How Far across the River?: Chinese Policy Reform at the Millennium

Article excerpt

How Far Across the River?: Chinese Policy Reform at the Millennium, edited by Nicholas C. Hope, Dennis Tao Yang and Mu Yang Li. Stanford: Stanford University Press, 2003. xxii + 510 pp. US$65.00 (hardcover).

The articles in this book emerged from a conference on Chinese policy reform at Stanford's Center for Research on Economic Development and Policy Reform in November 1999. While this means that certain chapters are by now outdated, valuable contributions from a "big cast" of renowned China scholars ensure that the book overall is a worthwhile read.

In the introductory chapter the editors identify the unifying theme as "the distance that still needs to be travelled before the river is forded" (p. 25). As the chapters unfold we are reminded of the great variation in progress across different aspects of China's economic reforms. While the questions of "how far across the river" and "how far to go" are, unfortunately, explicitly addressed in only a few chapters, conclusions regarding progress and prospects range from highly optimistic and encouraging (on regional integration and industrial pollution respectively) to hopeful (with regard to political institutions) to downright pessimistic (for financial sector reforms). We are also reminded of the inextricable links between individual aspects of the reform process (perhaps a more appropriate unifying theme for the book), with recurring calls for state-owned enterprise and financial sector reforms, privatization, marketization and establishment of the rule of law. The question of whether current political institutions are capable of delivering China to the other side of the river (defined as a "modern market economy", p. 61) is another theme which is touched on throughout the book.

In Chapter 2, Yingyi Qian and Jianlian Wu evaluate the overall status of China's economic reforms and identify a core issue as the need for a change to arm's-length government-business relations by way of a free and competitive enterprise system. The remaining chapters are grouped into four parts. Part II, "Building Market-Supporting Institutions", begins with Nicholas Lardy considering when China's financial system will meet China's needs. His analysis identifies numerous institutional constraints and the lack of a credit culture as serious impediments to restructuring the banking system. The chapter by Chong-En Bai et al. describes the "tilted playing field" that remains strongly biased against non-state enterprises. The chapter emphasizes that China's transitional institutions are no longer capable of assisting the rapid growth of non-state enterprises, and calls for measures to reduce entry restrictions, encourage privatization, eliminate credit restrictions and establish an effective rule of law. Both chapters suggest that institutional reforms are far from complete. William Allford's chapter calls into question what economists, in this book and elsewhere, tend to take as given: that there is an established, positive link between the rule of law and economic growth. Allford's analysis is refreshing and illuminating, leading the reader to think, not about "how far across the river", but instead about where, why and how the river is flowing. His chapter should be compulsory reading for anyone interested in Chinese policy reform.

In Part III, "Toward Greater Economic Integration", William Martin et al. use a global general equilibrium model to simulate the impact of WTO accession on the structure of China's international trade up to 2005. Shang-Jin Wei's econometric analysis of foreign direct investment in China makes the point that, despite massive increases over the reform period, it has been significantly deterred by corruption and red tape and has actually underperformed relative to its potential. The chapter provides a novel look at what is generally considered one of China's great success stories. In his chapter on national market integration, Barry Naughton's convincing analysis uses data to draw international comparisons to establish the highly contentious view that China is a relatively well-integrated nation-state that is becoming more so over time. …