Presentation for POL 324 Dr Kevin Lasher

Presentation for POL 324 Dr. Kevin Lasher

Deng’s Economic Reforms, 1978 -89 n n Rural reforms Urban reforms

Rural Reforms n n n Household responsibility system Special households Township and village enterprises (TVEs)

Urban Reforms n n n Special Economic Zones Private businesses Reform of State-Owned Enterprises (SOEs)

State Owned Enterprises (SOEs) n n Tremendous resistance to SOE reform within party because it would mean significant unemployment in short -term Real reforms of SOEs are delayed until mid-1990 s

Deng’s Economic Reforms, 1978 -89 n Considerable success but only a prelude for what is to come in next thirty years

Economic Reforms Since 1989

Basic Facts n n n Almost 10% economic growth for last 30 years High rates of FDI and export-oriented economy Vast improvements in HDI and reduction of poverty

Hu’ Jintao’s Policies n n n Continued economic growth; quick rebound from 2007 -2008 world slowdown China becomes world’s second largest economy in 2010 Enters “middle income” level of countries ($14000 GDP per capita with PPP, 98 th out of 181 countries)

Year 1990 1995 2000 2005 2010 2011 2012 2013 2014 Trade Balance (billions) 9 16. 7 24. 1 101. 9 184. 5 157. 9 232. 8 261. 4 380. 1

Human Development Index n n A composite statistic of life expectancy, education, and per capita income Very high, medium, and low levels of human development China has shown considerable improvement in scores on HDI in last four decades China moves into “high development” category in 2010

Human Development Index n 2015 score of. 738 (90 th out of 188 countries)

Adult literacy rates

Poverty n More than 500 million people were lifted out of extreme poverty from 1981 to 2012

Economic Growth Factors n n n High levels of investment Trade surplus/export-oriented growth Low consumption Tens of millions of low wage workers flooding cities International market receptive to Chinese exports Gradualism of economic reforms with CCP control

Economic Growth Factors n “In order to make economic growth a reality, Chinese leaders subordinated nearly everything to the mobilization of resources for the growth process. ” Barry Naughton, Economist, 2008 n Only in mid-2000 s did the CCP begin to deal with the “downside” of this all-out pursuit of growth

Downside of China’s Economic Success n n n n Income inequality Urban-rural divide Terrible pollution Lack of development in non-coastal regions Second-class status of rural people working in cities Lack of “social safety net” Massive corruption Growth of state-owned enterprises (market version)

Reform of State-Owned Enterprises n n Reform of hundreds of thousands (or more) of government-owned enterprises delayed until mid 1990 s Prior to Deng’s reforms, almost all enterprises, of any size, were “government owned” Many new “private enterprises” or “partially private enterprises” began to appear Several stages in SOE reform

Reform of State-Owned Enterprises n Policy of “grasping the large and letting the small go” begun in mid-1990 s

Reform of State-Owned Enterprises n n n Selling off/closing – small and medium-sized SOEs closed or sold to private businessmen or groups of shareholders Generally successful but very painful 50 -60 million job losses over a twenty-year period

Reform of State-Owned Enterprises n n Corporatization – turn all sizes of SOEs into Western-style corporate entities, with small and medium-sized SOEs being fully privatized and large SOEs being restructured with new forms of government ownership Modern scientific management to large SOEs which remain under full or partial government ownership

Reform of State-Owned Enterprises n n Currently approximately 150, 000 SOEs remain which are owned or partially owned by central government, provincial governments or local governments Great variety in the level of performance of remaining SOEs with the focus on those controlled by the central government

Reform of State-Owned Enterprises n n n 2003 Beijing created SASAC (State-owned Assets Supervision and Administration Commission) as a government agency SASAC is in charge of managing 100 -200 key industries in “strategic sectors” such as defense production, electrical power, oil, natural gas and petrochemicals, telecommunications, coal, civil aviation, construction, automobiles, steel, information technology Originally 169 companies, now reduced to 102

Reform of State-Owned Enterprises n n Companies are either totally owned by central government or majority ownership by central government Goal is to create modern, powerful, globally competitive companies Half of managers/board members are “appointed” by CCP One hundred companies have thousands of associated subsidiaries

Reform of State-Owned Enterprises n n n Generally profitable as they are quasi-monopolies for the domestic market Less efficient and lower productivity than privatelyowned or foreign-owned companies Next stage of reform is to further consolidate and reduce the number of companies controlled by SASAC (and their regional/local counterparts)

Reform of State-Owned Enterprises n Provincial and local governments have established their own “SASAC” organizations in which the respective level of government own entire companies or maintain a majority of ownership shares

Reform of State-Owned Enterprises n n n Central, provincial, local government SOEs have to function within an overall “market economy” They function in a quite different way than government-owned enterprises in the Mao and early Deng era While they are different than before, they are not “private enterprises” SOEs have numerous advantages, especially availability of land bank loans Many board members are CCP members

What percentage of the Chinese economy is still owned/controlled by various levels of the government? What is the percentage of private ownership and “reformed” government ownership?

n 65% of enterprises are private n 30% of enterprises are SOEs (40% of GDP) n 5% of enterprises are foreign-owned Arthur Kroeber, China’s Economy: What Everyone Needs to Know, 2016

n 80% of employment in private enterprises n 20% of employment in SOEs Arthur Kroeber, China’s Economy: What Everyone Needs to Know, 2016

n State-owned enterprises (of all levels) are still a significant part of the Chinese economy, especially in key sectors of economy

Next Stage of Economic Reforms

Next Stage of Economic Reforms n n Reorienting economic growth from investments in infrastructure and subsidized exports into growth focused on domestic consumption and innovation Focus on higher-level manufacturing Downsizing the state sector, decentralizing economic decision-making, and deregulating the banking system Adequately resourcing “public goods” for the population (health care, environmental protection, pensions, care for elderly)

Next Stage of Economic Reforms n n Introducing real rule of law to combat massive corruption, crime, abuses of privilege and power and facilitate predictable functioning of market economy Empowering civil society and loosening media controls to facilitate the free flow of information needed in real market economy and innovation society Continue dealing with lingering problems of pollution, income inequality, corruption Reforming education system to promote innovative learning

Next Stage of Economic Reforms n n n Enormous economic tasks Difficult to see how they can move forward as long as CCP retains or intensifies its monopoly of political control Xi Jinping has shown little interest in real political reform besides anti-corruption effort and consolidation of his own power in his first five years

Next Stage of Economic Reforms “But today, China faces a challenge arguably greater than any it has had to overcome in the past. This challenge is to shift away from a growth model based mainly on the mobilization of resources to one based mainly on the efficiency of resource use. Another way of putting it is that China has spent the last three decades installing the assets needed for a modern economy. Now its job is to maximize the return on those assets. ” Arthur Kroeber, China’s Economy: What Everyone Needs to Know, 2016

Next Stage of Economic Reforms “So there is a fair chance that Xi’s ‘Leninist capitalism’ strategy will succeed in sustaining China’s unique combination of market economy and authoritarian political system, at least until the end of Xi’s term of office in 2022. But this strategy is far from cost-free. The obvious victims of this approach are innovation and creativity. Although its leaders often mouth the idea that China must become a more innovative society, it is impossible to imagine creativity blossoming so long as the state places draconian restrictions on the right of people to express their views, share information, organize independently to solve social problems, challenge authority, and freely collaborate with like-minded people from other countries. ” Arthur Kroeber, China’s Economy: What Everyone Needs to Know, 2016

Next Stage of Economic Reforms “In the short run, this lack of innovation need not stifle the economy, since there is plenty of growth yet to be squeezed out from things like industrial efficiency and service-sector deregulation. Ultimately, though, a more open and less paranoid political system will be required for Chinese society to remain vibrant as it grows older and richer. ” Arthur Kroeber, China’s Economy: What Everyone Needs to Know, 2016

“Made in China 2025” n n Premier Li Keqiang State Council document to initiative “to comprehensively upgrade Chinese industry” Move China to world leader in innovative manufacturing by 2049

“Made in China 2025” Although the goal is to upgrade industry writ large, the plan highlights 10 priority sectors: 1) New advanced information technology; 2) Automated machine tools & robotics; 3) Aerospace and aeronautical equipment; 4) Maritime equipment and high-tech shipping; 5) Modern rail transport equipment; 6) New-energy vehicles and equipment; 7) Power equipment; 8) Agricultural equipment; 9) New materials; and 10) Biopharma and advanced medical products. Its guiding principles are to have manufacturing be innovation-driven, emphasize quality over quantity, achieve green development, optimize the structure of Chinese industry, and nurture human talent.