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China debates capitalism.

CHINA, long before the Soviet Union and the Eastern European countries, initiated its own version of perestroika. The purpose of this change was using economic and legal means to control the economy indirectly, which was a great departure from controlling the economy through administrative directives. At the end of 1991, China had accumulated 13 years of experience, saturated with ebbs and flows. During those years, a great number of policies -- and policy adjustments -- each with its own mixed results went into effect. And the results came to be a bittersweet legacy. Nothing better than a live workshop may be educating, irrespective of environmental differences. In fact, the lessons learned from this experience are eye opening for both socialist states and Third World countries. China is both.

In December 1978, at the Third Plenum of the 11th Central Committee of the Communist Party a new economic. policy was basically accepted. In this historic meeting, the egalitarianism of Mao Zedong was put aside and Deng Xiaoping began encouraging 'a part of the population ... to become well off first'. Under Mao Zedong, China sacrificed growth for equality. Deng Xiaoping reversed Mao Zedong's priorities, condoned inequality, and urged the Chinese to compete for wealth in a drive for economic efficiency and prosperity.[22] The main contents of decisions made in this meeting were: to delegate decision-making power to local authorities and production units, and to allow local authorities and enterprises to retain more revenue, so as to stimulate their initiative. This reform was summarized in the slogan |Delegate Power and Relinquish Revenues'.[41] No precise timetable was presented for introduction or implementation of the reforms, although most of them were expected to have taken place within five years. Price, banking, and monetary reforms were expected to require additional time.[3] The various pieces of the reform were gradually put into their appropriate places, and after five years of wide-ranging experiments, the lessons learned were consolidated in a national programme -- Reform of the Economic Structure -- at the Third Plenum of the 12th Central Committee of the CPC on October 1984.

Despite careful planning, and great strides in implementing the economic reforms, ten years later, the Deng decade -- after Chinese leader Deng Xiaoping -- had run into a series of difficulties, involving both economic and political factors. These can be grouped under several general headings: economic bottlenecks, overheating, structural problems, issues of corruption and social morale, and problems of political structure and philosophy.4 In order to rectify the disturbing situation, the Chinese government backtracked on domestic reforms, and in the mid-1980s initiated a number of plans to reassert central control over major segments of the economy. Austerity programmes which would last at least until the end of 1991 went into effect. The dual pricing structure was abandoned, and the financial credits tightened. However, the resulting fiscal pressures which led authorities to reassert their grip, rendered the |capitalistic' trend in China meaningless.

The great debate of the decade is how the transition from a centrally planned economy to a market one should take place, and what steps must be taken in order not to make |mistakes', which would hamper, delay or postpone the transition, although there could not be found a country that is immune from making policy mistakes. Some observers advocate an earthquake approach where over night prices are decontrolled, and an invisible hand is allowed to work itself out through the process. Opposing this method, others press for minor earth shakes, and incremental implementation of policies. As China's experience and today's developments in Eastern Europe have demonstrated, a panacea does not exist, and in fact such a transition is entrapped in a bind. The quick track is politically and socially inapplicable, and the incremental approach generates a kind of hybrid, or |two-track' system. Under the latter system, economic bureaucrats and enterprise managers would share some very important decision-making powers. This web of interests dictates a pattern of mutually beneficial behaviour between the two parties which creates conditions conducive to both economic and political obstacles.[44]

A critical element in this transition is the intervention of ideology in every aspect of life. In socialist societies the gains and losses should be regarded in the light of politico-ideological terms instead of economic terms. Indeed every issue, be it social, economic, cultural or technical, is expressed in political terms. An example that demonstrates how ideology may affect a business decision is illuminating. The rapid growth and expansion of independent enterprises alerted the Chinese officials to the matter of hiring helping hands and making profits -- which are not allowed in a socialist country. However, eager to let the process proceed, the private enterprise was given a legitimate appearance as soon as an ideological justification became available. Ideologists could find a quotation from Carl Marx saying that an enterprise with seven or less employees is a |workshop', and hence, its existence is permissible. But it evolves into a capitalistic enterprise when it passes that cut-off point.[42] In summary, because of the nature of reforms, inconsistencies and contradictions in policy formulation and implementation, government's inability to set clear operational objectives, the level of opportunism in the system increased and economic reforms were challenged, suppressed and distorted by a combination of official and unofficial practices. A controlled delegation system was converted into a decentralized one in which major objectives were replaced by local goals.

The economic reform brought four major changes in four major areas; the first was: peasants' productivity, income, and employment. The economic reforms greatly benefited Chinese peasants. The relative prosperity of these people materialized because the state sharply raised purchase prices for farm products and concurrently reduced its purchase quotas. The general level of purchase prices of farm products increased by 77% between 1978 and 1986.[45] These changes coupled with the abolition of the People's Commune, introduction of responsibility systems and land-use rights made millions of peasants more prosperous, but also made other millions redundant workers and therefore, unemployed. While China had a 400 million rural work force, only 200 million were needed to stay on farms. About 90 million of these surplus peasants were able to secure themselves jobs in collective rural industries. The remaining 110 million peasants had nothing to do. To get rid of surplus peasants, many have advocated |exporting' them to cities which themselves are beset by chronic housing and job shortages.[12] In many villages, officials took advantage of reforms to diversify from agriculture into rural industry, and thereby, providing employment opportunities for the surplus peasants. As the villages prospered, the average yearly income for some peasants increased nearly sixfold, to 1,000 yuan ($270) which was about the average wage paid to the lowest paid industrial worker.[16] The more common income is, however, an average $121 per year, less than half the $266 urban average.[12] But the sharp rises of average incomes were eroded by inflation and currency devaluations. Rural industries became one of the greatest successes of the past decade of economic reform in China. Run by villages, groups of farmers and peasant families, rural enterprises rose from 1.5 million when reforms began in 1978 to nearly 19 million at the end of 1987. Making everything from prefabricated concrete to textiles and handicrafts, the prospering little firms supplied a quarter of China's total industrial product in 1988, their output value surpassing that of agriculture.[29] Rural industries enabled many farmers to refurbish their homes, and purchase such appliances as televisions and refrigerators. Despite these bright spots, the development of rural industries has been criticized on the grounds that they compete with urban industries for scarce resources. But some other observers have replied that these industries have supplemented urban industries, as suppliers and as markets for the larger enterprises' products.[19]

The reform brought also a new pragmatism. Beginning in 1986, the government started to phase out the traditional policy of sustaining the poor with handouts of cash, grain, and cotton cloth. Instead, most state poverty funds were channelled into low-interest loans for development projects. Irrigation projects dramatically increased crop yields in some areas. Other areas were beyond the reach of development projects, so peasants were and have been encouraged to migrate. Great income inequalities between city wage earners and peasants, coupled with unemployment have given peasants an extra incentive to rush to cities looking for better paid industrial jobs. For instance, while a street vendor can earn up to 1,000 yuan a month, about one hundred million Chinese in remote mountain and border areas live below the official poverty line, surviving on less than 200 yuan or $54 a year.[22] During the 1980s, millions of youths from the backward areas of inland China quit school at the urging of their parents and sought work in booming coastal cities. One undesirable by-product of rapid industrialization has been child labour.[33] According to China's Labour Ministry statistics, in some areas, 20% of the employees in township enterprises are children. As stated by observers, the cause of the problem is that during the course of reform, the state loosely enforced weak laws against the employment of child laboulers, and has not been able to keep pace with changes in society. As soon as the winds of self determination began to blow, instead of planting wheat, rice, and other critical staples for a fixed state price, peasants started to grow cash crops that fetch a higher price on the market, and in this process they were assisted by some corrupt officials who were selling them precious fertilizer.[36] However, progress eventually came to a slow march forward. It has been argued that the slow-down was due to the government's reluctance to allow individuals to take possession of the land.42 Although farmers are permitted to handle tracts of land as they desire, and even their children can inherit their parents' rights to properties, they are granted the right to use land--for up to 50 years (for orchards), i.e. manage it--and not own it. Beginning in 1989, the government, implementing its austerity programmes, starved millions of rural enterprises' supplies of credit, energy, and raw materials, channelling the scarce resources to state-owned enterprises. China's agriculture bank cut its loans to rural enterprises by 13.4 thousand million yuan ($3.6 thousand million) in the first nine months of 1989. The official reports, released in November 1989, revealed that about one million rural enterprises either stopped production, merged, or shifted to make other goods.[29] By late 1990, controls had been tightened to the extent that some local officials were expressing a need to go back to the Mao Zedong-style communes -- renamed |collective economy'. Of course, consolidating lands into collective fields must be with the consent of peasants, and with proper compensation. A more acceptable policy has been two-tier farming. This new system sets a layer of collective farms atop family farming. A return to strict quotas also would move China further away from its once touted capitalistic alternative.[38]

Success in rural reform encouraged the officials to take further steps and begin urban reforms. Major elements included a certain autonomy in regard to retained profits, production planning, sales of outputs, capital expansion, and experimentation with new products. The first major policy regulating the private enterprise was issued in 1981, by the State Council delineating the rights and limits of non-state owned enterprises.[40] But these reforms turned out to be more difficult than agriculture reforms. Hence, after several years, the 12th Central Committee of the Communist Party adopted a major proposal to achieve overall reform of the urban economic structure. October 1984, marked the official beginning of expansion of the private sector. The economic reform allowed rapid growth of enterprises and employment. From 1979 to 1984, urban collective employment increased by 14.52 million. Urban and private sector jobs grew from virtually zero to 3.4 million.[41] In Beijing alone, by mid-1987 there were 140,000 self-employed persons, with a total of 17 million throughout China.[13] It is Said that the greatest stimulus for change in state-owned enterprises has come indirectly in the shape of intensified competition from rural collectives and privately-owned enterprises.[1] The competition has made state-owned enterprises more efficient in the sense that fewer inputs are needed to produce the same amount of output.[2] A very unique situation has allowed the formation of integrated industries in China. Since the land and labour is very cheap in rural areas, some state-owned enterprises relocated their workshops to the countryside and sub-contracted jobs to smaller, rural ones that lack the technology for efficient production. The result of this co-operation has been expansion of urban-rural co-operatives.[19] In the case of the automobile industry this integration is vertical, and in the case of the textile industry, it is horizontal.[6]

The rapid economic development was accompanied and sometimes followed by a number of social-political developments. It provided cadres and their children opportunities for personal gains-bribery, extortion, speculation, and profiteering.[13] It also encouraged university students to take a non-political stand, and pursue money making activities. In a drive for riches, the university campuses became quiet. The official newspaper China Daily called this situation |business fever'. The students of Shanghai alone, started over 100 campus businesses.[34] Drawn by profits of private businesses, thousands of students in areas bestowed with fortune--such as Guangdong--dropped out of school each year to work. The drop-out rate reached 20% at some schools. Some youths who had failed at business turned to crime. According to official reports, China's juvenile crime rate rose sharply and criminal gangs were active in several big cities. After the Tiananamen Square incident, a social scientist (He Xin) who advises the government warned: |The emergence of a mobile part of the rural population has created a huge unorganized force. It is already a hotbed of crime. Once they get organizations with an educated leadership and a political programme, the floating peasants could be moulded into a political force, a mobile, armed and formidable anti-social coalition'.[12] In a move to curtail further farm-to-city migration which disturbs the stability of cities, police have begun closing informal labour markets where peasants and potential employees used to meet.

The economic reform shook the ideological foundations of the regime, weakened its legitimacy, and created opportunities for corrupt practices. By some estimates, about 220,000 private enterprises are run by the former party or government officials. As stated by the government's officials these people possess the qualities of an entrepreneur in that they have a deeper understanding of the party and government policy than ordinary citizens and have the right connections. A very successful businessman who is the son of a local communist cadre, has been a member of the party since 1972, and is a delegate of China's national assembly. Affluence has allowed this type of entrepreneur to indulge in a very luxurious lifestyle. The same businessman owns eight cars, and has asked the province for permission to purchase a helicopter.[32] These excesses led the Communist Party to expel 25,000 members in 1988 in an effort to curb corruption.[25] This situation could not last indefinitely. The Chinese tradition is overwhelmingly opposed to individual glorification and sees anyone who desires personal aggrandizement as a threat to the collective.[17] Hence, masses have revolted from time to time, punishing self-indulgent entrepreneurs. Vigilantism occurs routinely. After hardliners began reversing some of the gains of reform, the Communist Party's General Secretary, Jiang Zemin, accused some private entrepreneurs of indulging in a life of luxury.[26] Many Chinese intellectuals continue to uphold public ownership as an essential criterion for China, even though they advocate technology imports and more capital circulation.[6] According to the Chinese Entrepreneurs' Association: |As the reforms depend [on us] we are the focus of all kinds of conflict ... we face every kind of obstacle: illegal slanders, threats and injury'. Moreover, laws that have legitimized entrepreneurs and their firms lack effective measures and enforcement.[32] The reports published in the China press in 1987 indicated that due to the influence of the local cadres, about 20% of court decisions in economic cases were not carried out.[13] The urban population, especially the educated younger generation, has proved to be more responsive to unorthodox ideologies. For many of China's young private entrepreneurs--money not family, education, or profession, became the determinant factor of status.[25] Encounters with tourists, foreign films, and TV series from the West, Hong Kong, and Japan started to shape the values and dreams of many ordinary Chinese. As social restrictions loosened, and a get-rich credo caught on, provincial officials and managers of state-owned enterprises began to make quick profits by channelling funds into the production of lucrative consumer goods like refrigerators, motorcycles, and colour televisions[27] all made from imported components.

Tax evasion in the first decade of economic reforms became a widespread business practice. A survey of 788 businesses in Tianjin in late 1983 revealed that 558 businesses (71%) had evaded taxes, totalling one and a third times the amount of taxes turned over to the state by individual businesses in a four year period.[5] The state taxation bureau on November 1989 publicized a nationwide drive against tax evasion among the country's 14.5 million private enterprises, threatening |severe punishment' for violators.[26] The evidence indicates that some of the bureaucrats have strong incentives not to enforce certain policies and regulations. In some cases they deliberately fail to collect taxes.[44] Under reform, Chinese courts have become busier. The free market created unprecedented labour and management conflicts. Chinese workers increasingly are responding to employment frustrations through the use of slowdowns, strikes and at times, physical violence against not only managers, but also customers.[15] Overall, the annual number of cases involving attorneys increased twelve-fold between 1981 and 1988 which far exceeded the capacity of the country's lawyers to handle them.[35,40] As Deng Xiaoping subordinated Mao Zedong's radical feminism to his drive for rapid economic growth, many women across China began quitting the workforce, while others met heightened discrimination. The official New China News Agency reported in 1988 that |The traditional division of labour between men and women -- men work outside and women at home -- has begun to emerge again'.[23] The economic reforms granted factory directors more power to hire and fire -- in essence, more power to discriminate. As reform intensified competition among Chinese firms, profit-minded employers began openly discriminating against women, who are stereotyped as weak-willed and less competent than men. As state-owned enterprises move to cut millions of redundant workers from their payrolls, women are most often the first to go, according to official surveys. |Women employees are likely to be the first to be fired when a unit is over-staffed and the last to be hired when new employees are needed,' the official China News reported. Sixty-one per cent of China's unemployed youth is female.[23] The reform has allowed localities to thrive or stagnate on their own strengths, sharply exacerbating regional income disparities. Most glaring is the contrast between China's prospering east coast and the remote, economically backward inland. In 1980, China's eastern provinces boasted an average rural income 27% above that of those in the west. By 1987, the differences had reached 60% according to Chinese and World Bank statistics.[22]

The economic reforms turned a highly centralized budgetary system into a stratified management with a contractual revenue sharing. Local governments were allowed to use their surpluses with no approval from the central government. This new arrangement coupled with decentralization in other managerial areas revived not only the private enterprises but also the state-owned sector. The economy grew by 7.4% in 1986, and by 9.4% in 1987. Industrial output had a faster growth rate, 16.5% in 1987. The GNP growth reached 9.8% in 1986, and 9.4% in 1987.[1] With the passage of the State Enterprise Law by the National People's Congress in 1988, the nature of the country's state enterprises, their relationship to the state, and their rights and obligations were specified. Under this arrangement, the state would sign contracts with the majority of enterprises allowing them to keep all of their revenues after they had turned over a specific amount to the state. The state also began very similar arrangements with provinces. Tronically, this arrangement created a coalition of interest and strengthened a command-free market hybrid structure, within which bureaucrats were able to use many policy tools to exact benefits from enterprises, and enterprises were able to obtain dependency on bureaucracy and protection, and thereby benefit from dual-pricing structure.[44] The de-ideologization campaign subsequent to economic reforms loosened control mechanisms. This, coupled with decentralization of managerial and administrative power, paved the way for spreading corruption. A de-idelogized official, devoid of his/her principles, could hardly be expected to maintain an acceptable level of moral behaviour. Logically, the moral decay caused further socio-political unrest. The contract system allowed many state-owned enterprises to prosper, but it also impoverished the state and encouraged regionalism. The state-owned enterprises were spending huge sums on bonuses that contributed to inflation. Some observers[42] maintain that what led to this extravaganza was a fear that the |party' may not last long, so they were transferring funds from productive projects to welfare spending, and depriving the state of capital vital for major infrastructural projects. In a 10-year period, financial decentralization slashed the government's share of the national income to 19%, compared with a much higher proportion in the 50s and 60s according to official figures.[27]

As the result of success of economic reforms, acute shortages of consumer goods, agricultural input, and construction materials occurred. The rural population as well as city dwellers had increased their purchasing power, but the supply of goods had not kept pace with demand. Consequently, in a classic display of imbalance between supply and demand, prices started to push upward. In 1988, the government acknowledged that about 20% of city dwellers suffered a decline in living standards because of inflation.43 Some policy planners preferred to allow price rises to spur more production. Meanwhile to cushion the prices for city inhabitants, subsidies had to be increased, so huge budget deficits incurred. In 1991 the budget deficit amounted to $10 thousand million[12] by Western accounting methods. By Chinese methods, it was approximately US$1.9 thousand million.[31] Government subsidies to compensate city dwellers for the rising cost of living ballooned from $296 million in 1978 to $8.5 thousand million in 1988. In 1982 the value of urban subsidies per worker actually exceeded the average wage.[11] One reason for this was that the 1979 price increases for agricultural products were not passed on to consumers.[9] Subsidies to cover losses by state-run firms nearly quadrupled in the decade of reforms. In 1988, the bail-out subsidies rose to $12 thousand million, which was equal to one third of total state revenue.[7] This situation prompted resorting to bankruptcy law, prohibiting managers of state-owned enterprises from spending sprees. Politically, the leadership has found it difficult to cut subsidies and other public expenditures. Instead, Beijing is likely to demand more revenue from provinces and state-owned enterprises, retracting one of the chief market-oriented reforms. In the process of reform it was understood that many inside and outside of the regime abused the dual pricing structure. A substantial number of enterprises were buying goods at subsidized prices, then re-selling them in the black market or even exporting cheaply obtained goods. By mid-1987, according to China Daily, 250,000 of 360,000 new companies organized under the reforms were involved in the sale and resale of scarce commodities and production materials.[13]

A number of Chinese leaders -- including the ousted Premier Zhao Ziyang -- were pressing for phasing out the dual pricing structure, and installing a single price structure where subsidies are eliminated and prices are decontrolled so they can float according to supply and demand. However, abolishing the dual-pricing structure proved to be very devastating. While inflation was 12.5% in 1985, 7% in 1986, and 7.2% in 1987, as soon as price reforms were unleashed in May 1988, national retail prices jumped 11% in just three months, and non-staple foods hit the 24.2% mark. This policy was reversed quickly. In September 1988 a lengthy investigation report was released which described in detail the crises caused by mistakes in recent years. Although some Chinese leaders had believed that it is wise politically to keep the inflation below 10%, during 1989 it did not fall below 21.4% in 35 major cities.28 However, 1990 witnessed a sharp decrease in inflationary pressures. By November 1990, the annual rate of inflation had fallen to 2.3%[31]. Under the austerity programme, almost all new investments -- including those involving foreign businesses -- were banned. Only those new firms arc allowed to work that produce for state-owned enterprises, or export. During 1985-86 much uncontrolled borrowing, stimulated by low interest rates and tax deductability of principal repayment took place and helped to accelerate inflation. After tightening control in 1987-88, a bank would not lend to an enterprise without approval and guarantee of its risk-averting supervisory bureau.[1] The tight capital market, as well as energy and raw materials, led many enterprises to bankruptcy. However, the bankruptcy law which became effective in 1986 may prevent some of them to go under. The government's hope has been that they would attempt to merge with assistance of merger and acquisition markets, and/or to be sold to other enterprises on the stock exchange markets of Shenyang and Shanghai. It is interesting to mention that even the notion of bankruptcy law in a socialist state used to create an intense discussion. The basic socialist doctrine would not allow bankruptcy. Nevertheless, inefficiency in the state-owned enterprises made it imperative for the authorities to come forward with a solution. This law is limited to state-owned enterprises, and specifically excludes private and collective enterprises.[40] Although uncertainties would normally hamper the practice of saving, still the government expects infusion of capital from individuals into the bonds. This hope hinges on the fact that domestic saving as a percentage of GNP in China is about 30%. That puts China ahead of the rate of either the average developed or developing countries.[18] This high saving rate stems from China's peculiar economy: urban workers are covered by welfare plans, saving for retirement is not needed, and nobody saves for housing because houses are provided by the employing unit at very low rent. The strongest motivation for saving is purchasing consumer goods. In rural areas, while income lacks stability of the urban areas, still there are plans that provide housing and pension funds. Peasants have investment opportunities which are not available for urban residents. Furthermore, they, too, save for consumer goods.[18] The recent economic slow-down has been very severe. By October 1989, industrial output had dropped 2.1%, the first such decline in more than a decade. According to officials, in that year private enterprises defaulted on nearly $30 thousand million of debt owed to banks and each other.[28] Economic statistics for early 1990 indicated that 34% of state-owned enterprises were in the red, and their total profits had dropped 59%, and thousands of factories were operating below their capacity.[30]

As part of the drive to invigorate the economy, tremendous efforts were made by the Chinese authorities to attract foreign capital. In this drive, a great amount of economic legislation was passed and enacted. Some of these laws established structures (contract law, enterprise law, joint venture law); some others provided incentives to increase efficiency (bankruptcy law); and still some other laws regulated economic activities (competition law, enterprise registration and licensing law, taxation law). It has been said that the main reason behind these significant legislations was a desire to encourage foreign investment.[40] As of early 1989, there were about 16,800 foreign invested enterprises with a contract value of US$34 thousand million. The great majority of these firms are Chinese/foreign joint ventures, about 25% of them are co-operative ventures, and another 5% are independent or wholly-owned projects. Japan ranks third after Hong Kong and the US in these investments.[14] By 1990, US/Chinese trade had reached US$ 18 thousand million a year, and 1,000 US companies had invested a total of US$4 thousand million in China.[10] With respect to China's |opening' to the outside, a significant portion involved opening to Hong Kong and Taiwan. In late 1987, China began a policy of encouraging Taiwan businessmen to invest and set up production lines on the mainland, as opposed to encouraging imports of consumer goods from Taiwan. As of February 1988, 46 Taiwan-based companies had established production lines in Fujian province, and there were altogether a total of 80 wholly or partly Taiwan-owned factories in China.[13] The joint venture law that was passed in July 1979, and exchange control regulations which were promulgated in December 1980 injected a considerable amount of foreign capital into the system. However, due to relaxation of imports of foreign goods and services, trade deficit reached US$1.28 thousand million in 1984. Despite increasing direct foreign investment, the trade deficit increased to US$14.9 thousand million in 1985. In an attempt to reduce the unfavourable trade balance, the yuan was devalued by 15.8% in 1986. In addition, the State Council reasserted strict control over China's foreign exchange reserves.[20/21] Consequently, imports decreased and exports increased in 1987 and 1988. Trade deficit fell to US$3.7 thousand million in 1987.[39] To further halt imports, the yuan was again devalued by 21% at the end of 1989. The credit crunch drastically reduced imports of consumer electronics, luxury items. and other non essential goods. To maintain its foreign exchange reserves, China resorted to its time honoured barter trade especially with the Soviet Union.[37]

While the Chinese officials have demonstrated that they are very excited about this influx of capital from Taiwan, many local people are not so happy. According to a school teacher in Xiamen, |. . . they adopt an air of superiority toward Chinese on the mainland...'. Taiwan's capitalists did not start to invest in China out of any desire to build up the mainland. For some, rising labour costs have been a driving force. In one case, a Taiwanese factory owner who shut his factory and shipped his equipment to China, pays his workers in Xiamen about $40 a month, one thirtieth of his old Cost[8] Another harmful aspect of foreign investment activities has been the practice of land speculation. One spectacular example is the case of Taiwanese investors. In China no one can buy land, but the land use rights for periods of up to 70 years. A property |bought' in 1987 for $64 a square metre by a Taiwanese investor, in 1990 had risen to $850 a square metre.[8] Evading customs duties under the guise of donations' from overseas Chinese and compatriots from Hong Kong, Taiwan and Macao prompted the government to issue new regulations to correct the situation.[13] An anti-corruption drive in early 1986 provided revelations about the role of overseas connections--primarily Hong Kong and Taiwan--in facilitating business transactions. In the spring of 1988 the government banned trade between local governments and individuals with relatives in Taiwan. Any trade between China and Taiwan has to be handled through trade and economic agencies in Beijing. In fact it is safe to state that China is returning to the early 1980s, when a limited number of specialized state-owned trading companies handled the nation's trade.

After this brief review of the bittersweet components of China's institutional reforms, one may like to know if the bitterness could be lessened, and if the prescription could produce only sweet results. The answer could be a qualified |yes' if policies are consistent, comprehensive, and if players do not pursue a |zero-sum' game. But even that qualified positive response may not hold true: if no country can attain symmetrical interests, no policy may be devoid of some flaws. Then no optimal outcome could be attained. All and all said, but it still may be argued that successes and failures are relative. It depends on bow they are measured, and what the priorities are. In the end, what might matter will be the |bottom line': maximizing the total gain by the greatest number of people.

REFERENCES

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[Dr. Keramat Poorsoltan is a member of the faculty at Frostburg State University in Maryland, USA.]
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