Sie sind auf Seite 1von 11

See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/247808667

The China Miracle: Development Strategy and Economic Reform

Article  in  The China Journal · January 1998


DOI: 10.2307/2667712

CITATIONS READS

429 8,111

3 authors, including:

Justin Lin Zhou Li


National School of Development Chinese Academy of Social Sciences
243 PUBLICATIONS   6,552 CITATIONS    20 PUBLICATIONS   1,161 CITATIONS   

SEE PROFILE SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Agricultural Systems View project

Inclusive and Sustainable Structural Transformation View project

All content following this page was uploaded by Justin Lin on 22 January 2015.

The user has requested enhancement of the downloaded file.


The Australian Economic Review, vol. 46, no. 3, pp. 259–68

Demystifying the Chinese Economy

Justin Yifu Lin*

Abstract 1. Introduction

China’s economic development has been China’s rise is the most intriguing economic
miraculous since the transition from a planned phenomenon of our time. Before the transition
economy to a market economy in 1979. This from a planned to a market economy at the end
article provides answers to six related ques- of the 1970s, China had been trapped in poverty
tions: Why was it possible for China to achieve for centuries. Its per capita income was US$154
such extraordinary performance during its in 1978, less than one-third of the average in
transition? Why was China unable to attain Sub-Saharan African countries.1 China was an
similar success before its transition started? inward-looking country as well. Its trade
Why did most other transition economies fail to dependence (trade-to-gross domestic product
achieve a similar performance? What costs (GDP)) ratio was only 9.7 per cent. China’s
does China pay for its extraordinary success? growth since then has been miraculous. Annual
Can China maintain dynamic growth in the GDP growth averaged 9.8 per cent over the
coming decades? What should other develop- 33-year period and annual growth in interna-
ing countries do to achieve similar success? tional trade averaged 16.6 per cent. China is
now an upper middle-income country, with a
per capita GDP of US$6,100 in 2012; more
than 600 million people have escaped poverty.
Its trade dependence ratio has reached around
50 per cent, the highest among the world’s large
economies. In 2009, China overtook Japan
as the world’s second-largest economy and
replaced Germany as the world’s largest
exporter of merchandise. The spectacular
growth over the past three decades has made
China not only a driver of world development
but also a stabilising force in the world
economy, as demonstrated by China’s role
during the East Asian Financial Crisis in the
late 1990s and the recent global crisis. This
extraordinary performance far exceeded
the expectations of anyone at the outset of the
transition, including Deng Xiaoping, the
architect of China’s reform and opening-up
strategy.2
In this article, I will draw on my new book,
Demystifying the Chinese Economy (Lin
* China Center for Economic Research, National School of 2012a), to provide answers to six related
Development, Peking University, Beijing 100871 China;
email <justinlin@ccer.pku.edu.cn>. This article was
questions: Why was it possible for China to
prepared for the David Finch Lecture at the University of achieve such extraordinary performance during
Melbourne, 4 June 2013. its transition? Why was China unable to attain

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
Published by Wiley Publishing Asia Pty Ltd
260 The Australian Economic Review September 2013

similar success before its transition started? acceleration of growth was accompanied by a
Why did most other transition economies, move of labour from agriculture to manufactur-
both socialist and non-socialist, fail to achieve ing and services. The manufacturing sector
a similar performance? What costs does China gradually moved from very labour-intensive
pay for its extraordinary success? Will China industries at the beginning to more capital-
sustain a similar dynamic growth in the coming intensive heavy and high-tech industries.
decades? Can other developing countries Finally, the service sector came to dominate
achieve similar economic performance? the economy. Accompanying the change in
industrial structure was an increase in the scale
2. The Reason for China’s Extraordinary of production, the required capital and skill,
Performance in Transition the market scope and the risks. To exploit the
potential that is unleashed by new technology
Rapid, sustained increase in per capita income and industry and to reduce the transaction costs
is a modern phenomenon. Studies by economic and share risks requires innovations as well as
historians, such as Maddison (2001), show that improvements in an economy’s hard infrastruc-
average annual per capita income growth in ture, such as power and road networks, and its
the West was only 0.05 per cent before the soft infrastructure. Soft infrastructure consists of
eighteenth century, jumping to about 1 per cent such elements as belief, the legal framework,
in the nineteenth century and reaching about financial institutions and the education system
2 per cent in the twentieth century. That (Lewis 1954; Kuznets 1966; North 1981;
means that per capita income in Europe took Lin 2011, 2012b).
1,400 years to double before the eighteenth A developing country, such as China, which
century, about 70 years in the nineteenth started its modernisation drive in 1949, poten-
century and 35 years thereafter. tially has the advantage of backwardness in its
A continuous stream of technological inno- pursuit of technological innovation and struc-
vation is the basis for sustained growth in any tural transformation (Gerschenkron 1962). In
economy. The dramatic surge in growth in advanced high-income countries, technological
modern times is a result of a paradigm shift in innovation and industrial upgrading require
technological innovation. Before the industrial costly and risky investments in research and
revolution in the eighteenth century, techno- development because their technologies and
logical innovations were generated mostly by industries are located on the global frontier.
the experiences of craftsmen and farmers in Moreover, the institutional innovation required
their daily production. After the industrial for realising the potential of new technology
revolution, experience-based innovation was and industry often proceeds in a costly trial-
increasingly replaced by field experimentation, and-error, path-dependent, evolutionary pro-
and later, by science-based experiments con- cess (Fei and Ranis 1997). By contrast, a
ducted in scientific laboratories (Lin 1995; latecomer country in the catching-up process
Landes 1998). This shift accelerated the rate of can borrow technology, industry and institu-
technological innovation, marking the coming tions from the advanced countries at low risk
of modern economic growth and contributing and costs. So, if a developing country knows
to the dramatic acceleration of income growth how to tap the advantage of backwardness in
in the nineteenth and twentieth centuries technology, industry and social and economic
(Kuznets 1966). institutions, it can grow at an annual rate several
The industrial revolution not only accelerated times that of high-income countries for decades
the rate of technological innovation but also before closing its income gap with those
transformed industrial, economic and social countries.
structures. Before the eighteenth century, every In the post-World War II period, 13 of the
economy was agrarian: 85 per cent or more of world’s economies achieved average annual
the labour force worked in agriculture, mostly in growth of 7 per cent or above for 25 years
self-sufficient production for the family. The or more. The Commission on Growth and

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
Lin: Demystifying the Chinese Economy 261

Development, headed by Nobel Laureate first-generation revolutionary leaders in China,


Michael Spence, finds that the first of five like many other Chinese social and political
common features of these 13 economies is their elites, were inspired by the dream of achieving
ability to tap the potential of the advantage of rapid modernisation.
backwardness. In the Commission’s language, The lack of industrialisation—especially the
the 13 economies ‘imported what the rest of the lack of large, heavy industries that were
world knew and exported what it wanted’ the basis of military strength and economic
(World Bank 2008, p. 22).3 power—was perceived as the root cause of the
After the transition was initiated by country’s backwardness. Thus, it was natural
Deng Xiaoping in 1979, China adopted the for the social and political elites in China to
opening-up strategy and started to tap the prioritise the development of large, heavy,
potential of importing what the rest of the world advanced industries after the Revolution as they
knows and exporting what the world wants. started building the nation.4 In the nineteenth
This is demonstrated by the rapid growth in its century, the political leaders of France,
international trade, the dramatic increase in Germany, the United States and other Western
its trade dependence ratio and the large countries pursued effectively the same strategy,
inflows of foreign direct investment. While in motivated by the contrast between Britain’s
1979 primary and processed primary goods rising industrial power and the backwardness of
accounted for more than 75 per cent of China’s their own industry (Gerschenkron 1962;
exports, by 2009 the share of manufactured Chang 2003).
goods had increased to more than 95 per cent. Starting in 1953, China adopted a series of
Moreover, China’s manufactured exports ambitious Five-Year Plans to accelerate the
upgraded from simple toys, textiles and other building of modern advanced industries, with
cheap products in the 1980s and 1990s to the goal of overtaking Britain in 10 years and
high-value and technologically sophisticated catching up to the United States in 15 years.
machinery and information and communication But, China was a lower income agrarian
technology products in the 2000s. The exploi- economy at that time. In 1953, 83.5 per cent
tation of the advantage of backwardness has of its labour force was employed in the primary
allowed China to emerge as the world’s sector and its per capita income (measured
workshop and to achieve extraordinary eco- in purchasing power parity terms) was only
nomic growth by reducing the costs of 4.8 per cent that of the United States
innovation, industrial upgrading and social (Maddison 2001). Given China’s employment
and economic transformation. structure and income level, the country did not
possess comparative advantage in modern
3. Why Did China Fail to Achieve Rapid advanced industries of high-income countries,
Growth before 1979? whether latent or overt, and Chinese firms in
those industries were not viable in an open
China possessed the advantage of backward- competitive market.5
ness long before the transition began in 1979. To achieve its strategic goal, the Chinese
The socialist government won the revolution in Government needed to protect the priority
1949 and started modernising in earnest in industries by giving firms in those sectors a
1953. Why had China failed to tap the potential monopoly and by subsidising them through
of the advantage of backwardness and achieve various price distortions, including suppressed
dynamic growth before 1979? This failure interest rates, an overvalued exchange rate
came about because China adopted the wrong and lower prices for inputs. The price dis-
development strategy at that time. tortions created shortages and the government
China was the largest economy and amongst was obliged to use administrative measures
the most advanced, powerful countries in the to mobilise and allocate resources directly
world before pre-modern times (Maddison to unviable firms (Lin 2009; Lin and Li
2007). Mao Zedong, Zhou Enlai and other 2009).

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
262 The Australian Economic Review September 2013

These interventions enabled China to quickly countries introduced distortions and govern-
establish modern advanced industries, test ment interventions like those in China.7 This
nuclear bombs in the 1960s and launch satellites strategy made it possible to establish some
in the 1970s. But, the resources were mis- modern industries and achieve investment-led
allocated, the incentives were distorted and the growth for one or two decades in the 1950s to
labour-intensive sectors in which China held a the 1970s. Nevertheless, the distortions led to
comparative advantage were repressed. As a pervasive soft-budget constraints, rent-seeking
result, economic efficiency was low and the and misallocation of resources. Economic
growth before 1979 was driven mainly by an efficiency was unavoidably low. Stagnation
increase in inputs.6 Despite a very respectable and frequent social and economic crises began
average annual GDP growth rate of 6.1 per cent to beset most socialist and non-socialist
in 1952–78 and the establishment of large developing countries by the 1970s and 1980s.
modern industries, China was almost a closed Liberalisation from excessive state intervention
economy, with 71.3 per cent of its labour force became a trend in the 1980s and 1990s.
still in traditional agriculture. In 1952–78, The symptoms of poor economic performance
household consumption grew by only 2.3 per and social and economic crises, and their root
cent per year, in sharp contrast to the 7.1 per cent cause in distortions and government interven-
average growth after 1979. tions, were common to China and other socialist
transition economies, as well as other developing
4. Why Did Not Other Transition countries. But, the academic and policy commu-
Economies Perform Equally Well? nities in the 1980s did not realise that those
distortions came from second-best institutional
All other socialist countries and many devel- arrangements, endogenous to the needs of
oping countries after World War II adopted a providing protections to firms in the priority
development strategy similar to that of China. sectors. Without such protection, those firms
Most colonies gained political independence would not have been viable. As a result, policy-
after the 1950s. Compared with developed makers and academics recommended that social-
countries, these newly independent developing ist and other developing countries immediately
countries had extremely low per capita remove all distortions by implementing simulta-
income, high birth and death rates, low neous programs of liberalisation, privatisation
average educational attainment and very little and marketisation, with the aim of quickly
infrastructure—and they were heavily special- achieving efficient, first-best outcomes.
ised in the production and export of primary However, if those distortions were eliminated
commodities while importing most manufac- immediately, many unviable firms in the
tured goods. The development of modern priority sectors would collapse, causing a
advanced industries was perceived as the only contraction of GDP, a surge in unemployment
way to achieve rapid economic takeoff, avoid and acute social disorders. To avoid those
dependence on the Western industrial powers dreadful consequences, many governments
and eliminate poverty (Prebisch 1950). continued to subsidise the unviable firms
It became a fad after the 1950s for develop- through other, disguised, less efficient subsidies
ing countries in both the socialist and the non- and protections (Lin and Tan 1999). Transition
socialist camps to adopt a development strategy and developing countries thus had even poorer
oriented toward heavy industry and import growth performance and stability in the 1980s
substitution (Lal and Mynt 1996). But, the and 1990s than in the 1960s and 1970s
capital-intensive modern industries on their (Easterly 2001).
priority lists defied the comparative advantages During the transition process, China adopted
that were determined by the endowment a pragmatic, gradual, dual-track approach. The
structure of their low-income agrarian econo- government first improved the incentives and
mies. To implement their development strategy, productivity by allowing the workers in the
many socialist and non-socialist developing collective farms and state-owned firms to be

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
Lin: Demystifying the Chinese Economy 263

residual claimants and to set the prices for measurement of income inequality, increased
selling at the market after delivering the quota from 0.31 in 1981 to 0.47 in 2008 (Ravallion
obligations to the state at fixed prices and Chen 2007). Meanwhile, household con-
(Lin 1992). At the same time, the government sumption as a percentage of GDP dropped
continued to provide necessary protections to from about 50 per cent to about 35 per cent,
unviable firms in the priority sectors, and whereas fixed asset investment increased from
simultaneously, liberalised the entry of private around 30 per cent to more than 45 per cent of
enterprises, joint ventures and foreign direct GDP (see the top panel in Figure 1) and net
investment in labour-intensive sectors in which exports increased from almost nothing to a
China had a comparative advantage but that high of 8.8 per cent of GDP in 2007 (see the
were repressed before the transition. This bottom panel in Figure 1). Such disparities are
transition strategy allowed China both to the by-products of the dual-track approach to
maintain stability by avoiding the collapse of transition.
old-priority industries and to achieve dynamic
growth by simultaneously pursuing its compar- Figure 1 Contributions of Household
Consumption, Fixed Asset Formation and
ative advantage and tapping the advantage of
Net Exports to Gross Domestic Product
backwardness in the industrial upgrading
process. In addition, the dynamic growth in 60
the newly liberalised sectors created the
conditions for reforming the old-priority sec- 50
tors. Through this gradual, dual-track approach,
China achieved ‘reform without losers’ 40
% of GDP

(Naughton 1995; Lau, Qian and Roland


2000; Lin, Cai and Li 2003) and moved 30
gradually, but steadily, to a well-functioning
market economy. 20
A few other socialist economies—such as
Poland,8 Slovenia and Vietnam, which 10 Household consumption
achieved outstanding performance during their Fixed asset formation
transitions—adopted a similar gradual, dual- 0
track approach (Lin 2009). Mauritius adopted 78 981 984 987 990 993 996 999 002 005 008
19 1 1 1 1 1 1 1 2 2 2
a similar approach in the 1970s to reforming
Year
distortions caused by the country’s import-
substitution strategy and became Africa’s 10
success story (Subramanian and Roy 2003).9
8

5. What Costs Does China Pay for Its 6


Success?
4
% of GDP

The gradual, dual-track approach to transition 2


is a double-edged sword. While it enables
0
China to achieve enviable stability and growth
in the transition process, it also brings with it -2
a number of structural problems, particularly
-4
the disparities in income distribution, con- Net exports
sumption and savings and external accounts.10 -6
When the transition started in 1979, China 78 981 984 987 990 993 996 999 002 005 008
was a relatively egalitarian society. With 19 1 1 1 1 1 1 1 2 2 2
Year
rapid growth, income distribution has become
increasingly unequal. The Gini coefficient, a Source: National Statistical Bureau (2010, p. 36).

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
264 The Australian Economic Review September 2013

During the transition process, the Chinese of wealth in the large firms has a similar effect.
Government retained some distortions as a A consequence of such an income distribution
way to provide continuous support to unviable pattern is relatively high household savings
firms in the priority industries. Major remaining and extraordinarily high corporate savings in
distortions include the concentration of finan- China, as shown in Figure 2.
cial services in the four large state-owned The high household and corporate savings in
banks, the almost-zero royalty on natural turn led to a high rate of investment and quick
resources and the monopoly of major service building up of production capacity. A large
industries, including telecommunications, trade surplus is a natural consequence of limited
power and banking.11 domestic absorption capacity due to a low
Those distortions contribute to the stability in consumption ratio. Therefore, it is imperative
China’s transition process. They also contribute for China to address structural imbalances by
to the rising income disparity and other removing remaining distortions in the finance,
imbalances in the economy. This is because natural resources and service sectors so as to
only big companies and rich people have access complete the transition to a well-functioning
to credit services provided by the big banks and market economy. The necessary reforms
the interest rates are artificially repressed. As a include: (i) removing financial repression and
result, big companies and rich people are allowing the development of small and local
receiving subsidies from the depositors who financing institutions, including local banks, so
have no access to banks’ credit services and are as to increase financial services, especially
relatively poor. The concentration of profits and access to credit, to household farms as well
wealth in large companies and widening income as small- and medium-sized enterprises in
disparities are unavoidable. The low royalty manufacturing and service sectors; (ii) reform-
levies of natural resources and the monopoly in ing the pension system, removing the old
the service sector have similar effects. retired worker’s pension burden from the state-
In general, the marginal propensity to owned mining companies and levying appro-
consume decreases with income. Therefore, if priate royalty taxes on natural resources; and
wealth is disproportionately concentrated in (iii) encouraging entry and competition in
the higher income group, the nation’s con- the telecommunications, power and financial
sumption-to-GDP ratio will be lower and the sectors. It is also timely for China to remove
savings ratio will be higher. The concentration remaining distortions to complete the transition

Figure 2 China’s Corporate, Household and Government Savings

60
Corporate savings Household savings Government savings

50

40
% of GDP

30

20

10

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Year

Source: National Statistical Bureau (various years).

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
Lin: Demystifying the Chinese Economy 265

to a well-functioning market economy as China States, and measured by the current market
has changed from a poor, capita-scarce country exchange rates, China may be about the same
at the onset of the transition to an upper-middle size as the United States.
income country. As a result, most firms in the The above potential from the advantage of
old-priority industries have become viable and backwardness, if realised, will enable China to
competitive in domestic and global markets. achieve the 18th Congress of Chinese Commu-
nist Party’s targets of doubling the per capita
6. Will China Continue the Dynamic GDP and household income, on the basis of
Growth in the Coming Decades? 2010, by 2020 and becoming a high-income
country by 2049.
No country in human history has ever grown so That said, China also needs to increasingly
fast for so long as China did in the past three become an innovator in its own right. As a
decades. However, looking forward, China still middle-income country, in many sectors that
has the potential, based on the advantage of China has comparative advantage, other higher
backwardness, to grow at around 8 per cent income countries have graduated, or are close to
annually for another 20 years. This is for two graduating, from those sectors; for example,
reasons: consumer electronics. If China wants to maintain
First, in 2008, China’s per capita income was leadership in those sectors, it will need to develop
21 per cent of US per capita income, measured technology and/or product innovation when it
in purchasing power parity (Maddison 2010). reaches the frontier. China can then become a
The income gap between China and the United global technological and industrial leader in
States indicates that there is still a large those sectors. With foresight, China will be able
technological gap between China and the to gradually shift from absorbing the existing
advanced industrialised countries. China can technology to becoming an indigenous innovator
continue to enjoy the advantage of backward- of new technology to drive its growth.
ness before closing up the gap.
Second, Maddison’s (2010) estimation 7. Lessons of China’s Development for
shows that China’s current relative status to Other Developing Countries
the United States is similar to that of Japan in
1951, Singapore in 1967, Korea in 1977 and Are there useful lessons that can be drawn from
Taiwan in 1975. The annual growth rate of GDP China’s experiences over the past three
reached 9.2 per cent in Japan between 1951 and decades? The answer is clearly yes. Every
1971, 8.6 per cent in Singapore between 1967 developing country has the opportunity to
and 1987, 7.6 per cent in Korea between 1977 accelerate its growth if it knows how to develop
and 1997 and 8.3 per cent in Taiwan between its industries according to its comparative
1975 and 1995. China’s development strategy advantage at each level of development and if
after the reform in 1979 is similar to that of it can tap the advantage of backwardness in its
Japan, Korea, Singapore and Taiwan. After 20 technological innovation and structural trans-
years’ dynamic growth, Japan’s per capita formation. A well-functioning market is a
income, measured in purchasing power parity, precondition for developing an economy’s
was 65.6 per cent that of the United States in industries according to its comparative advan-
1971, while Singapore’s was 53.9 per cent in tages because only with such a market can
1987, Korea’s was 50.2 per cent in 1997 and relative prices reflect the relative scarcities of
Taiwan’s was 54.2 per cent in 1995. If China factors of production in the economy. Such a
maintains 8 per cent growth in the coming two well-functioning market naturally propels firms
decades, by 2030 China’s per capita income, to enter industries consistent with the country’s
measured in purchasing power parity, may comparative advantages. If a developing coun-
reach about 50 per cent of US per capita income. try follows its comparative advantage in
Measured this way, China’s economic size may technological and industrial development,
then be twice as large as that of the United it will be competitive in domestic and

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
266 The Australian Economic Review September 2013

international markets. In other words, it will realising growth of 7 per cent or more for 25 or
grow fast, accumulate capital rapidly and more years in the coming decades.
upgrade its endowment structure quickly.
When the endowment structure is upgraded, June 2013
the economy’s comparative advantage changes
and its industrial structure, as well as hard and Endnotes
soft infrastructure, needs to be upgraded
accordingly. In the process, it is desirable for 1. Unless indicated otherwise, the statistics on the Chinese
the state to play a proactive, facilitating role. economy that are reported in the article are from the China
Statistical Abstract 2010, China Compendium of Statistics
The state can do this by compensating for 1949–2008 and various editions of the China Statistical
externalities created by pioneer firms in the Yearbook, published by China Statistics Press.
process of industrial upgrading. Also, the
2. Deng’s goal at that time was to quadruple the size of
government can coordinate the desirable China’s economy in 20 years, which would have meant an
investments and improvements in soft and average annual growth of 7.2 per cent. Most people in the
hard infrastructure, for which individual firms 1980s, and even as late as the early 1990s, thought that
cannot internalise in their decisions. Through achieving that goal was a mission impossible.
the appropriate functions of competitive 3. The remaining features are macroeconomic stability,
markets and a proactive, facilitating state, a high rates of saving and high rates of investment, a market
developing country can tap the potential of the system and committed, credible and capable governments.
Lin and Monga (2012) show that the first three features are
advantage of backwardness and achieve the result of following the economy’s comparative
dynamic growth (Lin 2011, 2012b). advantages in developing industries at each stage of its
Many developing countries, as a result of their development and the last two features are the preconditions
governments’ previous development strategies, for the economy to follow its comparative advantages in
have various kinds of distortions and many developing industries.
existing firms are unviable in an open competi- 4. The desire to develop heavy industries existed before the
tive market. In this respect, China’s experience in socialist elites obtained political power. Dr Sun Yat-sen, the
the past 34 years also provides useful lessons. In father of modern China, proposed the development of ‘key
and basic industries’ as a priority in his plan for China’s
the reform process, it is desirable for a developing industrialisation in 1919 (Sun 1929).
country to remove various distortions of in-
5. While the policy goal of France, Germany and the United
centives to improve productivity and, at the same
States in the late nineteenth century was similar to that of
time, adopt a dual-track approach, providing China in the mid-1950s, the per capita incomes of the three
some transitory protections to unviable firms to countries were about 60–75 per cent of Britain’s at the time.
maintain stability, but liberalising entry into The small gap in per capita incomes indicated that the
sectors in which the country has comparative industries on the governments’ priority lists were the latent
comparative advantages of the three countries (Lin et al. 2011).
advantages. Such an approach can improve the
resource allocation and tap the advantage of 6. Estimates by Perkins and Rawski (2008) suggest that the
backwardness. By adopting such an approach, average annual growth of total factor productivity was 0.5
per cent in 1952–78 and 3.8 per cent in 1978–2005.
other developing countries can also achieve
stability and dynamic growth in their economic 7. There are different explanations for the pervasive
distortions in developing countries. Grossman and Help-
liberalisation process. man (1996), Engerman and Sokoloff (1997) and Acemoglu,
Thirty years ago, no one would have Johnson and Robinson (2005) proposed that these
imagined that China would be among the 13 distortions were caused by the capture of government by
economies that tapped the potential of the powerful vested interests. Lin (2003, 2009) and Lin and Li
advantage of backwardness and realised aver- (2009) propose that the distortions were a result of conflicts
between the comparative advantages of the economies and
age annual growth of 7 per cent or above for 25
the priority industries that political elites, influenced by the
or more years. For developing countries that are dominant social thinking of the time, targeted for the
now fighting to eradicate poverty and to close modernisation of their nations.
the gap with high-income countries, I hope that 8. In spite of its attempt to implement a shock therapy at the
lessons from China’s transition and develop- beginning, Poland did not privatise its large state-owned
ment will help them join the list of those enterprises until very late in the transition.

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
Lin: Demystifying the Chinese Economy 267

9. In the 1980s, the Former Soviet Union, Hungary and Cambridge University Press, Cambridge,
Poland adopted a gradual reform approach. However,
United Kingdom.
unlike in the case of China, their state-owned firms were not
allowed to set the prices for selling at markets after fulfilling
Chang, H. 2003, Kicking Away the Ladder:
their quota obligations and the private firms’ entry to the Development Strategy in Historical Perspec-
repressed sectors were subject to severe restrictions. tive, Anthem Press, London.
However, the wages were liberalised, while in China the Easterly, W. 2001, The Elusive Quest for
wage increase was subject to state regulation. These reforms Growth: Economists’ Adventures and Mis-
led to wage inflation and exacerbated shortages. See the
discussions about the differences in the gradual approach in adventures in the Tropics, MIT Press, Cam-
China compared to the Former Soviet Union and Eastern bridge, Massachusetts.
Europe in Lin (2009, pp. 88–9). Engerman, S. L. and Sokoloff, K. L. 1997,
10. Many of China’s problems today, including environ- ‘Factor endowments, institutions, and
mental degradation and the lack of social protections, are differential paths of growth among new
generic to developing countries. In this section, I will only world economies: A view from economic
focus on a few prominent issues that arose specifically from
China’s dual-track approach to transition. The collective
historians of the United States’, in
volume edited by Brandt and Rawski (2008) provides How Latin America Fell Behind, ed. S.
excellent discussions of other development and transition Haber, Stanford University Press, Stanford,
issues in China. California.
11. Before the transition, the state-owned enterprises Fei, J. and Ranis, G. 1997, Growth and
obtained their investment and operation funds directly Development from an Evolutionary Perspec-
from the government’s budgets at no cost. The government tive, Blackwell, Malden, Massachusetts.
established four large state banks in the early 1980s, when
Gerschenkron, A. 1962, Economic Backward-
the fiscal appropriation system was replaced by banking
lending. The interest rates have been kept artificially low in ness in Historical Perspective: A Book of
order to subsidise the state-owned enterprises. Prices of Essays, Belknap Press of Harvard University
natural resources were kept at an extremely low level so as to Press, Cambridge, Massachusetts.
reduce the input costs of heavy industries. The mining firms’ Grossman, G. M. and Helpman, E. 1996,
royalty payments were waived. After the transition, the
natural resources’ prices were liberalised in the early 1990s
‘Electoral competition and special interest
but royalties remained nominal to compensate for the politics’, Review of Economic Studies, vol.
transfer of pension provision for retired workers from 63, pp. 265–86.
the state to the state-owned mining companies. However, the Kuznets, S. 1966, Modern Economic Growth:
private and joint-venture mining companies, which did not Rate, Structure and Spread, Yale University
enter until the 1980s and thereafter, did not have any pension
burden. The low royalty payment was equivalent to a direct
Press, New Haven, Connecticut.
transfer of natural resource rents from the state to these Lal, D. and Mynt, H. 1996, The Political
companies, which made them extraordinary profitable. The Economy of Poverty, Equity, and Growth: A
rationale for giving firms in the telecommunication and Comparative Study, Clarendon Press,
power sector a monopoly position before the transition was Oxford, United Kingdom.
because they provided public services and made payments
Landes, D. 1998, The Wealth and Poverty of
on large capital investment. After transition, the rapid
development and fast capital accumulation after the Nations: Why Some Are So Rich and Some
transition, capital is less of a constraint now but the Chinese So Poor, Norton, New York.
Government continues to allow the service sector to enjoy Lau, L. J., Qian, Y. and Roland, G. 2000,
monopoly rents (Lin, Cai and Li 2003). ‘Reform without losers: An interpretation of
China’s dual-track approach to transition’,
References Journal of Political Economy, vol. 108,
pp. 120–43.
Acemoglu, D., Johnson, S. and Robinson, J. A. Lewis, W. A. 1954, ‘Economic development
2005, ‘Institutions as the fundamental cause with unlimited supply of labour’, Man-
of long-run growth’, in Handbook of chester School of Economic and Social
Economic Growth, vol. 1A, eds P. Aghion Studies, vol. 22, pp. 139–91.
and S. N. Durlauf, Elsevier, Amsterdam. Lin, J. Y. 1992, ‘Rural reforms and agricultural
Brandt, L. and Rawski, C. T. G. (eds) 2008, growth in China’, American Economic
China’s Great Economic Transformation, Review, vol. 82, pp. 34–51.

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
268 The Australian Economic Review September 2013

Lin, J. Y. 1995, ‘The Needham Puzzle: Why the Maddison, A. 2001, The World Economy: A
industrial revolution did not originate in Millennial Perspective, OECD Development
China’, Economic Development and Centre, Paris.
Cultural Change, vol. 43, pp. 269–92. Maddison, A. 2007, Chinese Economic Perfor-
Lin, J. Y. 2003, ‘Development strategy, mance in the Long Run—Second Edition,
viability and economic convergence’, Eco- Revised and Updated: 960–2030 AD, OECD
nomic Development and Cultural Change, Development Centre, Paris.
vol. 53, pp. 277–308. Maddison, A. 2010, ‘Historical statistics of the
Lin, J. Y. 2009, Economic Development and world economy: 1–2008 AD’, viewed May
Transition: Thought, Strategy, and Viability, 2010, <http://www.ggdc.net/maddison/His-
Cambridge University Press, Cambridge, torical_Statistics/horizontal-file_02-2010.xls>.
United Kingdom. National Statistical Bureau 2010, China Statis-
Lin, J. Y. 2011, ‘New Structural Economics: A tical Abstract 2010, China Statistics Press,
framework for rethinking development’, Beijing.
World Bank Research Observer, vol. 26, National Statistical Bureau (various years),
pp. 193–221. China Statistical Yearbook, China Statistics
Lin, J. Y. 2012a, Demystifying the Chinese Press, Beijing.
Economy, Cambridge University Press, Naughton, B. 1995, Growing Out of the Plan:
Cambridge, United Kingdom. Chinese Economic Reform, 1978–1993,
Lin, J. Y. 2012b, The Quest for Prosperity: Cambridge University Press, New York.
How Developing Economies Can Take Off, North, D. 1981, Structure and Change in
Princeton University Press, Princeton, New Economic History, W.W. Norton, New
Jersey. York.
Lin, J. Y., Cai, F. and Li, Z. 2003, The China Perkins, D. H. and Rawski, T. G. 2008,
Miracle: Development Strategy and Eco- ‘Forecasting China’s economic growth to
nomic Reform, Chinese University Press, 2025’, in China’s Great Economic Trans-
Hong Kong, China. formation, eds L. Brandt and T. G. Rawski,
Lin, J. Y. and Li, F. 2009, ‘Development Cambridge University Press, Cambridge,
strategy, viability, and economic distortions United Kingdom.
in developing countries’, World Bank Policy Prebisch, R. 1950, The Economic Development
Research Working Paper no. 4906, Wash- of Latin America and Its Principal Problems,
ington, DC. United Nations, New York.
Lin, J. Y. and Monga, C. 2012, ‘The Growth Ravallion, M. and Chen, S. 2007, ‘China’s
Report and New Structural Economics’, in (uneven) progress against poverty’, Journal of
New Structural Economics: A Framework Development Economics, vol. 82, pp. 1–42.
for Rethinking Development and Policy, ed. Subramanian, A. and Roy, D. 2003, ‘Who can
J. Y. Lin, World Bank, Washington, DC. explain the Mauritian miracle? Mede, Ro-
Lin, J. Y., Monga, C., te Velde, D. W., mer, Sachs, or Rodrik?’, in In Search of
Tendulkar, S. D., Amsden, A., Amoako, K. Prosperity: Analytic Narratives on Econom-
Y., Pack, H. and Lim, W. 2011, ‘DPR ic Growth, ed. D. Rodrik, Princeton Univer-
debate: Growth identification and facilita- sity Press, Princeton, New Jersey.
tion: The role of the state in the dynamics of Sun, Y. S. 1929, The International Develop-
structural change’, Development Policy ment of China, 2nd edn, G.P. Putnam’s Sons,
Review, vol. 29, pp. 259–310. New York.
Lin, J. Y. and Tan, G. 1999, ‘Policy burdens, World Bank 2008, The Growth Report:
accountability, and soft budget constraints’, Strategies for Sustained Growth and Inclu-
American Economic Review: Papers and sive Development, World Bank, Washing-
Proceedings, vol. 89, pp. 426–31. ton, DC.

°
C 2013 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research

View publication stats

Das könnte Ihnen auch gefallen