Economic Reforms (1978 - )

1. Economic Reforms (1978 - )

2. People’s Republic of China • 1949-10-01, PRC, Beijing • Chairman: Mao Zedong • 5-Star Red Flag • Republic of China government retreated to Taiwan

3. 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”

4. Industrialization in 1950s

5. 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

6. 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

7. 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

8. Strategic Vision • Short-term growth • Utilization of relatively cheap labor force • Long-term growth • Technological change and dynamism

9. 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

11. 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

12. 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)

13. Outcomes of Reforms in 1980s • Reforms began smoothly • Economic growth accelerated • Nobody was made obviously worse • Opponents were bought off • Complex interdependence between state-owned enterprises and non-state sector • Government revenues eroded

14. 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

15. 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

16. 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)

20. 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

22. 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

23. 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