Abstract
China presents probably the most astonishing growth miracle in modern world history. This chapter shows how China has developed, starting from the Middle Ages to the present with a special focus on the “Reform and Open-door Policy” under Deng Xiaoping from 1978 onwards. Before outlining individual reforms, this chapter analyzes the special characteristics of the Chinese reform strategy which can be best described as gradualist and experimental. It then discusses the agricultural reforms, the emergence of Township and Village Enterprises, the role of special economic zones and FDI, the fiscal, financial and state-owned enterprise reforms that intensified in the 1990s, and the 2001 WTO accession. It also explains why the reform slowed down after 2003 and in how far the growth strategy has turned toward “rebalancing” under Xi Jinping.
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Notes
- 1.
- 2.
- 3.
- 4.
Also referred to as “The Needham Question” (after Joseph Needham who conducted research on the history of science and technology in China, particularly regarding the question of why China had been overtaken by the West, cf. Needham 1969).
- 5.
Since 1925, it was led by Chiang Kai-shek. Together with the Chinese Communist Party, it presents one of the two historical parties in China.
- 6.
This so-called “Second Sino-Japanese War” lasted from 1937 until 1945.
- 7.
Various factors supported the rise of the socialism in the late 1940s (cf. Naughton 2018): As a consequence of the Civil War, China’s economic infrastructure and industrial capital were seriously damaged and the economy was plagued by hyperinflation. Due to various wars in the past, including the opium wars and the Sino-Japanese war, China regarded Western institutions and ideas critically. The Chinese population had suffered substantially under the Civil War and was more likely to accept strong government in order to restore stability.
- 8.
However, they later played a key role under the reforms initiated by Deng Xiaoping in the late 1970s.
- 9.
In the absence of both events, output and consumption would have been 2.7 times as large.
- 10.
Deng Xiaoping never served as Chairman or General Secretary of the CPC (see also Shambaugh 1993).
- 11.
This was also partly due to the conservative politicians, including important figures such as Chen Yun (who opposed the SEZs reform) and Li Xiannian (see Chow 2007 for a more detailed discussion).
- 12.
A famous slogan of the Cultural Revolution was “take grain as a key link” (yiliang weigang) (cf. Naughton 2018).
- 13.
The grain first policy sometimes resulted in what Naughton (2018) refers to as a “perverse ‘reverse specialization’”, meaning that areas were growing more of the crops from which they had the least comparative advantage. To meet the quota, regions that were in fact ineligible for grain production had to devote all their land to the production of grain in order to compensate for the missing comparative advantage, whereas regions that were particularly suitable for grain production fulfilled the quotas easily and used some of the remaining land to grow cash crops instead.
- 14.
As argued by Naughton (2018), the rural reforms entailed the costly trade-off, especially since China faced a shortage of foreign exchange. Because of the rise in grain imports, the government had to defer the technology import program of the “leap outward”.
- 15.
In his study, Lin (1992: 48) counts 12 cash crops (namely, cotton, peanuts, rapeseed, sesame, jute, ramie, sugar cane, sugar beets, tobacco, tussah silk cocoons, mulberry silk cocoons, and tea) as well as seven grain crops (namely, rice, wheat, corn, potatoes, sorghum, millet, and soybeans).
- 16.
They report a 0.4% increase for the period 1985–1990 and a 22.3% increase for the period from 1975 to 1990.
- 17.
Northeast China: Heilongjiang, Liaoning, and Jilin provinces; Northern China: Municipalities of Beijing and Tianjin as well as the Hebei, Henan, Shandong, Shanxi, Shaanxi, and Gansu provinces; Southern China: Guangxi autonomous region plus the Fujian and Guangdong provinces.
- 18.
- 19.
The local government could not install trade barriers to prevent competition with other townships since the local market was usually too small to offer all necessary goods (Perotti et al. 1998).
- 20.
For instance, government officials sometimes tried to prevent SOE managers from exerting their newly acquired decision-making authority; but also state firm managers tried in some instances to retain the SOEs’ profits but expected the state to take care of financial losses (Jefferson and Rawski 1994).
- 21.
To be precise, first experiments were already conducted in 1977 in Jiangsu province, cf. Lin and Liu (2000).
- 22.
Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang, and Beihai.
- 23.
To be precise, these cities were economic and technological development zones (ETDZs) which were smaller than SEZs (cf. Zheng 2010).
- 24.
These three laws are also known as “sanzi qiye fa” (Li 2019).
- 25.
The underlying reason for this inflation spike was the unrestrained enterprise spending on capital investment and wage increases which was financed by banks which unreservedly extended credits (Cheng 1991). According to Naughton (1991), these inflation spikes could therefore have been avoided if the restructuring of the fiscal system would have occurred earlier.
- 26.
However, this was still a quite high share for the manufacturing sector compared to other developing countries which focused primarily on agricultural exports.
- 27.
USC US-China Institute (1993).
- 28.
With the exception of Lhasa and Urumqi, cf. Chen (1997).
- 29.
For instance, the administrative regulations on price, the provisional rules on the development and protection of supportive socialist competition, the administrative regulations during the 1980s and the anti-unfair competition law, the consumer rights and interests protection law, the price law, the bidding law, the foreign trade law in market economies activities, etc. during the 1990s, cf. Xian-Chu (2009).
- 30.
In principle, these external effects can also emerge through backward and forward industrial linkages. However, this is less the case of the Chinese economy due to the FIEs’ focus on export processing trade (Chen 2011).
- 31.
Credit quotas for joint-stock commercial banks and cooperative financial institutions had already been abolished in 1994.
- 32.
Each bank received US$22.5 billion (Cousing 2011).
- 33.
An auction system was introduced and the NPLs of the state-owned commercial banks were sold to the AMCs with which they were not originally paired up in order to increase market mechanisms (Okazaki 2007).
- 34.
The remaining three private banks are KinCheng Bank of Tianjin, Shanghai HuaRui Bank, and Wenzhou Minshang Bank.
- 35.
The situation was still somehow better for laid-off workers in wealthier regions because of more job possibilities.
- 36.
In total, there were three health insurance schemes, the Urban Employee Basic Medical Insurance plan, the Urban Residents Basic Medical Insurance (URBMI) plan, and the Rural Cooperative Medical Schemes (NCMS) plan.
- 37.
However, as argued by Chen and Naughton (2016), the previous model has probably never really been abolished but only temporarily scaled back because of lacking state resources and development capacity.
- 38.
For an excellent discussion on this issue, see Chen and Naughton (2016). Here, we only outline the most important aspects.
- 39.
This number was subsequently reduced in the course of the restructuring process and various mergers. Currently, there are slightly less than 100 SOEs controlled by the SASAC.
- 40.
Interestingly, among those 16 projects, there were also three that had previously been terminated by Zhu Rongji.
- 41.
The ten industries were automotive, steel, textiles, shipbuilding, petrochemicals, non-ferrous metals, equipment manufacturing, information technology (IT), light industry, and logistics (EIU 2009).
Abbreviations
- ABC:
-
Agricultural Bank of China
- ADBC:
-
Agricultural Development Bank of China
- AMC:
-
Asset-Management Company
- AML:
-
Anti-Monopoly Law
- BIC:
-
Beneficial International Cycle
- BMI:
-
Basic Medical Insurance
- BOC:
-
Bank of China
- BOCOM:
-
Bank of Communications
- CBRC:
-
China Banking Regulatory Commission
- CCB:
-
China Construction Bank
- CDBC:
-
China Development Bank Corporation
- CDS:
-
Coastal Development Strategy
- CEIB:
-
China Export–Import Bank
- CFETS:
-
China Foreign Exchange Trading System
- CHN:
-
Chinese
- CIS:
-
Commonwealth of Independent States
- CJV:
-
Contractual Joint Venture
- CPC:
-
Communist Party of China
- CPI:
-
Consumer Price Index
- EEBP:
-
Enterprise Employee Basic Pension
- EJV:
-
Equity Joint Venture
- EPZ:
-
Export Processing Zone
- ETDZ:
-
Economic and Technological Development Zone
- FDI:
-
Foreign Direct Investment
- FEAC:
-
Foreign Exchange Adjustment Center
- FIE:
-
Foreign Invested Enterprise
- FTC:
-
Foreign Trade Corporation
- GATT:
-
General Agreement on Tariffs and Trade
- GDP:
-
Gross Domestic Product
- GIP:
-
Government Institution Pension
- HRS:
-
Household Responsibility System
- Hukou:
-
Household Registration System
- ICBC:
-
Industrial and Commercial Bank of China
- IMF:
-
International Monetary Fund
- IPO:
-
Initial Public Offering
- IT:
-
Information Technology
- ITA:
-
Information Technology Agreement
- JSCB:
-
Joint-Stock Commercial Bank
- JV:
-
Joint Venture
- KMT:
-
Kuomintang
- M&E:
-
Machinery and Electronic Equipment
- MLP:
-
Medium- and Long-Term Program of Science and Technology
- MLSP:
-
Minimum Living Standard Program
- MOF:
-
Ministry of Finance
- NBFI:
-
Non-Bank Financial Institution
- NCMS:
-
Rural Cooperative Medical Schemes
- NDRC:
-
National Development and Reform Commission
- NEV:
-
New-energy Vehicle
- New M&A Regulations:
-
Regulations Concerning the Merger and Acquisition of Domestic Enterprises by Foreign Investors
- NPL:
-
Nonperforming Loan
- NUP:
-
New-type Urbanization Plan
- PBC:
-
People’s Bank of China
- PC:
-
Personal Computer
- PPP:
-
Purchasing Power Parity
- PRC:
-
People’s Republic of China
- R&D:
-
Research and Development
- RDA:
-
Regionally decentralized authoritarian
- RMB:
-
Renminbi
- RRC:
-
Rural Credit Cooperative
- SASAC:
-
State-Owned Assets Supervision and Administration Commission
- SAT:
-
State Administration of Taxation
- SCM:
-
Subsidies and Countervailing Measures
- SEI:
-
Strategic Emerging Industry
- SEZ:
-
Special Economic Zone
- SOE:
-
State-Owned Enterprise
- SRC:
-
System Reform Commission
- TFP:
-
Total Factor Productivity
- TSS:
-
Tax Sharing System
- TVE:
-
Township and Village Enterprise
- UCC:
-
Urban Credit Cooperative
- URBMI:
-
Urban Residents Basic Medical Insurance
- URRSP:
-
Urban–Rural Resident Basic Social Pension Scheme
- US:
-
United States of America
- VAT:
-
Value-Added Tax
- WFOE:
-
Wholly Foreign Owned Enterprise
- WTO:
-
World Trade Organization
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Glawe, L., Wagner, H. (2021). The Rise of China. In: The Economic Rise of East Asia. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-87128-4_4
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