SINO1003__Meeting_6.pptx

SINO1003: Socialist Transformation
and Economic Reform

Lead Lecturer: Dr. Jiangnan Zhu
26 October 2017
NEW PSC
 Wang Huning ( 王滬寧 ) ： An intellectual
turned politician. The first PSC member who
has not served long stints at the local level
EVER!
 Han Zheng ( 韓正 ): One of very few PSC
members who has only served in one local
government without experience in another
Unusual province or a central organ.
Patterns  No one was born after 1960. Zhao Leji ( 趙樂
際 ) is the youngest (1957). Xi’s likelihood to
take a third term increases.
 All 7 are social sciences trained!
 A power-balanced PSC, but Xi dominates
Politburo and Central Committee.
 I. Socialist Transformation after 1949:
Why China needs an economic reform
and what to reform?
 II. Sources of Economic Growth since
1978
Outline for  III. Major Characteristics of the Reform:
This Lecture 1. Massive State Investment
2. General Trajectory: Decentralization in
1980s, Recentralization since 1990.
3. Mix with Elite Politics
 IV. Conclusion and Final Discussion
 Command Economy
I. Socialist  Transform private enterprises
Transformatio into state-owned enterprises
n after 1949  Collectivization of land
 Egalitarianism
Great Leap
Forward
(1958-1961)
 “The dramatic victory of the communists
over the GMD unfortunately also
produced the structural conditions for
the Great Leap. But out of the ruins of
the Great Leap Famine arose the
incentives for political innovation or
reform.”
 1978-1985: Rise in Rural Income
II. Sources of  1986-1992: Township village
Growth: enterprises
 1993-: FDI, rise of private
1978- enterprises, both engaging in
present export activities
Household
Responsibility
Contracts
( 家庭聯產承包責任
制)
 Instead of a brigade producing grain,
each household would sign a contract
with the local government to provide
a given amount of grain for state
HRS procurement at harvest time. If they
fulfill the quota, they can sell the
excess in the rural market.
Increased
Household
Savings
Growth: enterprises
TVEs:
Comparative
Advantage of
China
Growth: enterprises
1. Massive State Investment
2. General Trajectory:
III. Some Major Decentralization in 1980s,
Characteristics Recentralization since
of the Reform 1990.
3. Mix with Elite Politics
Affordable
housing
provided to low
income family
III.1 Massive
State
Investment
Harmonious
Pudong,
Shanghai,
1980sToda
y
Growth of State Bank Lending: 1978-present
10000
loans from state banks
5000
0
1980 1990 2000
yr
 Banks, instead of the stock market,
dominate the financial system
 Most banks are state-owned or
state controlled. A few “joint-stock”
banks.
Chinese  The majority of the banking market
Banking is dominated by four state owned
banks-BOC , CCB (Large
System infrastructure project), ICBC, ABC.
They hold 60% of bank assets and
fueled different aspects of reform.
 The state controls interest rate,
exchange rate, and does not allow
money to flow in and out of the
country freely.
 Why want a fixed exchange rate and
Financial interest rate?
Repression  Artificially keep the money cheap 
Borrow money at a lower interest rate
  Easier to export your product to
other country
 Benefits: Keeping money in the
country  More money to
invest…
 Costs: No market signal 
Financial inefficient spending + factional
Repression politics
 Party control extends to all of
the state banks.
Shanghai
Free Trade
Zone
 Reform in rural area, tax systems, SOEs:
-Decentralize power to local governments,
enterprises, and individuals
- Give lower units more autonomy and incentives to
produce more
III. 2.  Fiscal reform in the 1980s: Tax contracting

Decentralizati - Local governments agree to give a fixed sum to the
on in 1980s central government each year. Above that fixed sum, local
governments could keep most of the additional income.
 SOE reform in the 1980s: Profit retention
- An SOE fulfilled a contracted amount of production
quota, which it had to sell to the state at a fixed price, and
sold the above quota amount to the market to make a
profit.
 Incompliance of local
III. 2 governments to central orders:
Decentralizatio cheating, corruption
n in the 1980s:  Liberal thoughts emerged: 1989
Problems democratic movement
Government
Revenue as a
Share of GDP:
1978-2010
 SOE Reform: Focusing on the
large centrally-owned SOEs
III.2 - Inject capital to large SOEs,
Recentraliza build them into world-class
tion Since conglomerates
- Bankrupt small SOEs.
the 1990s
 Fiscal Reform: Tax sharing
 The central government establishes
its own tax collection capabilities
 The central government gets all
customs and taxes collected from
central enterprises
1994: Tax  Local governments get all local
income taxes, most land-related
Sharing taxes
Reform  Central government gets 75% of
value added tax regardless—it is a
major category of tax.
 No more contracts
The central government will
collect the money and keep
 Central government partially
70%. Then remit the 30% of compensates losers via subsidies
tax to the local government
Government
Revenue as a
Share of GDP:
1978-2010
 Reformers: e.g. Deng
Xiaoping, Zhao Ziyang
III.3 Mix of
Elite Politics  Conservatives: e.g. Chen
Yun, Jiang Zemin
Deng
Xiaoping:
Any Cat will
do
Chen Yun: I
like my
birdcage
Deng
Xiaoping’s Tour
to Shengzhen
in 1992
 Have you found some answers
Discussion to the 2 Miracles?
 A gradual experimentation and
learning exercise “crossing the river
by feeling for stones”  no blueprint
 An uneven path forward by forming
various coalition to defeat vested
interest (Shirk), political “feeling for
Conclusion:
stones”
How Should We
Characterize  Power perspective: reform only takes
Reform? place if it fits the factional interest of
top leader. Many reforms are stuck
due to factional considerations.
“political survival”  will not carry
economic reform if it may damage their
 Xi talk: https://
www.scmp.com/video/china/2115947/watch-xi-jinpings-m
arathon-speech-3-minutes
 Guardian: https://
www.theguardian.com/world/2017/oct/18/xi-jinping-tests-e
yelids-and-bladders-with-three-and-a-half-hour-speech-co
ngress
 Press conference: https://www.youtube.com/watch?
v=kZvEc0NZZVw&t=3655s
links  GLF: https://www.youtube.com/watch?v=hlbB3cmgPmo
 China: A century of revolution (HRS 26-34): https://
www.youtube.com/watch?v=lZLYKnQ8c4Q&list=PLOVrswO
F7EKifZgPKR87yx9jdj-93fo96&index=3
 Alibaba: https://www.youtube.com/watch?v=bnYO0_a5VfY
 Spring: https://www.youtube.com/watch?v=ifbB_BowUUg
 Going to the new era: https://
www.youtube.com/watch?v=9OR0Sxe9MUU

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SINO1003: Socialist Transformation

and Economic Reform

III. 2.  Fiscal reform in the 1980s: Tax contracting

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