| Acknowledgments | xv |
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| INTRODUCTION
 Sample Chapter - Download PDF (0.95 MB) | 1 |
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| From Transition to Development | 3 |
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| The Distance Traveled | 4 |
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| The Dual Transition | 5 |
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| China's Growth Performance | 6 |
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| Becoming a "Normal" Country | 8 |
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| China to the Future | 10 |
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| Using This Textbook | 12 |
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| Bibliography | 13 |
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| I. | LEGACIES AND SETTING | 15 |
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| 1. | The Geographical Setting | 17 |
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| 1.1 | Landforms | 18 |
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| 1.2 | Climate and Water | 20 |
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| 1.3 | Provinces and Regions | 22 |
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| 1.4 | Mineral Resources | 28 |
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| 1.5 | Conclusion: Regional Differentiation | 29 |
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| Bibliography | 31 |
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| 2. | The Chinese Economy Before 1949 | 33 |
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| 2.1 | The Traditional Chinese Economy, 1127-1911 | 34 |
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| 2.1.1 | High-Productivity Traditional Architecture | 34 |
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| 2.1.2 | The Commercialized Countryside | 36 |
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| 2.1.2.1 | Sophisticated Institutions | 36 |
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| 2.1.2.2 | Competitive Markets | 37 |
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| 2.1.2.3 | Small-Scale, "Bottom-Heavy" Economy | 37 |
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| 2.1.3 | Crisis of the Traditional Economy? | 38 |
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| 2.1.4 | The Failed Response to the West and Japan | 40 |
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| 2.2 | The Beginnings of Industrialization, 1912-1937 | 43 |
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| 2.2.1 | Industry | 43 |
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| 2.2.2 | Evaluation: How Broad Was Development in the 1912-1937 Period? | 45 |
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| 2.3 | War and Civil War, 1937-1949 | 47 |
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| 2.3.1 | The Rise and Fall of a Japan-Centered East Asian Economy | 47 |
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| 2.3.2 | The Rise of Manchuria | 48 |
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| 2.3.3 | Increased State Intervention | 49 |
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| 2.3.4 | Inflation | 49 |
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| 2.4 | Legacies of the Pre-1949 Economy | 50 |
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| 2.4.1 | Legacy for the Socialist Era (1949-1978) | 50 |
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| 2.4.2 | Legacy for the Post-1978 Market Economy | 51 |
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| Bibliography | 53 |
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| 3. | The Socialist Era, 1949-1978:
Big Push Industrialization and Policy Instability | 55 |
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| 3.1 | The Big Push Development Strategy | 56 |
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| 3.2 | The Command Economic System in China | 59 |
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| 3.3 | Policy Instability | 62 |
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| 3.3.1 | Economic Recovery, 1949-1952 | 64 |
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| 3.3.2 | 1953 and 1956: The Twin Peaks of the First Five-Year Plan | 65 |
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| 3.3.3 | Retrenchment: The "Hundred Flowers" of 1956-1957 | 67 |
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| 3.3.4 | The Great Leap Forward, 1958-1960 | 69 |
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| 3.3.5 | Retrenchment: Crisis and "Readjustment," 1961-1963 | 72 |
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| 3.3.6 | Launch of the Third Front, 1964-1966:
New Expansion Hijacked by Radicalism | 73 |
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| 3.3.7 | Retrenchment: The Cultural Revolution, 1967-1969 | 74 |
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| 3.3.8 | The Maoist Model: A New Leap in 1970 | 75 |
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| 3.3.9 | Retrenchment: Consolidation and Drift, 1972-1976 | 76 |
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| 3.3.10 | The Leap Outward: 1978 and the End of Maoism | 77 |
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| 3.3.11 | A Final Turning Point:
The Third Plenum and the Beginning of Economic Reform | 79 |
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| 3.4 | Legacies of the Socialist Period | 79 |
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| 3.4.1 | The Legacy of Policy Instability | 79 |
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| 3.4.2 | The Shortcomings of the Development Strategy | 80 |
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| 3.4.3 | Human Capital Base | 82 |
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| Bibliography | 83 |
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| 4. | Market Transition: Strategy and Process | 85 |
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| 4.1 | The Chinese Approach to Transition | 86 |
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| 4.2 | How Did Reform Start?
The Initial Breakthrough in the Countryside | 88 |
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| 4.3 | A Two-Phase Framework of Economic Reform | 90 |
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| 4.4 | Elements of China's Transition Through 1992 | 91 |
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| 4.4.1 | Dual-Track System | 91 |
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| 4.4.2 | Growing Out of the Plan | 92 |
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| 4.4.3 | Paticularistic Contracts | 94 |
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| 4.4.4 | Entry | 94 |
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| 4.4.5 | Prices Equating Supply and Demand | 94 |
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| 4.4.6 | Incremental Managerial Reforms Instead of Privatization | 95 |
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| 4.4.7 | Disarticulation | 95 |
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| 4.4.8 | Initial Macroeconomic Stabilization Achieved Through the Plan | 96 |
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| 4.4.9 | Continued High Saving and Investment | 96 |
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| 4.4.10 | Conclusion of First-Phase Reforms | 97 |
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| 4.5 | The Tiananmen Square Interlude | 98 |
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| 4.6 | The Second Phase of Reform, 1993-Present | 100 |
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| 4.6.1 | Prerequisites | 101 |
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| 4.6.1.1 | Market Reunification | 101 |
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| 4.6.1.2 | Recentralization | |
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| 4.6.1.3 | Macroeconomic Austerity | 102 |
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| 4.6.2 | Regulatory Approach and Administrative Restructuring | 102 |
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| 4.6.2.1 | Fiscal and Tax System | 103 |
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| 4.6.2.2 | Banking and Financial System | 103 |
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| 4.6.2.3 | Corporate Governance | 104 |
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| 4.6.2.4 | External Sector:
Membership in the World Trade Organization | 104 |
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| 4.6.3 | Outcomes | 105 |
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| 4.6.3.1 | From Inflation to Price Stability | 105 |
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| 4.6.3.2 | State Enterprise Restructuring and Downsizing | 105 |
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| 4.6.3.3 | Privatization | 106 |
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| 4.6.3.4 | Reform with Losers | 106 |
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| 4.7 | Contemporary Challenges | 107 |
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| Bibliography | 110 |
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| 5. | The Urban-Rural Divide | 113 |
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| 5.1 | A Dualistic System:
The Division Between Urban and Rural | 114 |
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| 5.1.1 | Origins of the Urban-Rural Divide | 114 |
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| 5.1.2 | The Urban Economic System | 116 |
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| 5.1.2.1 | The Danwei | 116 |
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| 5.1.2.2 | Urban Property Rights | 118 |
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| 5.1.3 | The Rural Economic System | 119 |
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| 5.1.3.1 | Rural Collectives | 119 |
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| 5.1.3.3 | "Fuzzy" Property Rights and Land-Use Disputes | 121 |
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| 5.1.4 | The Evolution of the Rural and Urban Systems During Market Transition | 122 |
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| 5.1.5 | Invisible Walls: Administrative Barriers Today | 124 |
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| 5.2 | Urbanization | 126 |
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| 5.3 | Rural-Urban Migration | 129 |
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| 5.3.1 | Overview of Migration | 129 |
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| 5.3.2 | Characteristics of Migrants | 131 |
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| 5.4 | Economic Consequences of the Urban-Rural Divide | 131 |
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| 5.4.1 | Living Standards and Restrictions on Mobility | 132 |
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| 5.4.2 | Addressing the Urban-Rural Divide | 134 |
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| 5.5 | Conclusion | 134 |
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| Bibliography | 135 |
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| II. | PATTERNS OF GROWTH AND DEVELOPMENT | 137 |
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| 6. | Growth and Structural Change | 139 |
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| 6.1 | Growth | 139 |
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| 6.1.1 | Data and the Measurement of Growth | 140 |
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| 6.1.2 | Growth in Comparative Perspective | 142 |
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| 6.1.3 | Instability in Growth | 143 |
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| 6.2 | Investment | 143 |
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| 6.3 | Structural Change: Common Patterns | 148 |
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| 6.4 | Structural Change in China: Labor | 151 |
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| 6.5 | Structural Change in China: GDP | 153 |
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| 6.6 | Structural Change and Globalization | 156 |
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| 6.7 | Conclusion | 157 |
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| Bibliography | 158 |
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| 7. | Population Growth and the One-Child Family | 161 |
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| 7.1 | The Demographic Transition | 161 |
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| 7.2 | China's Demographic Transition | 164 |
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| 7.3 | The Role of Government Policy | 167 |
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| 7.4 | Consequences of the One-Child Policy | 170 |
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| 7.5 | Changing Age Structure of the Population | 172 |
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| 7.6 | Conclusion | 177 |
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| Bibliography | 177 |
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| 8. | Labor and Human Capital | 179 |
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| 8.1 | The Institutional Transformation of Chinese Labor | 180 |
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| 8.1.1 | The Labor Force | |
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| 8.1.2 | Employment: Ownership and Labor Mobility | 181 |
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| 8.1.3 | Employment, Unemployment, and State-Sector Downsizing | 185 |
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| 8.1.4 | The Informal Sector:
Emerging Dualism Within Urban Labor Markets | 189 |
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| 8.1.5 | Rural Labor Markets | 191 |
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| 8.2 | How Well Do Labor Markets Function in China Today? | 192 |
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| 8.2.1 | Returns to Education | 192 |
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| 8.2.2 | Human Capital and Educational Attainment | 195 |
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| 8.2.3 | Other Attributes | 198 |
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| 8.2.4 | The Migration Decision | 199 |
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| 8.2.5 | Labor Markets Concluded | 201 |
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| 8.3 | Social Security | 202 |
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| 8.4 | Conclusion | 206 |
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| Bibliography | 206 |
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| 9. | Living Standards: Incomes, Inequality, and Poverty | 209 |
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| 9.1 | Income Growth | 210 |
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| 9.2 | Poverty | 212 |
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| 9.2.1 | Rural Poverty | 212 |
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| 9.2.1.1 | Official Poverty Line | 212 |
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| 9.2.1.2 | World Bank Internationally Comparable Poverty Line | 212 |
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| 9.2.1.3 | Explaining Poverty Trends | 214 |
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| 9.2.2 | Urban Poverty | 216 |
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| 9.2.3 | Overall Poverty | 216 |
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| 9.3 | Inequality | 217 |
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| 9.3.1 | Accounting for All Income Sources | 220 |
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| 9.4 | Physical Quality of Life Indicators | 221 |
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| 9.4.1 | Life Expectancy at Birth | 222 |
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| 9.4.2 | Other Health-Related Indicators | 222 |
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| 9.4.3 | Education | 223 |
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| 9.4.4 | Human Development Index | 223 |
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| 9.5 | Income, GDP per Capita. and Purchasing Power Parity Once Again | 225 |
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| 9.6 | Conclusion | 226 |
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| Bibliography | 227 |
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| III. | THE RURAL ECONOMY | 229 |
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| 10. | Rural Organization | 231 |
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| 10.1 | The Chinese Village | 231 |
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| 10.2 | Agricultural Collectives | 233 |
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| 10.2.1 | Features of the Agricultural Collectives | 234 |
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| 10.2.2 | Discussion of Collectives | 236 |
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| 10.2.3 | The Agricultural Policy Environment of the Collectives:
"Grain First" | 239 |
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| 10.3 | The Second Revolution in the Countryside:
Rural Reforms, 1979-1984 | 240 |
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| 10.3.1 | Production Surges in the Wake of Rural Organizational Change | 242 |
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| 10.3.2 | The Side Effect of Change:
Rural Public Services Decline | 243 |
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| 10.4 | The Emergence of Rural Land Markets | 246 |
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| Bibliography | 248 |
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| 11. | Agriculture: Output, Inputs, and Technology | 251 |
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| 11.1 | Overview of Post-1949 Agriculture | 252 |
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| 11.2 | Technology Choice and Technical Innovation in Agriculture | 254 |
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| 11.3 | The Green Revolution | 258 |
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| 11.3.1 | Irrigation | 258 |
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| 11.3.2 | Agricultural Chemicals | 260 |
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| 11.3.3 | Seeds | 261 |
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| 11.4 | Motive Power in the Countryside | 263 |
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| 11.5 | Output and Yields; The Challenge of Intensification | 265 |
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| 11.6 | Diversification and the Challenge of the Future | 266 |
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| 11.7 | Genetically Modified Organisms | 267 |
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| 11.8 | Globalization | 268 |
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| Bibliography | 269 |
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| 12. | Rural Industrialization: Township and Village Enterprises | 271 |
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| 12.1 | Origins of the TVEs | 272 |
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| 12.2 | The Golden Age of TVE Development | 274 |
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| 12.3 | Causes of Rapid Growth | 275 |
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| 12.4 | Diverse Regioal Models of TVE Development | 282 |
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| 12.4.1 | The Southern Jiangsu (Sunan) Model | 282 |
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| 12.4.2 | The Wenzhou Model | 283 |
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| 12.4.3 | The Pearl River Delta Model | 284 |
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| 12.4.4 | Failed or Absent TVE Development | 284 |
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| 102.5 | The Transformation of TVEs in the New Century | 285 |
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| 12.5.1 | The Changing Economic Environment of TVEs | 285 |
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| 12.5.2 | TVE Restructuring: The Great Privatization | 286 |
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| 12.5.2.1 | National Policy and Local Models | 288 |
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| 12.5.2.2 | Market Conditions and Privatization | 288 |
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| 12.5.2.3 | Insider Privatization | 289 |
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| 12.5.2.4 | Local Variation in the Privatization Process | 291 |
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| 12.6 | Emergence of New Forms of Rural Industry in the Twenty-First Century | 292 |
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| Bibliography | 293 |
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| IV. | THE URBAN ECONOMY | 295 |
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| 13. | Industry: Ownership and Governance | 297 |
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| 13.1 | Ownesrhip Change: A Diverse Industrial Base | 298 |
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| 13.1.1 | Ownership Change in the First Period of Transition | 299 |
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| 13.1.2 | Ownership Change from 1996 Through the Present | 301 |
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| 13.2 | Industrial Finance | 304 |
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| 13.3 | Transforming Corporate Governance in the State Sector | 308 |
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| 13.3.1 | Creating Corporate Governance: Transition A | 310 |
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| 13.3.2 | Creating Corporations: Transition B | 313 |
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| 13.3.2.1 | Corporatization and the Company Law: Objectives and Principles | 314 |
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| 13.3.2.2 | The Chinese System in Practice | 316 |
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| 13.3.2.3 | Typology of Corporate Governance Systems | 319 |
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| 13.4 | Privatization and Hybrid Ownership | 323 |
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| 13.5 | Conclusion | 325 |
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| Bibliography | 326 |
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| 14. | Structural Change: Industry, Energy, and Infrastructure | 329 |
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| 14.1 | Growth and Structural Change in Manufacturing | 329 |
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| 14.1.1 | Regional Growth Patterns | 333 |
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| 14.2 | Energy | 333 |
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| 14.2.1 | Energy Efficiency of the Economy | 336 |
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| 14.2.2 | The Three Main Energy Sectors | 338 |
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| 14.2.2.1 | Coal | 338 |
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| 14.2.2.2 | Oil and Gas | 339 |
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| 14.2.2.3 | Electric Power | 341 |
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| 14.2.3 | Energy Security, Diversification, and Imports | 341 |
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| 14.3 | Telecommunications | 343 |
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| 14.4 | Common Features: Infrastructure Investment | 345 |
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| 14.5 | Conclusion | 347 |
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| Bibliography | 347 |
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| 15. | Technology Policy and the Knowledge-based Economy | 349 |
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| 15.1 | pursuing Critical Technologies: The R&D Effort | 353 |
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| 15.1.1 | The Trajectory of China's Technology Effort | 353 |
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| 15.1.2 | Strategies of R&D Investment | 356 |
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| 15.1.2.1 | Do It Yourself | 356 |
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| 15.1.2.2 | Buy It | 357 |
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| 15.1.2.3 | Bargain for It | 357 |
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| 15.1.2.4 | Seed It | 358 |
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| 15.1.2.5 | Encourage Spin-offs | 359 |
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| 15.1.2.6 | Open Up to Foreign Direct Investment | 359 |
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| 15.1.2.7 | Support Domestic Entrepreneurship | 360 |
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| 15.2 | Human Capital Resource Base | 361 |
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| 15.3 | The Output of the R&D Effort | 363 |
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| 15.4 | Redefining Government Technology Policy in the Twenty-First Century | 365 |
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| 15.4.1 | Aligning Incentives in Favor of High-Technology Development | 366 |
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| 15.4.2 | Deeper Integration into Global Political Networks | 368 |
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| 15.5 | Conclusion | 371 |
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| Bibliography | 372 |
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| V. | CHINA AND THE WORLD ECONOMY | 375 |
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| 16. | International Trade | 377 |
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| 16.1 | Background | 379 |
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| 16.2 | The Process of Trade Reform | 380 |
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| 16.2.1 | Initial Reform Steps | 381 |
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| 16.2.2 | Liberalizing the Foreign-Trade System | 382 |
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| 16.3 | A Dualist Trade Regime:
The Export-Processing System | 386 |
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| 16.4 | Toward an Open Economy | 388 |
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| 16.4.1 | Currency Convertibility | 388 |
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| 16.4.2 | World Trade Organization Membership | 389 |
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| 16.4.3 | Openness Revisited | 391 |
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| 16.5 | Outcomes: Rapid Growth and Structural Change | 392 |
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| 16.5.1 | Exports | 393 |
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| 16.5.2 | Imports | 394 |
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| 16.5.3 | High Technology Trade | 394 |
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| 16.6 | Regional Composition of Trade Within China | 396 |
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| 16.7 | Conclusion | 398 |
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| Bibliography | 399 |
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| 17. | Foreign Investment | 401 |
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| 17.1 | FDI in the Chinese Economy | 402 |
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| 17.2 | "Zones": The Gradual Liberalization of the Investment Regime | 406 |
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| 17.3 | The Investment Regime Today | 410 |
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| 17.4 | Sources of Investment in China | 413 |
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| 17.5 | The China Circle | 416 |
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| 17.6 | FDI in Context | 419 |
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| 17.6.1 | Sectoral Composition of FDI:
The WTO Impact | 419 |
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| 17.6.2 | Modes of Capital Inflow | 420 |
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| 17.7 | Conclusion | 422 |
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| Bibliography | 423 |
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| VI. | MACROECONOMICS ANDFINANCE | 425 |
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| 18. | Macroeconomic Trends and Cycles | 427 |
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| 18.1 | Trends in National Saving | 428 |
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| 18.2 | The Fiscal System and Fiscal Reform | 430 |
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| 18.2.1 | Reversing Fiscal Erosion | 433 |
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| 18.2.2 | Broadening the Tax Base: Horizontal Equity | 433 |
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| 18.2.3 | Restructuring Central-Local Relations | 434 |
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| 18.3 | The Fiscal System Today | 436 |
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| 18.3.1 | Intergovernmental Fiscal Relations: Principles | 436 |
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| 18.3.2 | Inadequacy of Local Government Revenue in Rural Areas | 437 |
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| 18.3.3 | Extrabudgetary Funds, Levies, and Charges | 438 |
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| 18.3.4 | Abolishing Local Taxes and Stepping Up Transfers | 439 |
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| 18.3.5 | Arbitrary Nature of Transfers | 440 |
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| 18.4 | Fiscal Deficits and Fiscal Policy | 441 |
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| 18.5 | Inflation and Macroeconomic Cycles | 442 |
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| 18.6 | Monetary Policy | 444 |
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| 18.7 | Conclusion | 445 |
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| Bibliography | 446 |
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| 19. | Financial System | 449 |
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| 19.1 | The Financial System in the Planned Economy and Under Reform | 451 |
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| 19.2 | The Banking System | 454 |
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| 19.2.1 | State-Owned Commercial Banks | 454 |
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| 19.2.2 | Joint-Stock Commercial Banks | 456 |
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| 19.2.3 | City Banks | 457 |
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| 19.2.4 | Other Banks | 457 |
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| 19.2.4.1 | Policy Banks | 457 |
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| 19.2.4.2 | Rural Credit Cooperatives | 458 |
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| 19.2.4.3 | The Fringe | 458 |
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| 19.2.5 | Central Bank and Regulatory Apparatus | 460 |
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| 19.3 | Weakness of the Banking System | 460 |
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| 19.3.1 | Measures to Reduce the Stock of Nonperforming Loans | 462 |
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| 19.3.2 | The "Flow"Problem:
Ensuring Good Lending Decisions | 464 |
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| 19.3.3 | Current Bank-Reform Program and Prospects for the Future | 466 |
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| 19.4 | Stock Markets: : Learning to Crawl? | 467 |
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| 19.4.1 | Birth of the Market:
Raising Funds for the State Sector | 468 |
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| 19.4.2 | Characteristics of the Market | 469 |
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| 19.4.2.1 | Circulating and Noncirculating Shares | 469 |
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| 19.4.2.2 | Low Contestability | 471 |
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| 19.4.2.3 | Rationing of Listing Opportunities | 471 |
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| 19.4.2.4 | Thin Markets | 471 |
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| 19.4.2.5 | Weak Disclosure and Regulation; Multiple Related-Party Transactions | 472 |
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| 19.4.2.6 | Policy-Driven Market | 473 |
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| 19.4.2.7 | Insider Control and Manipulation | 473 |
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| 19.4.3 | Reform Initiatives: Selling Down the Share:
Changing the "Split Share Structure" | 474 |
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| 19.4.4 | Institutional Investors | 475 |
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| 19.4.5 | Comparative Evaluation of China's Stock Market | 476 |
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| 19.5 | Bond Markets | 477 |
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| 19.6 | Other Financial Markets | 478 |
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| 19.7 | Conclusion | 478 |
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| Bibliography | 481 |
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| VII. | CONCLUSION: CHINA'S FUTURE | 485 |
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| 20. | Environmental Quality and the Sustainability of Growth | 487 |
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| 20.1 | Pollution | 489 |
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| 20.1.1 | Air Pollution | 490 |
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| 20.1.2 | Water Pollution | 491 |
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| 20.1.3 | Costs of Pollution | 493 |
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| 20.1.4 | Pollution Control | 494 |
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| 20.2 | Sustainability | 495 |
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| 20.2.1 | Broad Impact of Pollution and Global Warming | 495 |
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| 20.2.2 | Sustainability of Land and Water Resources | 497 |
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| 20.2.2.1 | Desertification | 498 |
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| 20.2.2.2 | Forests and Grasslands | 499 |
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| 20.2.2.3 | Water Availability | 500 |
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| 20.3 | Conclusion | 502 |
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| Bibliography | 503 |
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| Index
Sample Chapter - Download PDF (112 KB) | 505 |
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