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Economic Reform in China: Problems and Prospects.

Edited by James A. Dorn and Wang Xi. Chicago and London: The University of Chicago Press, 1990. Pp. 383. $17.95.

This volume is an important contribution to the study of how China can make the transition from central planning to a free-market system. It addresses the roots of China's crisis, provides a framework for reform, and discusses the future prospects that freedom will bring. Special attention is given to the issues of property rights and privatization, institutional reforms, and market-oriented strategies. This book is comprised of nineteen papers and many commentaries. It is organized in four parts. Many of the papers are reprinted from the Cato Journal. Part I deals with the framework for reform. It begins with Milton Friedman's argument of using the market for social development. The key issue is the speed and degree of reform. As suggested by Friedman, radical reform toward a market system makes sense from a theoretical viewpoint. but is often difficult in practice. The real problem in the transition is the "tyranny of the status quo". This issue is emphasized again in Steven N. S. Cheung's paper. While China made progress over a decade in promoting private property rights in land and in labor, special interests in trade and industry have become the real obstacles to reform. Cheung then suggests the most straightforward way to create private property: For state-owned resources that are salable, sell. The value of property rights to economic reform in China are further illustrated by James A Dorn. He claims that China's leaders have mistakenly perceived their problem as how to introduce markets without establishing effective ownership rights. If China's leaders really want to avoid the chaos of central planning, and desire economic progress, they must learn the linkage among pricing, property, and constitutional choice. Part I is conclude with Don Lavoie's paper. "Economic Chaos or Spontaneous Order?" In this paper it is argued that the most important thing in the process of reform is not control but cultivation.

Part II of this book deals with decentralization and its relation to development in China. Peter Bernholz provides a systematic treatment of the importance of restructuring financial markets, financial institutions, and the monetary regimen when moving toward a market system. His paper draws on the historical record of many other countries under different monetary regimes and relates this to the problems in controlling money and inflation. The reader is invited to pursue the comment by Liu Funian where the problems of financial reform are clearly stated. Christine I. Wallich studies the nonbank financial institutions and their operations. She suggests that nonbank financial instrument represent a potential source of competition to the banking system. An insightful paper by Justin Yifu Lin addresses the problem of agricultural reforms in China. He argues that the stagnation of grain production over the period of 1984-88 came from the failure of the government to implement market-oriented price reforms for grain. The success of market-oriented reforms, he states, depends more on the determination of political leaders than on the wisdom of economists. Thomas Dye's paper on decentralization is another nice piece of work in Part II. His analysis is backed by many detailed statistical figures. As suggested by Dye, while it is true that decentralization makes government more manageable, provincial and municipal governments must have significant and autonomous responsibility for the economic progress of their jurisdictions.

The interaction between China's economic reform and other countries is the subject of Part III. To the reviewer's disappointment, the quality of the papers in this section varies greatly. Furthermore, omitted topics such as foreign investment, exchange rate reform, and economic and political relationship with Taiwan, are extremely pertinent and should have been included.

In the final part, choices that confront China and the consequences of different development strategies are examined. Nien Cheng argues that a mixed system in China is doomed to failure. China is faced with the choice between socialism and a market system. Only a complete market system and protections for economic and civil liberties can circumvent obstacles to reform. Alvin Rabushka tries to relate a blueprint for economic reform in China to the provisions of Hong Kong's Basic Law. He argues that the Basic Law has incorporated economic principles and policies. By applying this blueprint, economic reform in China will be characterized by individual freedom and prosperity. In his interesting article "Lessons for America, Lessons for China," William A. Niskanen points out that China can learn from the U.S. experience with deregulation. Given the differences between these two countries, he argues that deregulation is possible even if there is opposition from special interest groups and net benefits from deregulation are substantial.

To sum up, the author's attempt to provide a framework for China's economic reform is quite successful. This volume should be recommended to those who are interested in the Chinese economy. Jen-Chi Cheng Wichita State University
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Author:Cheng Jen-Chi
Publication:Southern Economic Journal
Article Type:Book Review
Date:Apr 1, 1992
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