Chinese Economic Refrom Essay Example

century BCE, those with moral force should lead the nation. China had followed this principle for centuries by selecting bureaucratic leaders through a moral force test. However, after the Communist takeover, Mao continued to emphasize moral force, requiring Chinese citizens to demonstrate correct consciousness.Mao believed that people's way of living showcased correct consciousness, which he often determined and assessed. However, even after the Communist takeover, the notion of moral force remained influential in China. Surprisingly, Shirk argues that the Chinese Communist Party leaders viewed economic reform as a means to regain their own and their party's moral virtue, even after Mao's death. Paradoxically, by demonstrating their expertise in a more practical area, the CCP leaders believed they could show their service to the people. The shift towards economic reform was influenced by both domestic and international factors, which altered the leadership's perception of China's national security and social stability (Xu 247). In those pre-Tienenmen days, Shirk suggests that this move towards economic reform was also an attempt by CCP leaders to display their moral force in a less overtly ideological manner than Mao.The idea of economic reform in 1978 was not universally embraced by all members of the Chinese Communist Party leadership. The issue became politicized as Deng Xiaoping used it as a means to gain leadership of the party. Hua Guofeng, Mao's successor, tried to prove himself by following orthodox Maoism with international influences in economic development. However, when estimates of China's oil reserves were revised downward in 1978, plans for importing plants and expanding heavy industry became unfeasible. Deng took advantage of this crisis to discredit Hua and aim for leadership of the

party. Reform policies became Deng's platform against Hua for post-Mao leadership. This historical context shows that economic questions are inevitably political questions under the current system.Once Deng and his faction emerged victorious, there was a need for some form of economic reform to develop. The initial shape of the new economy was not drastic. China still had a government where the central authority retained the dominant power in allocating economic resources, and local officials were responsible for the interests of the units they controlled (Solinger 103). However, over time, certain elements of the old system changed, either intentionally or through benign neglect. As highlighted by Shirk, in rural areas, decollectivization took place: decision-making authority shifted from collective production units such as communes, brigades, and teams to individual families (38). Additionally, purchase prices for major agricultural products were raised (39). In 1985, further reforms were implemented, such as establishing long-term sales contracts between farmers and the government.The implementation of economic reform in China aimed to allow the market to determine prices for various goods, such as fruit, vegetables, fish, meat, and eggs, by eliminating government controls (Shirk 39). This initiative led to a significant increase in private and collective industry and commerce in rural areas (Shirk 39). As a result, a large portion of the population became involved in private enterprises and invested in family or group ventures. Moreover, these economic reforms enabled rural Chinese individuals to migrate from villages and engage in industry within urban centers (Shirk 40). Despite the rapid growth of the economy, inflation arose, compelling the government to reintroduce price controls. Even today, China's economy continues to possess the potential for growth,

as well as the risk of inflation. Another crucial aspect of Chinese economic reform was the decision to embrace the global economy. In 1979, Deng Xiaoping and his allies pursued this goal through two strategies: expanding foreign trade and encouraging foreign companies to invest in Chinese enterprises.This text discusses the Open Policy, also known as the Shirk policy (Shirk 47), which was a significant departure from Mao Zedong's policies and traditional Chinese political culture. The Open Policy aimed to attract foreign investment and promote export development in specific areas of China (Nathan 99), and it was highly successful in those regions (Shirk 47). However, many Chinese saw this policy as a means of economic dependency (Nathan 50). In fact, some Chinese believed that Deng's policies were taking China back to its previous semi-colonial status, where it served as a market for imperialist countries' goods, a source of raw materials, an assembly and repair workshop, and an investment hub (Nathan 51). It is interesting to observe the national sentiment that would lead to such beliefs.In a 1981 article, Andrew J. Nathan discussed the Chinese resistance towards foreign intervention in their economy that was observed just two years after the proposal of the Open Policy. Nathan pointed out that some Chinese individuals were concerned that relying on imported technology would lead to a dependent mindset. Additionally, many Chinese viewed joint ventures as a costly form of acquisition and worried about potential losses if foreigners were to profit in their country (52). The Chinese were also highly vocal about matters of sovereignty. Nathan argued that the Mao-led revolution, which culminated in China's victory in 1949, had been driven

by intense patriotism. As a result, any infringement on China's sovereignty, regardless of how small, was considered unacceptable (53).The Chinese society exhibited these feelings through actions such as denying long-term, multiple entry visas to foreign businessmen, resisting increased foreign economic contacts and changes to current practices, and displaying reluctance to engage in government-to-government loans and joint ventures, out of fear of exploitation among the Chinese population (Nathan 53-55). Despite these hesitations, it is remarkable that Deng and his allies were able to establish and implement the Open Policy, considering the resistance from many individuals who were opposed to a policy that went against the Chinese national character. However, once the successes of the Open Policy became evident, opposition from the public diminished. Furthermore, given the merging of politics and economics in China, it is likely that certain members of the CCP would also have reservations about the implementation of such a plan.Despite initial doubts and hesitations, the Open Policy was implemented successfully and played a crucial role in the impressive growth of the Chinese economy. The success of the Open Policy led to the creation of the coastal development strategy in 1988, which further expanded foreign investment opportunities throughout the country, benefiting nearly 200 million people. This strategy involved attracting more overseas investors, importing capital and raw materials, and utilizing China's abundant and inexpensive labor force to fuel an economy driven by exports. The approach of export-led growth was inspired by the successful experiences of Taiwan and other Asian countries known as "small dragons" (Nathan 99).One analyst has suggested that China is on the brink of the greatest opportunity in history, a new economic era

promising more wealth and achievements than any other period before (Gilder 369). This can be seen in Shanghai, a region that was specifically chosen for favorable conditions for foreign investment and as a base for export development in 1988. With a population of around 400 million people, Shanghai has become the nation's financial center for both international and domestic investors. Despite being excluded from the original Open Policy designation in 1978 due to political reasons, this area is now catching up with other designated areas. The significant increase in foreign investments in the past two years is especially noticeable.During the 1980s, the area obtained a total of 3.3 billion dollars from foreign investments. In 1992 alone, the area received the same amount from foreign investments. By the first ten months of 1993, over six billion dollars worth of foreign investments had been received in the area (Tyler A8). Western analysts have suggested that Deng's Open Policy and coastal development strategy have allowed him to firmly establish his political power (Shirk 47), which is expected to continue even after his death. Consequently, Deng is likely very popular in Shanghai. In response to its new status and the influx of billions of foreign dollars, improving the city's infrastructure has become necessary. Thus, the central government has allocated forty billion dollars for public works projects in Shanghai within the past year (Tyler A1).The comprehensive public works projects in Shanghai comprise new sewers, a fresh water system, new gas lines, a newly constructed bridge, and extensive roadwork (Tyler A8). Additionally, future plans entail the development of a second international airport, a container port, a new subway system, and further

roads and bridges. China and foreign investors are jointly reconstructing the financial district, including the establishment of a new stock exchange. Shanghai has been designated for preferential conditions by the central government, which grants tax exemptions for enterprises conducting business with foreign companies, tax holidays for new factories established with foreign investments, and a bonded zone—the largest in China—for duty-free imports of raw materials. Consequently, Shanghai now possesses all the trappings of a modern city: discos, ongoing construction projects, and conspicuous consumption.Shanghai, where revered monuments and golden arches coexist (Riboud 12), showcases the end of the ideological debate on China's free market experiments (Tyler A8). The city has transformed into a modern metropolis, although this development may not be entirely advantageous. Inflation has become rampant, with prices doubling in industrial zones over the past five years. Nevertheless, Shanghai currently holds the fifth most expensive office space globally, highlighting high demand and promising prospects for future growth (Tyler A8). Pudong, a free export manufacturing zone often referred to as Shanghai's Manhattan (Tyler A8), features over twenty factories that are either built or under construction, with notable names such as Siemens and Hitachi.This region has become attractive to foreign investors and companies due to its tax concessions, duty-free imports of raw materials, and cheap labor. Shanghai also benefits from the technology and discretionary spending of the workers and executives of these companies. These conditions have led an analyst to predict that China will become the richest economy in the world within the next 25 years. Shanghai is not the only city experiencing this growth; other areas of China have also seen an influx of foreign investments. For

instance, the Boeing Company recently announced a $100 million investment in a plant in Xian, China, to produce tail sections for 737 jetliners.According to a prediction by E.I. du Pont, their investments and business in China could increase up to ten times by the end of the century (Du Pont D2). The company's chairman attributed the negotiation of 28 new projects in China to the country's financial changes, improved infrastructure, and rising disposable income (Du Pont D2). The Chinese government has made efforts to boost the strength of the economy and protect its citizens. Recently, they implemented tight-money policies to control inflation in the world's fastest growing major economy (Shenon China Halts D1).However, following this action, China's Securities Regulatory Commission had to cease the issuance of new stocks on the Shanghai and Shenzhen Stock Exchanges due to a significant decline in market value. This step was aimed at appeasing numerous first-time Chinese investors who mistakenly believed that stock prices would only rise (Shenon China Halts D1). This policy might indicate a combination of economic and ethical concerns, showcasing the government's intention to display a sense of responsibility and moral influence to its people. At the very least, this approach demonstrates the government's practical desire to gain command over a potentially detrimental economic circumstance.After implementing these measures, China's trade deficit decreased (Hansell D2) and the stock markets' volume reached record highs (Stocks Surge D2). Despite this, Chinese investors still have concerns about the stock market, and ironically, it seems that greater control over the stock markets is necessary (Shenon A Nail-Biting D1). However, Philip J. Suttle, head of emerging markets research at J.P. Morgan, predicts that

China is on track to achieve the soft landing they are aiming for in their efforts to control inflation (quoted in Hansell D2). Furthermore, China's interest in stock markets has extended beyond its borders.This month, Shandong Huaneng Power Development Company, which is the first mainland Chinese company to have its primary listing on the New York Stock Exchange (China Stock D5), began trading shares. The stock is anticipated to be attractive to investors due to the projected substantial growth of Chinese electrical demand, which is expected to increase by 17 million kilowatts annually until the year 2000 (Zuckerman D6). Additionally, China stands to benefit from the sales of this stock. The company intends to utilize the $311 million it received from the offering to pay off $83 million in loans from Chinese state entities and expand its overall generating capacity (Zuckerman D6).Nor does this signify the sole Chinese endeavor of raising capital from foreign sources on foreign soil. Three additional power companies are expected to be listed in New York and Hong Kong in the upcoming months (Zuckerman D6). Given the evident strength of the Chinese economy, as evidenced by extensive public infrastructure projects, substantial foreign investments, active participation in the global economy, and an overall improved standard of living for the population, it may seem that China is now prepared to join the world as a modern capitalist and democratic society. However, this is not entirely true. The Chinese Communist Party (CCP) still retains remnants of the insularity and intransigence characteristics discussed by Nathan.The country's economic growth is being hindered due to its human rights record. This means that China's politics, closely tied to

its economics, are currently limiting international growth. The United States has particularly expressed concerns about China's treatment of political dissidents. In May, President Clinton made the decision to no longer connect China's trade status with the United States to its human rights record. Critics have called out the president for this move, citing situations such as trials for 'counterrevolutionary activities' including plans to utilize a remote-controlled plane for dropping pro-democracy leaflets over...China has recently started trials for fifteen dissidents and labor organizers who participated in the Tienenmen Square protests. These trials were postponed twice, first to avoid negative international reaction before China's unsuccessful bid for the 2000 Olympics, and then again in spring to avoid influencing Clinton's trade decision. Furthermore, China has implemented new laws in June that grant extensive authority to China's State Security Bureau to suppress dissidents. China is well aware of the United States' concerns regarding its human rights record.The United States has expressed to China that their record will be linked to their trade status. However, China's recent actions have led US officials to question their sincerity in wanting a favored trade status. In fact, President Clinton and his Cabinet had to make a last-minute lobbying effort to prevent a vote by the House of Representatives to restrict trade with China in response to alleged human rights violations.According to Bradsher, China's challenges in joining the global market are not solely related to its political beliefs and actions. China seems to lack the understanding and ability to implement basic modern economic practices. A recent complaint by the United States is that China has not adhered to international regulations regarding market access, as

well as the protection of copyrights and patents (Gargan 14).Such failure to comply could hinder China's status as a founding member of the World Trade Organization (WTO), which succeeds the General Agreement on Tariffs and Trade. The WTO aims to facilitate global free trade by reducing trade barriers, and it will be officially established on January 1, 1994 (Gargan 14). The specific concern raised by the United States is China's infringement on intellectual property rights, particularly related to music CDs, video laser disks, and computer software.According to estimates, piracy costs American companies billions of dollars annually. This practice appears to be linked to the Chinese mindset described by Nathan in his 1981 essay. In this essay, he observed that China did not want to rely on the West as a technology consumer. Instead, their favored approach is to purchase a single item and then replicate it (Nathan 52). However, this does not align with current trade practices. The United States insists that China must adhere to trade regulations before being accepted into a trade organization.Needless to say, being excluded from the WTO would have devastating consequences for any country, especially for an emerging market like China. Even in their daily operations, China's economic leaders appear to struggle with comprehending certain aspects of a market economy. An example of this can be seen in the discussion surrounding the state of the Shanghai Stock Market, where a stock dealer referred to it as "crazy" (Stocks Surge D2). Additionally, American analysts have been astonished to find a lack of regulation and inadequate disclosure requirements within the Shanghai market.According to Hansell D2, there are some companies that have been

listed for a few years but have not yet released their annual reports. This lack of transparency causes concern among Chinese investors. The fact that the Shandong Huaneng Power Development Company issued shares exemplifies the Chinese's lack of expertise in the global market. A Hong Kong investment analyst even described the company as more of a collection of separate plants that were presented as a unified entity in their prospectus (Zuckerman D6).The prospectus assured investors of a 15% annual return on their investments. However, due to current currency exchange rates and debt obligations, the actual return is expected to be lower. These challenges faced by the Shandong Huaneng Power Development Company and the Shanghai Stock Exchange could be indicative of an immature economy. Nonetheless, if China aims to become a respectable participant in the global economic community, it must promptly address these deficiencies. It is possible that these apparent issues stem from an economic system controlled by the government.The CCP has attempted to create a market economy while retaining a state-controlled system. However, this approach has its critics. In a 1989 essay, Steven N.S. Cheung argued for mandating the creation of private property. He believed that privatization in China would result in increased investment in infrastructure and the establishment of a judicial system based on the principle of equality before the law (Cheung 32).Echoing Cheung's sentiments, James Dorn identified issues in Chinese banking and finance. Dorn asserted that the state has control over the majority of investment resources, a scenario that has hindered economic development in China and impeded rational investment decision-making (43). Dorn emphasized the need to bypass China's ruling elite, who are resistant

to dismantling state monopolies and profit from price fixing and nonprice rationing, in order for China to become a modern economic state (51).Xu Zhiming, recognizing the need for a complete overhaul of the traditional Chinese system in order for economic reform to flourish, emphasizes the importance of discarding the old ways (249). However, Communist Party members have a contrasting view. In a recent interview published in the Beijing Review, Feng Bing, Deputy Secretary General of the State Commission for Restructuring the Economic System, discusses the topic of economic reform in China. Notably, Feng highlights the advantages that the population is experiencing due to ongoing economic reform in the country.The comments by the individual suggested that the Chinese Communist Party showcased the positive influence of economic reform. This reform encompassed the core principles of socialism, which aimed to free and enhance productive forces, eliminate exploitation, eliminate polarization, and achieve common prosperity. Therefore, leaders of the CCP continue to perceive their duties as representatives of a moral force (Official 12).Members and leaders of the CCP desire economic reform to be evaluated not only based on its practical benefits, but also considering the moral influence of the leadership. Consequently, economic reform is viewed as a moral mission, which explains why China has placed significant national importance on becoming a founding member of the World Trade Organization. Can China successfully establish itself as a prominent player in the global market?The CCP's ability to maintain its political power amidst the ongoing societal changes in China due to changing economic circumstances is uncertain. However, there is a higher likelihood of the CCP succeeding compared to other potential outcomes. If China becomes

more sophisticated in relation to global and domestic markets, establishes a more manageable banking system, and earnestly strives to safeguard human rights, it may potentially become the world's wealthiest economy within the next 25 years (Gilder 372).However, the issue of whether these conditions can occur without weakening the state controlled system is a point of debate. The CCP's most notable demonstration of moral force may involve voluntarily reducing its power over the people. Paradoxically, by politically weakening itself, the party can showcase its genuine moral force by granting political and economic freedom to one billion Chinese citizens.

Works Cited:
Boeing Planning to Invest $100 Million for China Plant. New York Times: 9 August 1994, D4.
Bradsher, Keith.Bill to restrict imports from China loses in the House, according to a New York Times article from August 10, 1994 (A7). Steven N.S. Cheung discusses the conflict between privatization and special interests in China's economic reforms in his book "Economic Reform in China: Problems and Prospects", edited by James A. Dorn and Wang Xi (University of Chicago Press, 1990, pages 21-32). Meanwhile, a report in the Hartford Courant on July 29, 1994 (A13) claims that China is cracking down on dissent after the trade threat was lifted. Another New York Times article from August 5, 1994 (D5) highlights the high activity of China's stock market. James A. Dorn explores the pricing and property issues in China in his work "The Chinese Puzzle".Title: Economic Reform in China: Challenges, Opportunities, and U.S. Trade Concerns

Economic Reform in China: Problems and Prospects, edited by James A. Dorn and Wang Xi, published by the University of Chicago Press in 1990 (pp. 39-61), delves

into the complexities surrounding China's economic transformation.

According to an article in the New York Times, Du Pont, a multinational corporation, plans to increase its investments in China (published on August 10, 1994, on page D2). This highlights the growing interest of foreign businesses in the Chinese market.

The same newspaper also warns that the United States may impede China's trade ambitions (published on July 24, 1994, on page 14). This suggests that there are concerns regarding the impact of China's economic reforms on U.S. trade.

In his essay titled "Let a Billion Flowers Bloom," George Gilder advocates for embracing China's economic growth and potential (from Economic Economics Essays). His perspective aligns with the idea that China holds numerous opportunities for economic development.

Overall, the book and news articles highlight both the challenges and prospects of China's economic reform process. There is a need to address these challenges while also recognizing the vast opportunities that lie ahead.