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Changing China- A Country's Transition to a Modern Market Economy

Economics project for IB HL Econs.

Ruru (Juan Ru) Hoong

on 26 January 2013

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Transcript of Changing China- A Country's Transition to a Modern Market Economy

Changing China- A Country's Transition to a Modern Market Economy by ruru hoong Deng Xiao Peng (1904-1997): Leading China to a Market Economy China: Still a country ruled by the government? Negative Consequences of Transition Advantages of the New System Future Developments Served as the 'paramount leader' of China from 1978-1992, he is seen as the starting point of China's political reform; having introduced what he termed "Socialism with Chinese Characteristics"
Merged central planning with market economy: mixed market
Opened Special Economic Zones- eg. Shenzhen, Shanghai, Tian Jin, Qing Dao, Ning Bo, etc. Incremental Reform
Rapid rise of the 'non-state sector'; nearly all agricultural activities organized by households from the 1980s
Operated outside scope of central planning or SOEs (State-Owned Enterprises)
Subject to harder budget limitations and therefore people were more efficient to compromise for it Price mechanism; highlights which goods are desirable
Based on profit, drives society with incentives
Expand scope of market for resource allocation
Number of people living in absolute poverty substantially reduced from 250 million to less than 100 million
Improved living standards
GDP growth at an average rate of 9%, or 7.5% on a per capita (per person) basis Widening wealth disparity
1988 transition to market-based price system triggered buying and cash withdrawals
Soaring inflation so people could no longer afford necessities.
Increased production means worsening pollution and destruction to the environment
Increasing corruption and monopolies by large firms as they are driven by profit China will not transition to a true market economy
Slowing economic growth means further reform needs to be considered: lowest growth in 13 years
Change of leadership: Xi Jin Ping
Will there be the political will/consensus for reform? Bibliography Books (in chronological order based on year of publication):

Hoong, Yik Luen (my dad). 2001. New China Rising: A Social Economic Assessment of WTO Entry. Shanghai: Writer's Showcase.

Panitchpakdi, Supachai, and Clifford, Mark. 2002. China and the WTO: Changing China, Changing World Trade. Singapore: John Wiley and Sons (Asia) Pte. Ltd.

Naisbitt, John and Doris. 2010. China's Megatrends: The 8 Pillars of a New Society. New York: Harper Business; HarperCollins Publishers.

Kissinger, Henry. 2011. On China. London: Allen Lane- Penguin Books Press.

Research papers:

Qian, Yingyi and Wu, Jinglian. 2000. China's Transition to a Market Economy: How Far Across the River? Stanford, CA: Stanford University, Center for Research on Economic Development.


Anti, Michael. Behind the Great Firewall of China. June, 2012. http://www.ted.com/talks/michael_anti_behind_the_great_firewall_of_china.html

The Economist's Buttonwood Gathering- China's Future and Growth. October 25th 2012. http://www.youtube.com/watch?v=yWiVRCmUdnQ, aidjao Websites:

Factor, Mallory. How Deng Xiaoping, architect of China's rise, defined the decade. http://www.nydailynews.com/opinion/ deng-xiaoping-architect-china-rise-defined-decade-article, Viewed on January 17, 2013.

Zeng, Douglas Zhi Hua. China’s Special Economic Zones and Industrial Clusters: Success and Challenges. http://blogs.worldbank.org/developmenttalk/ node/618, Viewed on January 17, 2013.

ANNUAL REPORT TO CONGRESS Military Power of the People's Republic of China.
http://www.globalsecurity.org/military/library/report/2007/2007-prc-military-power02.htm, Viewed on January 18, 2013.

China's Green Transition Boosts Sustainable Development. Viewed on January 22, 2013.


2011. "China's Economy and the WTO: All Change." The Economist, December.

http://twistedsifter.sifter.netdna-cdn.com/wp-content/uploads/2012/02/shenzhen-china-then-and-now-30-years-later-1980-vs-2011-800x500.jpg Socialism: An economic and political system based on public or collective ownership of the means of production; it is based on bureaucratic central planning and collective ownership (unlike communism, which is only based on central planning). Central Planning: An economy where the government decides what to produce, how to produce, and for whom to produce. Market Economy: An economy that relies on the market forces (eg. demand and supply) and the interactions of humans (eg. individual households and businesses) to determine the allocation of resources and the price of goods, with little government intervention. (Opposite of central planning.) Special Economic Zones: Regions that have more freedom in terms of increasingly free-market-oriented economic policies and less rigid governmental measures. They test the market economy and are crucial to national GDP, employment, the import and export of goods, as well as the attraction of foreign investment. Deng: Fashioning a Modernization out of the Wreckage The Cultural Revolution 1966-1970s
Chaos rampaged through the streets, in the pursuit of 'national purification' in ideological fervor
Deng Xiao Ping called for return to order, professionalism, and efficiency
"Priority should be given to scientific research"
Encouraged individual talent and initiative
Re-professionalization of the Chinese workforce
Professional competence > Political Correctness Consumer goods > Heavy Industry "Observe calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadership."
-Deng Xiao Ping's 24-Character Strategy The First Stage of China's Economic Reform (1978-1993) Second Stage of Economic Reform (1993- Present) Deng Xiao Ping November 1993: "Decision on Issues Concerning the Establishment of a Socialist Market Economic Structure"- 3rd Plenum of the 14th Congress of the Chinese Communist Party
Decided to abolish planning system and set the aim of reform to be the establishment of a modern market system
Unified exchange rates
Overhauled tax and fiscal systems
Privatized small-scale SOEs
September 1997: 15th Party Congress
State ownership downgraded to "pillar of the economy" and private ownership was elevated to an "important component of the economy" Non-state sector: Enterprises that do not belong to the state: however, most of them (like TVEs- Township-Village Enterprises) are collective or joint ventures that are actually local government controlled and not genuinely private. Entirely private enterprises only accounted for 15% of industrial output by the end of 1993. Dual-track mechanism: A way of price reform where prices were beginning to be freed up at the margin, and government-controlled prices were maintained for planned quantities (but not all).

By 1993, more than 90% of prices were determined by market forces rather than planned pricing. Foreign Trade: The 'opening' policy resulted in the accelerated increase of both exports and imports; at a faster rate than the GDP.

The export to GDP ratio increased from less than 5% in 1978 to more than 20% in the early 1990s. GDP: Gross Domestic Product: The total monetary value of all final goods and services produced in an economy in a year. Evidence of the incredible change the transition to a market economy has brought. The negative effects of the transition pollutes rural areas with harmful substances and choking gas: China now (left), and China then (right). Disadvantages of the Previous System One-party domination that meant dissenters were quashed and corruption was rampant
Social discontent
There was little individual freedom
Little innovation and therefore advancement
Limited consumer choice
Poor infrastructure; no competition to SOEs
No price mechanism: little incentive
Reduction in efficiency Sustainable Development
Stricter environmental standards
Replacing coal-fired plants with renewable resources: Raise non-fossil fuel based energy of China's total consumption to 11.4% in 2015, up from 8.3% in 2010
Developing new technologies Put more emphasis on domestic markets and consumption as a source of growth China's Great Fire Wall and Censorship
Put up to prevent netizens from spreading rumors and censor anything with a political agenda
Also so data is completely stored in Beijing and available to the government
Prevents other countries (like the U.S) from accessing sensitive data and potentially damaging information Sustainable Development: Developing in a way that meets the needs of the present without compromising the needs of future generations. China and the WTO Joined on December 11th 2001
Relaxed over 7,000 tariffs, quotas and other trade barriers to join
Exports quintupled
GDP (in US dollars) has quadrupled 1978: Share of state sector in industrial output was 78% of national total; 1993: Down to only 43% of national total
1988 Beidaihe meeting: Deng agreed to transition to a market-based price system The development of markets
Implemented price reform by "dual-track" mechanism
Fast expansion of foreign trade
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