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Chinese Economy: Introduction

Chinese Economy: Introduction. Junhui Qian 2013 September. Chinese Economy. The most populous country (1.3 billion) The most rapidly growing economy (10% since 1978) The largest trading nation in the world (USD 3.87 trillion in volume)

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Chinese Economy: Introduction

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  1. Chinese Economy: Introduction Junhui Qian 2013 September

  2. Chinese Economy • The most populous country (1.3 billion) • The most rapidly growing economy (10% since 1978) • The largest trading nation in the world (USD 3.87 trillion in volume) • In terms of aggregate output, China is second only to the US. • In terms of output per cap, China is still a “lower middle income country” (The World Bank).

  3. Transition and Development • Before 1978, the key words were revolution, socialism, Maoist radicalism. • After 1978, the key words were gradualist reform (“crossing the river by groping for stepping stones”), opening, and development. • The first stage of reform and opening achieves the transition from a socialist command economy to a market economy. • The second stage, which is ongoing, would achieve sustainable development from a middle-income country into a high-income country.

  4. Why China Grows So Fast? • Rapid growth of inputs (capital, labor) • Successful transition from socialism to market economy • The market works • Gradualist reform is superior over “shock therapy” • A revival of traditional economic relationship • Value on education, social trust, connection with oversea Chinese, etc.

  5. The Geographical Setting

  6. Provinces and Regions • China has 31 province-level administrative units, including 22 provinces, 4 municipalities under national supervision, and 5 autonomous regions of ethnic minorities. • There are large and small ones, old and new ones, rich and poor ones. • Macro-regions: • North China (“the center plain”, 中原) • Lower, Middle, and Upper Yangtze’s • Northeast (Manchuria) • Northwest • Far South, South East (“the maritime China”) • Southwest

  7. The Maritime China • John King Fairbank suggested that “maritime China” was a distinct region and subculture within Chinese civilization. • Homeland of most of the overseas Chinese who left China before 1949. • Include Guangdong, Fujian, and part of Zhejiang. • Four special economic zones (SEZs): Shenzhen, Zhuhai, Shantou, and Xiamen. • Important links with Hong Kong and Taiwan.

  8. The Chinese Economy Before 1949

  9. Historical Division • Dynasties (before 1911) • Republic of China (1911-1949, 1949- on Taiwan) • People’s Republic of China (from 1949, on mainland)

  10. The Traditional Economy • High-productivity traditional agriculture • The commercialized countryside • Sophisticated institutions (Money, large organizations, advanced commercial procedures, legal and customary institutions, banks) • Competitive markets (competitive markets for products, land, and labor; social mobility) • Small-scale household economy

  11. Paper money of Ming Dynasty A Traditional Bank A Certificate of Tax

  12. Crisis of the traditional economy • Population growth on the limited land and stagnant technology • “The Chinese peasant is like a man standing on tiptoe up to his nose in water—the slightest ripple is enough to drown him.” (Tawney, 1930s) • Failure of government • Cycle of dynasties • Too small (around 1800, one government worker per 32,000 people) • Challenge from the west • The opium import caused a monetary deflation.

  13. Why the Industrial Revolution Did Not Originate in China? • Needham’s puzzle: Why was China's science and technology so far in advance of other civilizations historically, only to fall in modem times? • Justin (Yifu) Lin points to the missing scientific revolution in China, which in turn may be due to the contents of civil service exams and the criteria of promotion. • Read Lin (1995).

  14. 1912-1937 • Rapid industrialization (8%-9% annual growth in factory production) • Treaty ports (e.g., Shanghai) • Manchuria • There were two good intervals: • 1914-1918 (WWI) • 1927-1937 (“The Nanjing Decade”) • Modern education expanded rapidly. • Open to the world • About 100,000 Chinese students went abroad (Japan, US, Europe) • As of 1936, around 370,000 foreigners were resident in China • Shanghai was the financial center of the far east.

  15. 1937-1949 • War-time economy • Increased State Intervention • Before the war, there had been no significant public sector • By the early 1940s, state-run firms accounted for 70% of all capital and 32% of all labor in unoccupied area. • Hyperinflation (See the tables in next two slides, from《中国中央银行研究》)

  16. Summary • Geographically, China is big, rugged, and diverse. • The traditional economy is household-based and agricultural.

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