Redesigning the Dragon Financial Reform in the Peoples Republic of China

БОЛЬШАЯ ЛЕНИНГРАДСКАЯ БИБЛИОТЕКА - РЕФЕРАТЫ - Redesigning the Dragon Financial Reform in the Peoples Republic of China

Redesigning the Dragon Financial Reform in the Peoples Republic of China

Redesigning the Dragon

Financial Reform in the Peoples Republic of China

Duncan Marsh dmarsh@indiana.edu

Anna Pawul apawul@indiana.edu

Dmitri Maslitchenko dmitri@mailroom.com

V550, Government Finance in the Transitional Economies

21 November, 1996

In 1978, the People’s Republic of China (PRC) embarked on the

enormous undertaking of opening its doors to the outside world. Until this

point in time, the PRC had relied on a centralized economic system much

like that of the former Soviet Union[1]. However, the PRC’s situation

differed with the former Soviet Union in three substantial ways[2] 1)

although reforms followed the Cultural Revolution (which did exact its

toll on the Chinese economy) there was an absence of severe macroeconomic

crises when reforms were begun 2) agricultural infrastructure was good,

although the incentives were poor and 3) China had a strong presence of

overseas Chinese and Hong Kong that influence its economic development and

over the years supplied capital and human resources.

The industrialization strategy adopted by the PRC has been

characterized by gradualism and experimentation. Its focus has been to

introduce market forces, reduce mandatory planning, decentralize, and open

the economy to foreign investment and trade[3]. This strategy had three

main stages. The first (1979-1983) established four “Special Economic

Zones” (areas awarded special freedoms to conduct business relatively free

of the authorities intervention) in Guangdong and Fujian provinces, the

second (1984-1987) added 14 port cities creating the “Economic Development

Zones”, and finally the third stage (1988-present) which opened most of the

country to foreign trade and created “tariff free zones”[4]. In the rural

areas, land reforms spearheaded further reforms and also the establishment

of Township and Village Enterprises (TVEs). These enterprises were able to

capitalize on the abundant cheap labor in rural areas and to operate

without the burden of providing social spending. They also provided a

training ground for the learning of market skills and concepts. Today,

production of manufactured goods by rural and township enterprise is

estimated to account for more than 40% of the GDP.

In many respects, China’s process of economic reform has been highly

successful.

Since its inception, the average GDP growth has been a world-leading

9.3% year, the poverty rate has declined 60%, and 170 million Chinese

living in absolute poverty have seen their standard of living raised above

the minimum poverty level. Export growth was 7.8% in 1993, 29% in 1994 and

34.7% in 1995.[5] Government measures to control inflation, which had

threatened to overheat the economy in the early 1990s, seem to have taken

effect: inflation was under 15% in 1995. (See Tables 1 and 2.)

Table 1.

Source: EIU Country Report, China/Mongolia, 3rd Quarter 1996. The Economist

Intelligence Unit.

Table 2.

Source: EIU Country Report, China/Mongolia, 3rd Quarter 1996. The Economist

Intelligence Unit.

Chinese economic reform has one other characteristic that sets it

apart from that of the former Soviet Union, the absence of democratic

reforms. The current transition is being carried out within the “socialist

framework” and for the most part is centrally controlled. Much of the

world waited to see whether the economic transition would derail after the

Tiananmen incident in 1989; it did not. However China did seem to be

looking for a way of separating itself from reforms and democratic upheaval

that were happening in the former Soviet Union[6]. In 1992, Deng Xiao Ping

toured the southern economic zones - a journey significant for its highly

symbolic approval of the reform and investment efforts he witnessed - and

coined the phrase “socialist market economy”. Deng emphasized that this

transition must promote the development of productivity, strengthen the

national power and improve people’s standard of living, stating that,

“..with all these achievements secure, our socialist foundation is greatly

strengthened..”[7].

Within this backdrop, we will take a closer look at the system of

reforms currently underway in the People’s Republic of China. This year

marks the beginning of the Ninth Five-Year Plan (1996-2000). Examining the

individual parts (the budget process, public expenditure, taxes, banking,

the interaction between central and provincial governments, and the

emerging need to transform the social safety net) will present a clearer

picture of what has been accomplished by the macroeconomic reforms put in

place in 1976 as well as what still needs to be done.

Revenue, Expenditure and the Budget

One problem of major proportion facing the Chinese government is that

centr