current Bank-Reform Program and Prospects for the Future 466
19.4 Stock Markets: : Learning to Crawl? 467
19.4.1 Birth of the Market:
Raising Funds for the State Sector 468
19.4.2 Characteristics of the Market 469
19.4.2.1 Circulating and Noncirculating Shares 469
19.4.2.2 Low Contestability 471
19.4.2.3 Rationing of Listing Opportunities 471
19.4.2.4 Thin Markets 471
19.4.2.5 Weak Disclosure and Regulation; Multiple Related-Party Transactions 472
19.4.2.6 Policy-Driven Market 473
19.4.2.7 Insider Control and Manipulation 473
19.4.3 Reform Initiatives: Selling Down the Share:
Changing the "Split Share Structure" 474
19.4.4 Institutional Investors 475
19.4.5 Comparative Evaluation of China's Stock Market 476
19.5 Bond Markets 477
19.6 Other Financial Markets 478
19.7 Conclusion 478
Bibliography 481
VII. CONCLUSION: CHINA'S FUTURE 485
20. Environmental Quality and the Sustainability of Growth 487
20.1 Pollution 489
20.1.1 Air Pollution 490
20.1.2 Water Pollution 491
20.1.3 Costs of Pollution 493
20.1.4 Pollution Control 494
20.2 Sustainability 495
20.2.1 Broad Impact of Pollution and Global Warming 495
20.2.2 Sustainability of Land and Water Resources 497
20.2.2.1 Desertification 498
20.2.2.2 Forests and Grasslands 499
20.2.2.3 Water Availability 500
20.3 Conclusion 502
Bibliography 503
Index 505 |
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