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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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people s republic of china
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
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”
mao zedong died in 1976
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
incentives for high growth
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
maoist growth unsustainable
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
strategic vision
Strategic Vision
  • Short-term growth
    • Utilization of relatively cheap labor force
  • Long-term growth
    • Technological change and dynamism
structural imperative
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
transition strategy
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
economic reform measures
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)
outcomes of reforms in 1980s
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
fiscal reforms
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
banking system reforms
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
foreign trade investment
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)
from 1999 to 2011
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
decline of workers status
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
challenges ahead
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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