China's Economic Reform

Developments in the Chinese economy are of significance to the global economy. This book consists of contributions concerned with analyzing contemporary developments and issues facing the country after two decades of economic reform.

Both Mao Zedong and Deng Xiaoping drastically altered the course of contemporary China's economic development using opposing strategies. Mao froze China's economic system in a perennial state of consumer goods shortages and pervasive macro disequilibria. Deng, however, began thawing a rigidly structured system by introducing experimental reform measures. Mao's revolutionary rhetoric brought China's economy to the brink of bankruptcy. Deng's ideological pragmatism netted China glowing successes. Mao closed China to the outside world. Deng engineered China's reintegration into the world economy.

Contributors address the reform of China's financial markets, the single most pressing problem in the evolution of the nation's economy. They overview the roots of the financial crisis in Asia and implications for China, and discuss capital account liberalization, lessons US financial markets can provide to China, and political power transitions and Chinese economic policy. Other subjects are financial development and macroeconomic stability, credit quota as a banking risk control in China, and noise trading.

China's Unfinished Economic Revolution offers a fundamentally different interpretation of China's economic reform. The common view that China's gradualistic approach has served it well overlooks the fact that state-owned banks for the last two decades have channeled a large share of sharply rising household savings into what are mostly unreformed, money-losing companies. The result is that several of China's largest financial institutions now are insolvent. To avoid a major domestic banking crisis the book argues that China must recapitalize and restructure its domestic banking system and end the long-standing practice of making lending decisions based on political rather than economic criteria. Nicholas Lardy explains that this course will inevitably be costly in political terms, in part because it will lead for a time to a slower rate of economic growth. But the alternative is even less attractive -- permanently slower growth, continued macroeconomic instability, an inability to meet the expectations of the international community for the opening of its domestic financial markets, and insufficient resources to deal with severe environmental deterioration, growing water shortages, and a rapidly aging population. This timely book also analyzes the new reform initiatives China has launched in the wake of the Asian financial crisis, suggests additional steps that must be taken, and evaluates the implications for U.S. policy.

Based on Party and state documents, Chinese newspaper reports and surveys, the Chinese and Western scholarly literature and the author's own fieldwork, this important study examines the private sector as a case study of the mechanics of reform in China, emphasizing the relationships among local officials, private businesses, and central policy. The book traces the growth of private business in China since 1978 and focuses on the interaction between private sector policy and other reforms and examines how this has affected China's political economy.

Dragon in a Three-Piece Suit is an innovative sociological examination of what is perhaps the main engine of economic reform in China, the large industrial firm. Doug Guthrie, who spent more than a year in Shanghai studying firms, interviewing managers, and gathering data on firms' performance and practices, provides the first detailed account of how these firms have been radically transformed since the mid-1980s. Guthrie shows that Chinese firms are increasingly imitating foreign firms in response both to growing contact with international investors and to being cut adrift from state support. Many firms, for example, are now less likely to use informal hiring practices, more likely to have formal grievance filing procedures, and more likely to respect international institutions, such as the Chinese International Arbitration Commission. Guthrie argues that these findings support the de-linking of Western trade policy from human rights, since it is clear that economic engagement leads to constructive reform. Yet Guthrie also warns that reform in China is not a process of inevitable Westernization or of managers behaving as rational, profit-maximizing agents. Old habits, China's powerful state administration, and the hierarchy of the former command economy will continue to have profound effects on how firms act and how they adjust to change. With its combination of rigorous argument and uniquely rich detail, this book gives us the most complete picture yet of Chinese economic reform at the crucial level of the industrial firm.

This book is the result of a large-scale investigation through detailed questionnaires of China's reform process over the years 1979-87. It analyzes China's gradualist transition to a market economy, and concludes that, although the reform program has been a qualified success, further progress requires the introduction of private ownership. Both D.A. Hay and D.J. Morris approach this subject from a strong industrial organization perspective.

This collection of original essays highlights the implications of China's economic transition since 1978 for Sino-American business and trade. Each chapter assesses the implications of China's economic and trade reforms from a different perspective, but the thread running through all of them is a conviction that the government of China and Chinese enterprises will have to strengthen their capacity to compete more effectively in the global economy if they are to be successful in expanding trade and business with the United States. Government and business leaders in both countries will face important challenges in adjusting to changing global trade alliances if they are to be more effective trading partners.