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Economie de la Chine 16 février      ' (1978-2005) et articulation rurale-urbaine Sandra Poncet Email:
Séance 2
Transition vers l'économie de marché (1978-2005)
Articulation rural-urbaine
Reforms (1978-2005) I-Situation before the reforms A-Mean features B-Problems
II-Reforms A-Incentives for reforms B-Approach and start C-A two-phase framework 1-Transition through 1992 2-1993-present
Conclusion: Outcomes and Challenges
The choice of heavy industry oriented strategy to promote overall industrialization and economic development Hoffmann’s law Political & military situations called for defense improvement Constraints of small market and inadequate demand
This choice was in direct conflict with China's resource endowments and abilit to mobilize resources: “anti-com arative advanta e, leap forward development strate ” (Lin et al., 1996) Scarcity of capital Scarcity of foreign exchange Inability to mobilize funds
Introduction Resolution of the contradiction between the strategic goal and the economic reality Need for macro-policy environment that would artificially reduce the -cheap labor -cheap capital -cheap raw material -cheap imported equipment and technology for heavy industry projects. Market mechanism had to be rejected completely so that the relative prices of products and factors of production could be eterm ne at w -low interest rate policy -low exchange rate policy -low nominal wages and low prices for energy and raw materials -low-price policy for living necessities so as to sustain urban work 5 ing class
I-Situation before the reforms A-Mean features Implications of the development strategy and of the price distortions (and shortages ) that it induced
Planned Resource-Allocation Mechanism -monopolization of the financial sector -monopolization of international trade: centralized trade and foreign exchange administration and allocation mechanism -centralized, planned allocation mechanism -state monopoly system for the procurement and marketing of agricultural products and control of agricultural production through collectivization and later (1958) communes 6
Source: Lin et al., 1996, The China Miracle, p51
I-Situation before the reforms
A-Mean features
Micro-Management Institution - nationalization of private enterprises to secure distortion-induced profits for heavy industry projects (no autonomy to managers) - direct planned management of the economy was made through issuing a series of command indicators to state-run enterprises
Institutional choices reflected a fundamental economic rationality arising from the attempt to accelerate the development of capital-intensive industry in a capital-scarce agrarian economy. Not just result of the socialist ideology. 8
I-Situation before the reforms B-Problems
Despite observed rapid growth due to high rate of accumulation -shortages in supply of consumer goods and services -no improvement in living standards: slow urbanization -widespread inefficiency: bottlenecks lack of competition low incentives (unitism leading to free rider problem) + poorly educated managers +party interference in enterprise management 9
II-Reforms A-Incentives for reforms
Nothing inevitable about the decision of China's leaders to launch an economic refor drive in late 1978 (Shirk, 1991) Consensus was that restoring the CCP's prestige required improving economic performance and raising living standards that new statistics and international comparison made deficiencies and la -behind more obvious
BUT no agreement on how!!!
II-Reforms A-Incentives for reforms
The economic and political context is crucial to understand why markets reforms started
The proximate cause of the 1978 initiatives was the succession contest between Deng Xiaoping and Hua Guofeng (Shirk, 1991) Deng supported a more radical version of reform because -best solution to improve performance and raising living standards -offer political advantages (easier to build coalition against Hua) after “Great Leap Outward” collapsed in 1978 (revision of oil reserves)
Chinese Leadership
1976 to 1980 1980 to 1987 1987 to 1989   1998 to 2003 2003 to ??
Secretary Hua Guofeng Hu Yaobang Zhao Ziyang  Jiang Zemin Hu Jintao
Hua Guofeng Zhao Ziyang Li Peng  Zhu Rongji Wen Jiabao
II-Reforms A-Incentives for reforms Context of succession competition explains why the Chinese version of industrial reform consistently followed the pattern of particularistic contractin instead of universalistic rules: -no blue print (contrary to big bang approach) -handing out against political support of potentially profitable experiments (special economic treatment) with agricultural, industrial,
-key is that reforms do not drive major opposition (agriculture reform does not threaten powerful industrial actors such as industrial ministries, ministry of finance or state planning commission). 13
II-Reforms B-Approach and start 1978 Central Committee Third Plenum propose modest organizational changes in collective agriculture: - -However decollectivization was already happening (Anhui): Household responsibility system spread and became fait accompli: over by 1983 HRS transferred decision-making power from collective production units (communes, brigades, and teams) to the family. Clear success: increase in output (7% twice previously) generated tremendous momentum for industrial reform (increase in demand for manufactured products and savings) and changed the terms of political debate: disarmed the opposition 14
II-Reforms C-A two-phase framework
II-Reforms C-A two-phase framework
e ex s n
1-Transition through 1992 se o con rac s o s a ze some cruc a p eces o economic system while freeing up other pieces Dual track system and two-tier pricing system Growing out of the plan: “market prices on the margin” Particularistic Contracts (individual negotiation of contract) Entr com etition Flexible prices Incremental managerial reforms in the state sector Disarticulation: export-oriented enclaves High savings and investment
II-Reforms C-A two-phase framework Pattern of “two steps forward, one step back”: Advances 1979, 1984, 1987-1989 followed by retreats (1981-82, 1986, 1989)
Macro-economic business cycles imposed costs: -undermining political support for reformist politicians -rising inflation erodes real incomes: population discontent The Tiananmen interlude Urban discontent in 1989 was fuele b : -rising inflation -anger at corruption and arbitrary privilege -rising expectations about political and economic change Expressed while mourning the unexpected death of Hu Yaobang Economic reforms resumed quickly because of the bro 17 ader dynamics of the process and because “reform without losers”
II-Reforms C-A two-phase framework
2-1993-present n ear y , eng oo a ou ern our w ere e reemp as ze : -the need for accelerated economic reform -specifically reaffirmed a non-ideological, pragmatic approach to experimentation. “ Development is the only hard truth ” In October 1992 the 14th Congress of the Communist Party convened , markets must extend to all main sectors of the economy. Post Deng reforms are conduced by Zhu Rongji (dominant voice in policy-making in mid-1993, while he was still vice premier) and formally elevated to premier in early 1998. 18
II-Reforms C-A two-phase framework
2-1993-present re-requ s es: -market reunification -recentralization -macro-economic austerity: harder budget constraint
Regulatory and administrative reforms: “level playing field” -fiscal and tax system -banking and financing system -corporate governance -external sector: WTO
II-Reforms C-A two-phase framework
2-1993-present u comes:
-price stability -SOE restructuring -privatization -reform with losers ( xiagang: Laid Off Workers)
Source: OECD (2005)
Conclusion China’s current reforms (building stable regulatory environment) are less specific
v x v u Lesson is not that a specific set of circumstances provides intrinsic advantages, but rather that careful policy-making, firmly grounded in local conditions, has a much better chance of success than prepackaged policy prescriptions. McMillan (2004)
No uaranteed of continued success in the future: Dual challen e of: -advancing the transition process (institutions still inadequate) -cushioning the impact of changes (inequality and losers)