5) ASCE (1998) opportunities in Asia: An assessment of construction trends, needs and potential collaboration, Civil Engineering Research Foundation, “Report 97-4050”
6) An, W.X., Yao, S., and Liu, X (2003) Sustaining China’s economic growth in the twenty first century, Routledge, UK, p. 45
7) Morrison, W.M (2006) China’s Economic Conditions, CRS issue brief for congress, The Library of Congress, p. 55
In spite of tremendous economic growth and economic development, Chinese society is not protected and inherent problems and flaws remain. Income inequality remains high, with many cities surrounded by ghettos of migrant workers. Much of China’s interior remains backward, and much of the money made in coastal regions still depends on the exploitation of the natural and human resources of the interior. “China’s population is no longer growing at any significant rate, but the tremendous numbers of people it must support have put great strains on the natural environment and social security system” (8).
After that I would highlight my understanding to the problems which has this process of structural adjustment encountered. Economically, Because 20 years of economic growth have brought China an increase in energy demand that has outstripped domestic sources of supply, the nation became a net oil importer in 1993, and its dependence on energy imports is expected to grow over the next two decades. Some analysts estimate that “China will need to import some 60 % of its oil and at least 30 % of its natural gas by 2020”(9). The gap between domestic supply and demand has meant that the Chinese government must look abroad for energy resources, abandoning its traditional goal of energy self-sufficiency. China’s increasing energy imports are a matter of great concern to both the Chinese government, which seeks to ensure that China has the energy resources it needs to sustain economic growth, and Western analysts, who are worried about the international political implications of China’s quest for energy security.
8) Williams, H. (2001) Journal of Contemporary Asia, Vol.31
9) Downs, E. S.(2000). China’s Quest for Energy Security, Rand, Santa Monica, Vol.32
China’s consumption of energy is projected to rise dramatically over the next two decades. Rapid economic growth has resulted in a rising demand for energy resources, particularly oil and gas. Prospects for increased domestic production, however, appear to be more limited. China’s spectacular economic growth is largely responsible for its rising energy demand, and projections assume that fairly rapid growth will continue. “Gross domestic product (GDP) grew at a rate of 9.8 percent per year during the period 1985–1995 and is expected to average 6.6 percent per year until 2020”(10). China’s energy consumption has grown and will continue to grow along with its economy.
State owned enterprise which comprises about one third of Chinese industrial production, put heavy strains in China’s economy. Over half are believed to lose money and must be supported by subsidies, mainly through State owned banking sector. Government support of unprofitable SOEs diverts resources away from potentially more efficient and profitable enterprises. Moreover, the poor economic conditions of many SOEs make it difficult for the government to reduce trade barriers out of fear that it might lead to bankruptcy among the already sick SOEs. The Chinese banking system is in total jeopardy because of “large scale corruption and financial incompetency arising out of government interference in the banking system”(11). For this reason, Chinese reformers are reluctant to open the banking sector to foreign competition.
10) World Bank, (1997) China 2020, Development Challenges in the New Century, Washington, DC, p. 21.
11) Morrison, W.M (2006) China’s Economic Conditions, CRS issue brief for congress, The Library of Congress, p.92
Socially, Interregional disparities in China’s economic development have attracted considerable political and scholarly attention. Although in a country of such a vast size as China, large disparities seem to be an unavoidable fact of nature, there is the additional impact here of “distorting policy interventions and spatially divergent institutional change, which renders the topic analytically very difficult and politically sensitive” (12). Pronounced disparities in income and economic opportunities exist between the coastal and the inland regions of China. Factors responsible for these regional inequalities include “preferential government policies, favorable geographical location, and superior infrastructure facilities in the coastal regions” (13).
The income gap between the coastal provinces and the hinterland has grown fast since the country opened its doors in the early 1980s. At the same time, there was a rapid agglomeration of manufacturing in the coast. Empirical studies have suggested that “the surge in international trade and foreign direct investment (FDI) and the significant increase of rural-to-urban labor mobility may be important factors for manufacturing agglomeration and regional income disparity” (14). While “the nationwide growth rate was impressive, it has been noticed that the pace of reform and growth has been uneven across regions” (15). In particular, coastal regions grew more rapidly than the mountain areas in the hinterland.
12) Pillath , C. H., Kirchert, D., Pan, J (2002). Disparities in Chinese economic development: approaches on different levels of aggregation, Economic Systems, vol. 26, 31–54
13) Fu, X (2004) Limited linkages from growth engines and regional disparities in China, Journal of Comparative Economics, vol. 32, 148–164.
14) Fujita, M., Hu, D., (2001) Regional disparity in China: effects of globalization and economic liberalization. The Annals of Regional Science, Vol 35, 3–37.
15) Xu, F., & Wang, Z. (1997) The issue of regional gap in China, In M. Xu (Ed.), Twenty seven urgent issues to be resolved in China, Beijing: Today’s China Press, pp. 78–407
Tracing of the changes through the 1990s revealed that the consumption differential peaking around 1993–1994 and then apparently experiencing another V-shaped change afterwards. Apart from level of economic development, other factors might also have contributed to rural–urban income disparity. Yang and Zhou (1999) revealed inter-sector gaps in marginal productivity of labor and highlights barriers to inter-sector reallocation of labor as a major source of urban–rural disparity. Yang (1999) attributed the rise in urban rural disparity after 1985 to what he called “ urban biased policy mix” including increased urban subsidies, investment and banking credits, which have affected higher inflationary taxes on rural earnings. Johnson (2000) summarized three major policy areas that have adversely affected rural incomes, namely, the restrictions on rural-to-urban migration, the less accessibility of education in rural areas, and the urban-biased allocation of investment and credit.
Politically, One of the outcomes of modernization for China was the transfer of population from rural to urban and the shift from industry to services. The resulting urbanization, which is part of an inevitable process in the transition from a low income agricultural society, to one based on modern industry, increases the costs to the state. Along with growing urbanization, there is increased demand for housing, sanitation, policing and transport services which can not be quickly provided by the private sector. The dependence of the manufacturing sector on a range of support services means greater support from the government to facilitate development. For the Chinese government, rapid economic growth introduces new dilemmas and challenges to its political legitimacy. Economic growth and transition towards a market based economy challenges traditional power base of the communist party, forcing a shift in attitudes regarding the party’s role in the economy. During the late 20th century, the main obstacle to economic progress of the nation is the communist governments handling of the economy. The inadequacies of state planning has stemmed from the fact that the appointments of bureaucrats and managers of enterprises are politically biased which led to efficient management of human resources. This is coupled with inefficient management of resources in the production process. The Chinese bureaucratic reforms at the state council level are particularly elusive due to China’s unitary state run by the CPP (16).
Finally, I would explain how has the government tried to overcome the problems?(Government measures). Recent rise in regional inequality has elicited significant policy responses from the government. The budgets for infrastructure investments in the poor provinces “have increased substantially every year, and a Western Region Development Office has been established under the State Council (the Chinese cabinet) to formulate a comprehensive development strategy and to coordinate its implementation” (17).
Fiscal decentralization and price deregulation are two other policy changes which also had significant regional impact. Fiscal decentralization was meant to encourage local initiatives in economic development, and it took the form of individually negotiated tax contracts between the central government and the provinces. “Fiscal decentralization lowered state revenue from 35% of GDP in 1978 to 14% in 1992, and hence forced the
16) Tobin, D (2005) Economic Liberalization, the Changing Role of the State and ‘‘Wagner’s Law’’: China’s Development Experience since 1978, World Development, Vol. 33, No. 5, pp. 729–743.
17) Demurger, S., Sach, J.D., Woo, W.T., Bao, S., Chang, G (2002) The relative contributions of location and preferential policies in China’s regional development: being in the right place and having the right incentives, China Economic Review, vol.13, pp.444-465
center to reduce fiscal subsidies to the poorer provinces” (18). Price deregulation in the industrial sector initially took the form of a dual track price system for industrial inputs. Since the central and western provinces were the main suppliers of raw industrial materials, the continuation of artificially low prices for these industrial inputs meant that the dual track pricing system was in effect transferring income from the interior producers to the coastal factories. The elimination of the dual track price system in the 1990–1991 periods was an equitable move from the viewpoint of regional disparity.
During the globalization of the economy in the late 70s, enhanced price surveillance by the government and local government subsidies for key commodities at the retail level helped moderate inflation, at least temporarily. The government has maintained a reasonably restrictive monetary policy. The pressure on monetary policy by 1994-95 was eased by a significant reduction in the aggregate public sector deficit and a shift towards non-inflationary sources of finance. China’s success in 1995 in bringing inflation under control without disrupting growth is a marked departure from previous economic cycles. This performance reflects consensus at the highest levels to “combat inflation, growing authority in macro economic management and increased resilience in the economy” (19).
18) Demurger, S., Sach, J.D., Woo, W.T., Bao, S., Chang, G (2002) The relative contributions of location and preferential policies in China’s regional development: being in the right place and having the right incentives, China Economic Review, vol.13, pp.444-465
19) World Bank (1996) the Chinese economy: Fighting inflation, deepening reforms, World Bank Publications, p.51
In the manpower front, due to soaring losses of state owned enterprises, the government moved forward with long delayed plans to diversify ownership of state owned enterprises and to allow inefficient farms to reduce employment or go bankrupt. Aggressive economic restructuring led to “lay offs of 45 million workers from 1995 to 2002, including 36 millions from the state sectors”. The number of state sector workers fell from a peak “113 million in 1995 to 71 million in 2002”(20). As a result of these changes, urban unemployment and urban poverty arose as major policy concerns for the first time since China first began its economic reforms.
Chinese government at all level has placed considerable emphasis on dealing with lay-offs and unemployment in ways which will avoid obvert labor conflict, the reemployment of such workers remains the most important problem facing the government in its attempt to push forward the economic reform of the public sector. In 2000, the reemployment rate of laid off workers (in SOEs) was “34.5% which in the first half of 2001, the rate dropped to 11.1%. After China’s entry into WTO”(21). The problem of unemployment is widely expected to become more serious. The social security system in China is undergoing a period of transition from enterprise based labor insurance to state managed social security system. The government has made great efforts to establish a comprehensive system, which covers unemployment, old age, illness, maternity and work related injury insurance. Moreover, minimum wage system and the minimum living expense assurance system in urban areas have been set up.
20) Giles, J., Park, A., and Zhang, J (2005) What is China’s true unemployment rate? China Economic Review, Vol. 16, pp. 149-170
21) Kai, C., Qi, L., Taylor, B., Chang, K., Li, Q (2003) Industrial relations in China, Edward Elgar Publishing, UK, p.97
To sum up this essay I would say truly that Globalization is creating new challenges for China’s institutional reform, especially in foreign trade and foreign investment-related policies as China ascend to the WTO. Constant trade expansion and investment liberalization will promote more flow of human capitals between China and different trading countries. The atmosphere of competition to attract and keep high skilled human resource through incentive policy is strong and pervasive in China. Not only more and more provinces and cities are using a greater variety of incentives to attract international human resources, but, now competition of incentive policy is even more intense than it had been ten years earlier.
As throughout the reform era, the realization of China’s economic potential, including the full benefits of trade and investment liberalization rest on its success in continuing and strengthening its domestic economic reforms. However, China’s economy has reached a stage that calls for some important changes in the way of economic reforms. As the economy has become increasingly exposed to market forces and the scope for self contained development of individual sectors has declined, economic problems have become more and more interdependent. This interdependence has led to several vicious circles in which problems in a number of areas interact in a mutually reinforcing fashion to impede progress in the overall reform process. The outcome of particular reforms depends increasingly on the interaction among measures taken by the economy’s key actors- government, enterprises, workers and the financial system. The need of the hour is to focus on economy wide or macro policies to promote more efficient allocation of resources and to bolster effectiveness of market (22).
22) Pigott, C.A (2002) China in the world economy: Domestic policy challenges: Synthesis report, Organisation of Economic Cooperation and Development, p.7
Bibiolograghy:
1) ASCE opportunities in Asia: An assessment of construction trends, needs and potential collaboration, Civil Engineering Research Foundation, “Report 97-4050” (1998).
2) An, W.X., Yao, S., and Liu, X Sustaining China’s economic growth in the twenty first century, Routledge, UK, (2003).
3) Demurger, S., Sach, J.D., Woo, W.T., Bao, S., Chang, G. The relative contributions of location and preferential policies in China’s regional development: being in the right place and having the right incentives, China Economic Review, vol.13, pp.444-465, (2002).
4) Downs, E. S. China's Quest for Energy Security, Rand, Santa Monica, (2000).
5) Fu, X. Limited linkages from growth engines and regional disparities in China,
Journal of Comparative Economics, vol. 32, 148–164. (2004).
5) Fujita, M., Hu, D., Regional disparity in China: effects of globalization and economic liberalization. The Annals of Regional Science, Vol 35, 3–37. (2001)
6) Garnaut, R and Ma, G. Economic growth and stability in China, Journal of Asian Economics, Vol. 4, No. 1, pp. 5-24, (1993).
7) Garnaut, R. “Recent Developments in the Chinese Economy”, The Australian National University Trade and Development Seminar, August. (1990).
8) Giles, J., Park, A., and Zhang, J. What is China’s true unemployment rate? China Economic Review, Vol. 16, pp. 149-170, (2005).
9) Johnson, D.G. Reducing the urban–rural income disparity, Paper no. 00-07, Office of Agricultural Economics Research, The University of Chicago. (2000)
10) Kai, C., Qi, L., Taylor, B., Chang, K., Li, Q. Industrial relations in China, Edward Elgar Publishing, UK,(2003).
11) Li, K.W Financial repercussion and reform in China, Praeger Publishers, USA, (1994).
12) Li, K.W. The two decades of Chinese economic reform compared, World economy and China, Vol.2, pp.55-60, (2001).
13) Morrison, W.M. China’s Economic Conditions, CRS issue brief for congress, The Library of Congress. (2006).
14) Pigott, C.A China in the world economy: Domestic policy challenges: Synthesis report, Organisation of Economic Cooperation and Development, (2002).
15) Pillath , C. H., Kirchert, D., Pan, J. Disparities in Chinese economic development: approaches on different levels of aggregation, Economic Systems, vol. 26, 31–54, (2002).
16) Tobin, D. Economic Liberalization, the Changing Role of the State and ‘‘Wagner’s Law’’: China’s Development Experience since 1978, World Development, Vol. 33, No. 5, pp. 729–743, (2005).
17) Williams, H. Journal of Contemporary Asia, Vol.31, (2001).
18) World Bank, the Chinese economy: Fighting inflation, deepening reforms, World Bank Publications, (1996).
19) World Bank, China 2020, Development Challenges in the New Century, Washington, DC, p. 21. (1997).
20) Xu, F., & Wang, Z. The issue of regional gap in China, In M. Xu (Ed.), Twenty seven urgent issues to be resolved in China, Beijing: Today’s China Press, pp. 78–407(1997)
21) Yang, D. T., & Zhou, H. Rural–urban disparity and sectoral labour allocation in China, Journal of Development Studies, vol. 35(3), 105–133, (1999).
22) Yang, D. T. Urban-based policies and rising income inequality in China, The American Economic Review (Nashville), vol. 89(2), 306–310, (1999).
