Suggested reading For further reading related to specific economic topics, see the suggestions for further reading following each individual chapter. A wide variety of academic journals now carry articles on the Chinese economy. Of the China-related jou

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Chapter 7
A roadside billboard of Deng Xiaoping in Shenzhen
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7. Understanding Chinese Economic Reform

• 7.1 Radical reform the successful cases
• 7.2 Radical reform the unsuccessful cases
• 7.3 Gradual/partial reform the successful cases
• 7.4 Gradual/partial reform the unsuccessful
  cases
• 7.5 Whither Chinese-style reform?

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Keywords

• economic reform,
• reform strategy,
• big-bang,
• gradualism,
• radicals,
• conservatives,
• ownership reform,
• administrative decentralization,
• stakeholder

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7.1 Radical reform the successful cases

• 7.1.1 Agricultural reform
• 7.1.2 Reform of Chinese bureaucracy

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Table 7.1 Chinese bureaucratic reform, Feb. 1982
to Sept. 1984
Statistic Provincial governors Ministers City mayors or department chiefs County sheriffs or division chiefs
Mandatory retirement age (years) 65 65 60 55
Average retirement age (years) --Before reform --After reform 62 55 64 58 58 50 - lt45
Percentage with college degree () --Before reform --After reform 20 43 37 52 14 44 11 45
Average tenure (years) --Pre-1982 --Post-1982 6.43/6.23a 3.84/4.05a 6.56 4.44 - - - -
Notes By 1988, 90 of government officials above
the country level were newly appointed after
1982 60 of those government officials had
college degrees. This was a result of retiring
3.4 million revolutionary veterans. a
Governor/party secretary. Source Li (1998, p.
394), which also gives other references.
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7.2 Radical reform the unsuccessful cases

• 7.2.1 Price-release reform
• 7.2.2 The SOE reform during the 1990s

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7.3 Gradual/partial reform the successful cases

• 7.3.1 Introduction of dual-track system
• 7.3.2 Decentralization of authority
• 7.3.3 Reform of foreign exchange system

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The art of reforming a planned economy
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7.4 Gradual/partial reform the unsuccessful cases

• 7.4.1 The SOE reform in the 1980s
• 7.4.2 Decentralization of authority in the 1980s
• 7.4.3 Reform of Chinas banking system

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The shou-fang circle decentralization
(fang)disorderover-centralization
(shou)rigidity

• Baum (1994, pp. 59 pp. 36976) offers a
  plausible explanation of the fangshou cycle
  during 197893 the decentralization (fang)
  policy was concentrated on 1978, 1980, 1982,
  1984, 1986, 1988, and 1992 while the
  concentralization (shou) policy was concentrated
  on 1979, 1981, 1983, 1985, 1987, 1989, and 1993.

• Shirk (1993), Dittmer and Wu (1993, pp. 10-12)
  reach a similar conclusion, sketching out four
  relatively complete, synchronous cycles of fang
  and shou during 1980 to 1989 fang predominated
  in 197980, 1984 and 1988, while shou
  predominated in 1981, 198586, 1987, and 198889.

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7.5 Whither Chinese-style reform?

• 7.5.1 Political economy of reforms
• 7.5.2 WTO and the Chinese reform

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Table 7.2 A comparison of selected reform programs
Strategy Successful cases Unsuccessful cases
Gradual/ partial approach Dual-pricing system reform (1979-92) foreign exchange system reform (1984-) Industrial contract system (1983 1986) administrative decentralization (1980s- early 1990s) banking reform (1983-)
Radical approach Agricultural reform (1980-82) bureaucratic reform (1982-84) Price-release reform (1988-89) SOE ownership reform (1980s 1990s)
Notes (1) The judgment of a reform program as
being successful or unsuccessful is based on
available data and literature. (2) The terms
radical and gradual/partial are elastically
defined, since according to international
standard, during the past three decades Chinas
all reform programs as a whole have been
implemented via only but a gradual/partial
approach. Source Defined in the text.
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Figure 7.1 A feedback model of market-oriented
reform
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Case study 5

• Interest groups, stakeholders and reform in China

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1. Radicals and conservatives in the early reforms
2. Political, economic and cultural elites in the
   later reforms

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Notes (1) Each circle denotes the scope of
reform that is proposed by and in favor of an
elite. (2) The area that is overlapped by the
three circles denotes the scope of reform that is
in favor of all the three elites concerned.
Figure 7.2 Collective actions of the Chinese
elites on reforms
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Chapter conclusion The analytical narrative of
the successful and unsuccessful cases of the
Chinese-style reform shows that the efficiency of
a reform depended upon (i) the initial
institutional conditions (ii) the external
environment and (iii) the reform strategy. The
empirical evidence suggests that a radical reform
tends to be more efficient than a gradual/partial
one during the early stages (the late 1970s and
the early 1980s), while a gradual/partial reform
tends to be more efficient than a radical
(big-bang) one in the later stages. We also find
that the Chinese-style reform has evolved from
the collusion of the CCP radicals and
conservatives to that of the political, economic
and cultural elites, at the cost of retarding
political reforms and of sacrificing the benefits
of the rest of the people.
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Suggested reading

• Appleton, Simon, Lina Song, Qingjie Xia (2005).
  Has China crossed the river? The evolution of
  wage structure in urban China during reform and
  retrenchment, Journal of Comparative Economics,
  Volume 33, Issue 4 pp. 644-663.
• Ariff, M. and Can, L. (2008). Cost and profit
  efficiency of Chinese banks A non-parametric
  analysis, China Economic Review, Volume 19,
  Issue 2, pp. 260-273.
• Bai, Chong-En, Jiangyong Lu, Zhigang Tao (2009).
  How does privatization work in China? Journal
  of Comparative Economics, Volume 37, Issue 3, pp.
  453-470.
• Baillon, Aurélien, Olivier L'Haridon and Laetitia
  Placido (2011). Ambiguity Models and the China
  Paradoxes, American Economic Review, Volume 101,
  Issue 4.

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Suggested reading

• Fleisher, Belton M., Klara Sabirianova, Xiaojun
  Wang (2005). Returns to skills and the speed of
  reforms Evidence from Central and Eastern
  Europe, China, and Russia, Journal of
  Comparative Economics, Volume 33, Issue 2, pp.
  351-370.
• Fu, X.(M.) and Heffernan, S. (2007). Cost
  X-efficiency in China's banking sector, China
  Economic Review, Volume 18, Issue 1, pp. 35-53.
• Hao, C. (2006). Development of financial
  intermediation and economic growth The Chinese
  experience, China Economic Review, Volume 17,
  Issue 4, pp. 347-362.
• Huang, G. and Song, F.M. (2006). The
  determinants of capital structure Evidence from
  China, China Economic Review, Volume 17, Issue 1,
  pp. 14-36.
• Jefferson, Gary H. and Thomas G. Rawski (1994).
  Enterprise Reform in Chinese Industry, Journal
  of Economic Perspectives, Volume 8, Issue 2.

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Suggested reading

• Jefferson, Gary H., Jian Su (2006).
  Privatization and restructuring in China
  Evidence from shareholding ownership, 19952001,
  Journal of Comparative Economics, Volume 34,
  Issue 1, pp. 146-166.
• Liang, Q. and Teng, J.-Z. (2006). Financial
  development and economic growth Evidence from
  China, China Economic Review, Volume 17, Issue
  4, pp. 395-411.
• McMillan, J. and B. Naughton (1992). How to
  Reform a Planned Economy Lessons from China,
  Oxford Review of Economic Policy, Volume 8, Issue
  1, pp. 130-143.
• Yusuf, Shahid (1994). China's Macroeconomic
  Performance and Management during Transition,
  Journal of Economic Perspectives, Volume 8, Issue
  2.
• Zhang, W. (2006). Chinas SOE Reform A
  Corporate Governance Perspective, Corporate
  Ownership Control, Volume 3, Issue 4, pp.
  132-150.