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Economic Reforms (1978 - ). People’s Republic of China. 1949-10-01, PRC, Beijing Chairman: Mao Zedong 5-Star Red Flag Republic of China government retreated to Taiwan. Mao’s Legacies. Industrial development in 1950s Modeled after the Soviet Union Produced enlarged proletariat

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Economic Reforms (1978 - )

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Economic reforms 1978 l.jpg

Economic Reforms (1978 - )


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People’s Republic of China

  • 1949-10-01, PRC, Beijing

  • Chairman: Mao Zedong

  • 5-Star Red Flag

  • Republic of China government retreated to Taiwan


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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”


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Industrialization in 1950s


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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


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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


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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


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Strategic Vision

  • Short-term growth

    • Utilization of relatively cheap labor force

  • Long-term growth

    • Technological change and dynamism


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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


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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


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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)


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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


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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


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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


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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)


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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


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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


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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


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