Socialism and the Command Economy

1. Socialism and the Command Economy Socialism: an economic system emphasizing on public ownership command economy: central economic planning, distribution of resources and setting price by administrative methods an emphasis on developing heavy industry and the urban areas by keeping the prices for agricultural products low closed to the external world high rates of industrial growth in the first three decades, but inefficiency

2. Patterns of Reform Policies Gradualism Administrative decentralization Particularistic contracting

3. Gradualism Shock therapy versus gradualism Gradualism: crossing the river by feeling for the stones; reform without a grand plan; the market sector was expanded at the fringe of the plan sector; accommodating the possible political resistance to reform by protecting established interests and giving substantial side payments to influential players; gradualism as the only politically feasible approach

4. Administrative Decentralization Decentralization to whom? Local governments or enterprises decentralization to local governments as a strategy to gain local support for reform enterprises still tightly controlled and intervened by administrative agencies competition among localities and economic consequences: strong incentives to develop industry and market segmentation

5. Particularistic Contracting Reforms and decentralizations were negotiated individually Gradualism, administrative decentralization and particularistic contracting particularistic contracting and political support for reform creating demands for lucrative reform opportunities

6. Reforms relating to foreign investment by particularism Political expediency and geographical particularism Setting up special economic zones in south China to reduce opposition from conservative political leaders and bureaucracies with established interests exploit the political advantages of particularism preferential policies given to the special economic zones, and Guangdong and Fujian

7. Extending the Open Policy Pressure from other provinces for preferential policies Zhao Ziyang�s coastal development policy: unbalanced growth between coastal and inland areas shifting the emphasis from Guangdong to Shanghai spread of preferential policies to inland provinces by allowing local government to create development zones within their jurisdictions; loss of control over the establishment of development zone and re-centralization geographical particularism and re-orientation of officials toward opening broadened local support for reform

8. Decentralization of Foreign Trade Authority Decentralization from the central ministry to local authorities provincial and municipal governments as well as ministries were permitted to establish their own trading companies to compete with the national trading companies retention of foreign exchange earnings and assignment of foreign exchange rights on a particularistic basis shifting the authority to issue import and export licenses from central to local officials, but the number of products requiring licenses has increased import and reselling of imported goods in the domestic market

9. Consequence of Trade Decentralization Loss of national bargaining power with foreigners increase in corruption: the case of car scandal in Hainan island

10. Foreign Trade Contracting Each province negotiated a contract with the central ministry of foreign trade: the amount of foreign exchange earnings the amount of foreign exchange to be remitted to the central level a fixed amount of domestic currency the center would provide to subsidize losses on export Greater local autonomy in foreign trade

11. Opening the Domestic Market International pressure on removing import barriers and lowering tariffs, and entry to WTO import barriers and protection of national industries resistance from industrial ministries to removing trade restrictions and promoting competition

12. WTO and Opening of Domestic Market Why does China want to join the WTO? Wider access to world market to promote domestic market reform to join ahead of Taiwan to rid itself of the annual review of most favored nation status by the U.S. government

13. China�s Entry to the WTO Who benefit? Consumers Chinese industries that are competitive in the international market Who suffer? Service industries in China (banks, insurance firms) heavy industries and agriculture Would Hong Kong Benefit?