1. Policy making takes place in an institutional setting (Oksenberg, Lieberthal)

• Consensus building is key, protracted, disjointed, incremental
• Problems get pushed up the bureaucratic ladder
• at each stage, strenuous efforts are needed to maintain consensus
• support by a top leader is needed
• bargaining is crucial, especially central-local deals
• blockage of policy and reversals are possible
• information and feedback are weak

• basically very successful, production, consumption, investment all increased a lot
• Complex problems exist:
• state owned enterprises difficult to reform
• financial instability
• rural farm production cycles
• job creation for both rural and urban economies
• impact from WTO
• Gradualism, not shock therapy
• keep state strong, macro economic policy, public finance and services
• start with existing institutions, reform them
• problems
• worker resistance
• corruption when officials "exploit disjunctions of plan and market."

    1980s

• economic growth replace stagnation KEY TO REGIME LEGITIMACY
• use market mechanisms
• enterprise autonomy, contracts replace plans and commands
• material incentives
• open to world (both exports and foreign investment)
• no blue print -- "crossing the river by feeling the stones"

• SOE reforms, create modern enterprise system, new social security system
• rural urban migration
• banks - convert subsidies and transfers to real loans
• integrate domestic firms with foreign competition
• maintain central macro economic control
• public finance, taxes and revenue sharing

• 1978 increase procurement prices, more production team autonomy
• 1980 Household responsibility system
• 15 year contracts
• 1993 contracts extended to 30 years
• contracts can be bought and sold, so resembles a private market
• rural people want some public control and redistribution for "security"
• 1985 allow private marketing of grain
• ag. input prices went up, squeeze farmers
• mandatory procurement resumed, prices raised
• 1992 ration system dropped
• entrepreneurs encouraged -- "horatio Alger multliplied by 1.3 billion"
• 1994 State price Bureau abolished, re-established next year
• very costly government subsidies built into agricultural prices
• develop TVE (Township Village Enterprises) increasingly in private hands, in competition

• 1984-88 - tax for profit, forces autonomy, fiscal responsibility, allow bankruptcy
• separate out party activities from management
• convert permanent jobs to contract jobs
• problems: inflation, fear of unemployment, what to do with redundant labor?  how to provide benefits?
• note widespread layoffs (xia gang) in 1999-2001
• privatization with stripping of state assets (rip-off)
• private sector growing
• note success in auto industry (2006)

• banks used to channel subsidies as agricultural loans
• now these are "non performing loans"
• try to stop politically ordered lending
• close bankrupt banks (e.g.: Guangdong International Trust and Investment Corp.)
• inspection/audit teams
• asset management companies to take over non performing loans, debt for equity
• modern style challenges/problems/corruption: 236-financial-losses.htmadditional report, 2005
• International mergers (Construction Bank - Bank of America)

Note on statistics:

China's Statistical Yearbook, with very extensive statistics, is available on-line at:
          http://www.stats.gov.cn/english/

Note: As the economy has privatized, less is under government control, so statistics tend to understate growth.  Check this discussion of correcting economic statistics (Dec. 2005)
 
 

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