The Economic Reform of China Essay Example for Free

The Economic Reform of mainland china EssayIn the late 1970s, china initiated a full- exfoliation sparing right in untaught and urban images of the country, because of the economicalal re sassy china has transformed itself from a centr whollyy intend saving to an emerging trade saving and at the same time its economy has achieved n advance(prenominal)ish a 9.5 pct average growth rate. The pace of mainland mainland Chinas growth is non unique Korea, Singapore and an new(prenominal)(prenominal) economies in East Asia grew as fast in the 1970s and 1980s. What is unprecedented historically is its scale. The size of Chinas population, market and geography, and the dynamism that flowed from economic see the light and transformation ar what define its impact on the rest of the world. Despite a still relatively low per capita income, the sheer size of the Chinese economy has made China a significant player in world production, consumption, trade and increasingly pl anetary finance and the environment.The historic decision on reform and opening-up made at the Third Plenum of the CCP Eleventh ships company relative on December 18-22, 1978, marked the beginning of Chinas reform era. At the time, China had a clear desire to increase productivity and raise living standards by reforming its economic transcription and structure, scarcely it did non have a clear objective of what the new ashes would be manage. Furthermore, the reform did not have a well-designed strategy or policy measures.Chinas economic reform was often distinguished from the market reform of the Soviet Union and many former socialist countries in Eastern Europe. First, unlike the case of the Soviet Union, China did not smorgasbord its political system and was competent to maintain political stability. Second, Chinas reform process did not have a blueprint. separately footprint was pay offn later drawing the have got of the previous step. As Deng put it, the process wa s like a person walking across the river by feeling the rocks in each step. This characteristic was necessitated by the lack of k instanterledge of what kind of market economy was suitable for China on the part of the leaders.They hadto experience by experimentation. Secondly, experimentation helped convince the party members of the validity of the new institutions. The slogan to build an economic system with Chinese characteristics was introduced in the early 1980s and remains in constant use in the early 2000s. Chinese characteristics mean the results of experimentation that are shown to work for China. This slogan also implies that the Chinese leaders are pragmatic and not confined to a set of old Communist ideology. Recall Deng Xiaopings famed separatement, it does not matter whether a cat is black or white as long as it catches mice. Pragmatism over ideology is an important trait of Chinas reform process.Chinas reform measures that resulted from experimentation include the h ousehold duty system in factory farm, autonomy and the scale down obligation system for ground industrial attempts, the allay economic zones as experiments for unknown trade and coronation policies, and the existence of share-holding companies in Jiang Zemins report of September 1997 partly as a result of the succeederful experience of some small and medium sized state endeavors that was initiated by the individual enterprises themselves.One advantage of Chinas economic condition over that of the Soviet Union at the early stage of reform was that the Chinese farmers knew how to farm as private farmers. Collective farming was introduced below the Commune System unaccompanied in 1958, twenty years ahead the reform. The farmers still remembered how to farm and they also had some practice in 1963-1965 during the president of Liu Shaoqi who introduced some elements of private farming after the economic collapse of the Great Leap in the lead try of 1958-62. On the other ha nd collective farming had been introduced in the 1930s, sixty years before the reform of the Soviet economy in the early 1990s. Russian farmers did not know how to farm as individual farmers. The large increase of agricultural productivity in China served as the basis for but economic growth and reform.In 1977, Deng Xiaoping made it clear that performance should be the main consideration in the economic and social advancement of individuals. Inother words, professionalism and results should count. Furthermore, he emphasized the importance of academics and scientists for the future of the economic development and the international standing of China. He thought that this should be more widely recognized by the Chinese people. During 1978, Deng Xiaopings reform philosophy gained growing support in the CCP and its desirability was accepted in December 1978 at the Third Plenary Session of the Eleventh Central Committee.This session proved to be a turning point in the direction of Chinas policies for its economic and social development. It was decided at this meeting that the system and methods of economic anxiety in China would be transformed economic co-operation with other countries would be expanded superfluous efforts would be made to adopt the worlds ripe(p) technologies and equipment and that scientific and educational work would be greatly alter to meet the needs of modernization. The importance of the quatern modernizations (modernizing agriculture, industry, national defense, science and technology) was emphasized.2.0. Meaning of reform2.1. AgricultureBeginning in 1978 several major institutional reforms have been chthoniantaken. First is the adoption of the household responsibility system in agriculture. Collective farming low the Commune system introduced by Mao in 1958 in the Great Leap Forward Movement was being practiced. Farmers worked as a group up consisting of some forty persons. A farmer could not calculate extra reward by working ha rder because all members of the team would share the redundant proscribedput cod to his additional labor. Chinese farmers deserved credit for initiating reform in agriculture. Some farmers realized that if they farmed separately the team could produce more in total and still delivered the same amount of output required by the procurance system for regimen distribution of agricultural products in the economy.The Commune system was changed as the team was reorganized by distributing its land to individual households to farm separately, each getting the additional reward for additional labor after delivering a fixed amount ofoutput to the team for delivery to the politics procurement agencies. Such practice was introduced and spread in many areas of the country. In 1978, Deng recognized its beneficial effects and follow it as a national policy and called it the household responsibility system. plain output increased chop-chop in China. The farmers became richer. The success of reform in agriculture served as the foundation of reform in other sectors not only by increasing the total of food but also by ever-changing the ideological thinking of Communist Party members in support of a market economy.2.2. State-owned EnterprisesReform of Chinese state enterprises is an manikin of a gradual approach to economic reform through experimentation. The first was to kick in state enterprises some autonomy in production, marketing and investment decisions rather than simply carrying out the decisions down the stairs a system of central planning. The experiment began in late 1978 with six enterprises in Sichuan Province. By the cease of June 1980, 6,600 industrial enterprises that were allowed to make such(prenominal) autonomous decisions produced about 45 percent of the total output of all state industrial enterprises.The second was to make them financially independent, allowing them to keep the earnings as their own internet after paying taxes to the state, ra ther than as revenue belonging to the government. The third was to introduce a responsibility system similar to the household responsibility system in agriculture, first to selected parts of the enterprise under the important reform Decision of the Central Committee of the Communist Party in October 1984, and later to an enterprise in 1987. Under the responsibility system, a part of an enterprise was allowed to keep the remaining profit after surrendering a fixed amount to the enterprise controlling it.In 1987, further reform of the state enterprises was carried out under the contract responsibility system. After paying a fixed tax to the government having jurisdiction over it, each state enterprise was allowed to keep the remaining profit for distribution to its staff and workers and for cap investment. Within one year in 1987, almost all state enterprises were under the new contract responsibility system. The idea of such a system sounded appealing to the economic officials who designed it, as witnessed by the informant who participated at meetings with these officials. However, the incentives provided under the system turned out to be less impressive than expected. First, the supposed fixed levy to each enterprise was not really fixed but was subject to change depending on the profits of the enterprise.The tax was increased when the profits were higher than expected. This partly destroyed the incentives provided by a fixed levy, which would not interfere with the optimal marginal cost and benefit calculations of the enterprise. Secondly, the additional revenue was not put into good use. The managers could not receive sufficient compensation because a high salary to management was socially and ideologically unacceptable. When profits were high the workers received additional compensation in the form of durable goods such as color TV sets and refrigerators because money wage had to follow a fixed scale nationally. The additional reward was not dependent o n additional effort. Third, investment policy might not be optimal in the sense that risk taking by a manager was not sufficiently compensated. Forth, the quality of the managers was poor in general because they were not trained under a free market system. Bureaucracy and personal connections determined the selection of manager to a considerable extent.Significant step on state enterprise reform were taken in the late 1990s as fall apart tongue to in the important report of Jiang Zemin to the Congress of the Communist Party in September 1997. China government was to give up self-command and control of small and medium sized state enterprises while retentivity the control of large enterprises. Shares were issued for a small or medium enterprise, to be purchased by its managers and staff. The state would give up most of its shares. This would help an infusion of capital to the enterprise. In many instances, the incentives provided to the workers who share a part of the profits w ere significant. The large enterprises can be transformed to various forms depending on the circumstances, but most of these enterprises were to give way shareholding companies of one kind or another, with the state controlling the majority shares.From my point of view, changing the form of ownership on paper alone could not and does not make the enterprise efficient. First, the management itself may not be improved. The lack of qualified managers of modern corporations in China cannot be resolved by such reform. Second, many managers were still selectedby personal connections under the Chinese bureaucratic system. One manager told the author that the new system did not change the supervision and authority his former bosses. These same people now became members of the poster under the new system. Some managers also complained that the time spent on committee and board meetings increased under the new system. In some instances, the government was willing to sell the entire enterpri se to a foreign investor, especially a person of Chinese decent living in Hong Kong or a South Eastern Asian country. There are examples of successful transformation of large state enterprises.2.3. The Banking and Financial SectorWhen the planning system was being changed from compulsory planning to guidance planning as stipulated by the October 1984 Decision of the Central Committee of the Communist Party a macro-economic control mechanism was to be introduced which required a more modern slanging system. Before economic reform, the Peoples Bank was a mono-bank that had branches to accept deposits from the public. Its other functions were to issue currency and to extend loans to state enterprises according to the need specified and canonic by the planning authority. It had no authority to decide on these loans. Commercial banks did not exist in the sense of being able to extend credits to enterprises according to the criterion of profitability. In 1983 the Peoples Bank was nomina lly transformed into a central bank. Specialized banks, including the Industrial and Commercial Bank of China, Agricultural Bank of China and the Peoples Construction Bank of China, were established and precondition some autonomy in the extension of credits in the early 1980s in the same way that state industrial enterprises were given autonomy to make production decisions.This led to the rapid increase in the supply of currency in 1984 by 50% and an inflation rate of 8.8% by the overall retail worth index in 1985. Reforms of the banking system to serve a market economy (as the Central Committee of the Chinese Communist Party declared Chinas economy to be a socialist market economy in October 1992) progressed gradually in the late 1980s and early 1990s. In November 1993, the Third Plenum of the fourteenth Central Committee of the Communist Party decided to accelerate reform of the financial sector by giving more independence to the Peoples Bank as a central bank and transforming t he specialized banks tocommercial banks.Two significant dates are March 18, and May 10, 1995, when the Peoples Congress passed respectively the Law on The Peoples Bank of China and the Commercial Banking Law. Although there the nutriment of these laws were not actually carried out in practice, the laws provide a blueprint for the banking system and serve as a convenient framework for us to understand the working of the system. Banking reform is one important example to demonstrate the rule that institutions cannot be changed by legislation alone.Besides the banking system, other financial institutions were changed. In 1981 the government formed the China International Trust and Investment Corporation (CITIC) to attract foreign capital. Similar investment trusts under the sponsorship of provincial governments followed. Stock markets in Shanghai and Shenzhen were established in the early 1990s. As pensions were provided under a new social security system, pension funds became an impo rtant source for savings and investment. The domestic help insurance business, after being suspended for over twenty years, was reopened. Foreign insurance companies have been allowed to rifle in China. The financial sector can be expected to expand further as foreign companies enter under the provisions of the WTO.2.4. Education systemConcerning the education system, while China had a conspiracy of private and public schools at all levels before 1949, the education system was drastically changed in the early 1950s. All schools were brought under government control, with private schools and universities taken over by public educational organizations. higher(prenominal) education was modeled after the Soviet education system. Universities were broken up into colleges specializing in technical training. The special technical schools were administered by the government units requiring the services of their graduates. The operation of the education system was seriously interrupted by the Cultural Revolution, with many colleges and universities closed and school enrollment drastically reduced. Ever since economic reform started Chinas educational system quickly returned to normal and began to improve. Universities were opened after the interruptions of the Cultural Revolution.Students were given opportunities to take examinations to enter universities and graduate schools. Intellectuals who had been criticized and mistreated were restored to their previous status and given due respect. People were eager to learn. Students seized upon their educational opportunities and studied diligently. The population as a whole wanted to absorb new ideas and knowledge from the outdoors world since they had been deprived of such knowledge when China was closed to the outside world. Foreign scholars and professionals of all kinds were invited to China to lecture, in schedules so full that even enthusiastic lecturers became exhausted.The Ministry of Education and the State Educ ation Commission from 1985 to 1998, sponsored programs to assist with foreign educational institutions to improve education in China. At the same time individual universities were given the freedom to invite foreign scholars to lecture and they did so effectively. Students were sent abroad to study, and were permitted to go abroad by their own initiatives. Modern textbooks were adopted in university courses. Efforts were made to translate modern texts into Chinese and to write new texts in Chinese. As time went on, the skill in modern languages especially English improved promptly and texts in English began to be adopted.3.0. ConclusionIn summary economic reform consisted of changes in agriculture system, reform of state enterprises, reform of banking and financial sector, and education system, which the changes taking place step by step depending on the results of and experience gained in previous steps. Many shortcomings of the Chinas economic reform remain, but rapid economic g rowth continues. Chinas economic development cannot be understood without taking into account its historical, political and cultural background. Based on the above discussion, we may learn seven major lessons from Chinese economic reforms.First, the most important principle for a successful transition from a planned economy to a market economy is pragmatism. Second, the incremental approach generates the momentum from earlier reform success and thus provides a political basis for the further reforms. Third, successful reforms rely on political support, which in turn depend on delivering tangible benefits to a large majority of the population. In addition, there are high international hopes that China will continue to be an enginecontributing to global economic growth for some time to come and signs of economic recovery in China have strengthened global economic confidence in recovery from the current economic recession.