- Includes coverage of China’s foreign investments, trade with regional partners, Chinese human capital, and bureaucratic economic institutions
- Covers a diverse set of important issues, including environmental restraints, income distribution, rural poverty, the education system, healthcare, exchange rate policies, monetary policies, and financial regulation
- Accessibly written and intelligently organized to offer a straightforward guide to China’s economic evolution
- Written by a lauded economist, researcher, and advisor to government officials in mainland China and Taiwan
Table of Contents
Preface to the Third Edition xiiPart I: Historical Background and General Survey 1
1 Economic Lessons from History 3
1.1 Introduction 3
1.2 Significant Events in Major Historical Dynasties 4
1.3 The Republic of China, 1911– 10
1.4 Summary of Historical Lessons 15
1.5 What History Can Reveal about the Chinese Economy 16
References and Further Reading 17
Questions 18
2 Experiments with Planning and Economic Disruptions 20
2.1 The Communist Party Rises to Power 20
2.2 Historical Review: 1949–78 22
2.3 A Model of the Chinese Planned Economy 25
2.4 The Behavior of Economic Units in a Planned Economy 29
2.5 Output Planning in Theory and Practice 32
2.6 Organization and Administration of Economic Planning 37
References and Further Reading 40
Questions 41
3 Economic Reform up to the Mid-1990s 43
3.1 Why Economic Reform Started in 1978 43
3.2 Agriculture 45
3.3 Reform of State-Owned Enterprises 46
3.4 Price Reform 48
3.5 The Banking System 49
3.6 Foreign Trade and Investment 50
3.7 The Nonstate Sectors 51
3.8 Institutional Infrastructure 52
3.9 Reform Policies Similar to Those of Taiwan 53
3.10 Reasons for the Success of China’s Economic Reform 56
3.11 Summary 60
Appendix: China’s Geography 61
References and Further Reading 63
Questions 63
4 Further Reform up to the 2010s 65
4.1 Introduction 65
4.2 Enterprise Reform 66
4.3 Banking Reform 68
4.4 Foreign Trade and Investment during the Asian Financial Crisis 72
4.5 The Impact of WTO Membership 74
4.6 Reform in Agriculture 81
4.7 Rural Poverty 82
4.8 Prospects for Reform 85
References and Further Reading 87
Questions 88
Part II: Analysis of the Macroeconomy 89
5 Economic Growth 91
5.1 The Neoclassical Model of Economic Growth 91
5.2 Data on Output, Capital, and Labor 93
5.3 A Review of Regression Analysis 98
5.4 Estimating Production Functions for China 99
5.5 Use of the Neoclassical Growth Model to Forecast GDP 104
5.6 How Large Will the Chinese Economy Be in 2020? 107
5.7 Lessons from Forecasting 108
References and Further Reading 108
Questions 109
6 Economic Fluctuations 110
6.1 The Multiplier–Accelerator Model of Economic Fluctuations 110
6.2 Dynamic Properties of the Multiplier–Accelerator Model 113
6.3 An Econometric Method for Estimating Parameters of Linear Stochastic Equations 115
6.4 Estimating a Multiplier–Accelerator Model of the Chinese Economy 116
6.5 A Vector Autoregression (VAR) System 120
6.6 Econometric Models of the Chinese Economy 122
References and Further Reading 122
Questions 123
7 Macroeconomic Policies 125
7.1 Introduction 125
7.2 Monetary Policy 127
7.3 An Econometric Analysis of Inflation and of Monetary Policy in China 134
7.4 Basic Facts about Government Revenue and Expenditure 136
7.5 Fiscal Policy 139
References and Further Reading 140
Questions 141
8 The Effects of Political Movements on the Macroeconomy 142
8.1 Specification of a Dynamic Optimization Model of the Chinese Economy 142
8.2 The Solution of the Dynamic Optimization Problem 145
8.3 Statistical Estimation 149
8.4 Measuring the Effects of Two Political Events 150
8.5 Conclusions 156
References and Further Reading 157
Questions 157
Part III: Topics in Economic Development 159
9 Consumption 161
9.1 Trends in Per Capita Consumption 161
9.2 Household Expenditure Patterns 165
9.3 Rural Per Capita Consumption Expenditures in 1998 by Province 171
9.4 Consumption of Housing in Rural and Urban Areas 173
9.5 Demand and Supply of Urban Housing 175
References and Further Reading 176
Questions 176
10 Energy and Environmental Problems and Policies 178
10.1 Introduction 178
10.2 Environmental Problems in China 179
10.3 Laws, Agencies, and Policies for Protecting the Environment 181
10.4 Problems of Policy Implementation and Law Enforcement 185
10.5 A Study of Industrial Pollution 187
10.6 Regulation of China’s Industrial Air Pollution 189
10.7 Conclusions 191
References and Further Reading 192
Questions 193
11 Population 194
11.1 The Role of Population and Human Capital in Economic Development 194
11.2 The Chinese Population and Its Rate of Growth 196
11.3 Population Policy 199
11.4 Evaluation of China’s Population Policy 203
11.5 Economic Explanation of the Birth Rate 205
11.6 Why the Population Control Policy Should Be Terminated 207
References and Further Reading 207
Questions 208
12 Human Capital 209
12.1 The Importance of Human Capital and Its Measurement 209
12.2 Labor Supply and Demand 210
12.3 Investment in Human Capital 216
12.4 Measuring the Rates of Return to Schooling in China 222
12.5 Health Services 224
12.6 The Social Welfare System 228
References and Further Reading 229
Questions 230
Part IV: Analysis of Individual Sectors 231
13 The Banking and Financial System 233
13.1 Commercial Banks 233
13.2 The People’s Bank 235
13.3 Factors Affecting the Functioning of the Banking System 237
13.4 Possible Weaknesses of the System 240
13.5 Possible Directions of Reform 241
13.6 Weakness of Commercial Banks and Related Problems 243
13.7 Other Financial Institutions 244
13.8 The Role of the Chinese Government in Reforming the Financial System 249
References and Further Reading 251
Questions 251
14 Shanghai Stock Price Determination 253
14.1 Introduction 253
14.2 A Model of Stock Price Determination 254
14.3 Empirical Findings from the Shanghai Stock Exchange 257
14.4 Comparison with Findings for Hong Kong and New York Stocks 262
14.5 Concluding Comments 262
References and Further Reading 263
Questions 264
15 The Behavior of State Enterprises 265
15.1 Organization of a State Enterprise under Central Planning 265
15.2 Planning and Operations of a Large-Scale State Enterprise 269
15.3 A Simple Model of a State Enterprise under Central Planning 274
15.4 A Simple Model of a State Enterprise after Initial Reform 277
15.5 State Enterprise Restructuring in the Late 1990s and Its Effects on Enterprise Behavior 280
15.6 Current State of Chinese State Enterprises 283
References and Further Reading 284
Questions 285
16 The Nonstate Sectors 286
16.1 Relative Growth of Nonstate Sectors 286
16.2 Private Enterprises Prior to 1949 287
16.3 Economic Conditions for the Growth of Township and Village Enterprises 288
16.4 Econometric Measurement of the Relative Efficiency of State Enterprises and TVEs 291
16.5 Characteristics of a Free-Market Economy 292
16.6 Characteristics of the Chinese Market Ecomomy 295
16.7 Role of Entrepreneurs in China’s Economic Growth 297
References and Further Reading 299
Questions 299
17 Foreign Trade 301
17.1 Some Statistics of China’s Foreign Trade 301
17.2 Explanation of Trading Patterns under Free Trade 303
17.3 The Determination of Foreign Exchange Rates 309
17.4 China’s Foreign Trade Policy 314
17.5 Problems in Implementing Foreign Trade Policies in the Early 1980s 318
17.6 Protectionism in the United States 322
References and Further Reading 324
Questions 324
18 Foreign Investment 326
18.1 The Role of Foreign Investment 326
18.2 Historical Developments 328
18.3 The State of Foreign Direct Investment (FDI) as of 2002 329
18.4 Policies for the Regulation of Foreign Investment 333
18.5 Opportunities and Problems for Foreign Investors 334
18.6 How Attractive Is China for Foreign Investment? 338
18.7 The Impact of WTO Membership on Foreign Investment 339
18.8 China’s Investment and Economic Expansion Abroad 341
References and Further Reading 343
Questions 343
Part V: Studies of Economic Institutions and Infrastructure 345
19 Laws of Asset Management and Corruption 347
19.1 Introduction 347
19.2 Laws of Asset Management 349
19.3 Managing One’s Own Person 352
19.4 Managing Physical Assets 353
19.5 Managing Assets under the Responsibility System 355
19.6 The Misuse of Collectively Owned Land 358
19.7 Corruption and Economic Reform 359
19.8 Concluding Comments 363
References and Further Reading 364
Questions 365
20 The Legal System and the Role of Government 366
20.1 The Legal System prior to 1949 366
20.2 The Legal System since 1949 368
20.3 The Role of the Legal System in a Market Economy 371
20.4 The Economic Role of Government 372
20.5 The Role of Planning in China’s Market Economy 376
20.6 The Government’s Decision Process 382
References and Further Reading 384
Questions 384
21 The Education System and Policy 385
21.1 The Education System prior to 1949 385
21.2 The Education System after 1949 387
21.3 Education Policy 387
21.4 Economics Education 390
21.5 Demand for Education 398
21.6 Concluding Comments 403
References and Further Reading 403
Questions 404
22 Lessons from Studying the Chinese Economy 405
22.1 Lessons for Understanding the Subject of Economics 405
22.2 Lessons from Understanding the Chinese Economy 407
22.3 Lessons from Forecasting the Chinese Economy 418
References and Further Reading 423
Questions 424
Index 425
