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Economic Reforms (1978 - )

Economic Reforms (1978 - ). 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. Strategic Vision. Short-term growth

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Economic Reforms (1978 - )

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  1. Economic Reforms (1978 - )

  2. 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 Asianneighbors

  3. Strategic Vision • Short-term growth • Utilization of relatively cheap labor force • Long-term growth • Technological change and dynamism

  4. Maoist Growth Unsustainable • Central control over resource allocation • Prevented flow of information and factors of production • Prevented market-determined prices and competition • Prevented China from utilizing cheap labor in the international economy

  5. Structural Imperative • Decentralization of economic decision making • incentive of local officials • Demographic pressure and employment problems • 1978-2000 net population increase > 3x10^8 • massive migration into cities • substantial aging

  6. Transition Strategy • From central planning to indicative planning • From indicative planning to market allocation of goods and services • ``Growout of the plan” instead of ``shock therapy” • Transition and growth at the same time

  7. Economic Reform Sequence • agricultural production (1979 - ) • 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)

  8. 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: re-centralization of revenues

  9. Central government expenditures Central government revenues

  10. 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

  11. 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)

  12. 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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