Chinese Studies Economic Reforms, 1978-Present
by
Ralph W. Huenemann
  • LAST REVIEWED: 18 May 2015
  • LAST MODIFIED: 22 April 2013
  • DOI: 10.1093/obo/9780199920082-0008

Introduction

Between 1949 and 1976, under Mao Zedong’s 毛泽东 leadership, the Chinese Communist Party (CCP) implemented socialist economic policies. In the 1950s, the central planning of industry (with an emphasis on heavy industry) was introduced, modeled on the five-year plans of the Soviet Union, and agriculture was collectivized. Following the collapse of the Great Leap Forward and the political split with Moscow, China’s economic policies in the 1960s and 1970s vacillated between Mao’s ultraleftist tendencies and more conventional socialist policies advocated by such leaders as Liu Shao-ch’i 刘少奇 and Deng Xiaoping 邓小平. Mao attacked his opponents for taking the capitalist road and largely succeeded in suppressing their proposed policies until his death in 1976. After Mao’s death, advocacy of various reforms became more acceptable. One important early sign of the new atmosphere was the announcement in 1977 that entrance examinations for China’s universities (which had been attacked and closed down during the Cultural Revolution) would be reestablished. Deng Xiaoping returned to power, and at the Third Plenum (of the Eleventh Central Committee of the CCP) in December 1978 the famous four-character policy gaige kaifang (改革开放), a reform of the economic system and an opening up to the outside world, was promulgated. Beyond the strong signal that the reforms were intended to remedy some of Mao’s mistakes, it was not clear exactly what the slogan would entail in practice. Indeed, even in the early 21st century the specifics of the reforms are still the subject of substantial disagreements within the CCP leadership. However, there can be no doubt that the reforms since 1978 generally have succeeded in both the system reform aspect, marked by the decollectivization of agriculture and the dismantling of Soviet-style central planning in industry, and the opening-up aspect, leading to China’s entry into the World Trade Organization (WTO) in 2001. It is also beyond doubt that the reforms have resulted in rapid economic growth (by the official statistics, an average annual growth of real gross domestic product of 9.7 percent between 1980 and 2009). However, it is also true that in the early 21st century many Chinese people remain desperately poor, and the reforms continue to be incomplete and controversial.

General Overviews

Many surveys of China’s economic reforms have been written, but six books are particularly valuable both for their direct content and for their guidance to other sources in their extensive references and bibliographies. Naughton 2006 is the most comprehensive of these, covering such topics as China’s environmental problems that receive little attention in the others. Naughton’s work is also valuable for his explicit discussion of the two distinct phases of the reforms—the “reform without losers” phase until about 1993 and the “reform with losers” phase since then. Wu 2004 is equally worthwhile because of its insights into the failings of central planning and the origins of the reforms. Lin, et al. 2001 is particularly good for its analysis of the comparative advantage strategy underlying the reforms and how this differs from the Great Leap Forward strategy under Mao Zedong. Garnaut and Huang 2000 has brought together in a single volume the insights of many of the best experts, Chinese and non-Chinese, in the field. Brandt and Rawski 2008 is a valuable collection of papers by leading scholars. Bramall 2008 is an important alternative view of the reforms with a more sympathetic analysis of the policies under Mao and a less sympathetic view of the reforms. A useful supplement to these six books is the analysis in Xu 2011—in the spirit of Adam Smith, Ronald Coase, and Douglass North—of China’s complex institutional structure (which Chenggang Xu characterizes as a regionally decentralized authoritarian regime), which has roots in both China’s two-millennium imperial history and the chaos of the Cultural Revolution. Another valuable supplement is Brandt, et al. 2012, a lengthy research paper that sets China’s post-1949 economic events into the context of the previous millennium, analyzing both the changes and the continuities over time.

  • Bramall, Chris. Chinese Economic Development. New York: Routledge, 2008.

    DOI: 10.4324/9780203890820Save Citation »Export Citation »E-mail Citation »

    Unlike the other books cited in this section, Bramall’s devotes much more space (about half of the book) to the policies pursued under Mao. Although acknowledging that some of Mao’s policies were disastrous, the author argues that much of Mao’s development strategy was well thought out and successful.

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  • Brandt, Loren, Debin Ma, and Thomas G. Rawski. “From Divergence to Convergence: Re-evaluating the History Behind China’s Economic Boom.” Hitotsubashi University, Research Unit for Statistical and Empirical Analysis in Social Sciences (Hi-Stat), Global COE Hi-Stat Discussion Paper Series 217. Tokyo: Institute of Economic Research, Hitotsubashi University, 2012.

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    In this paper of over one hundred pages, only about forty pages deal with post-1949 China. However, the entire essay is valuable for an understanding of China’s reforms, setting them in the long-term historical context and analyzing both the important changes and the important continuities between post-1949 China and the earlier periods, reaching back a thousand years.

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    • Brandt, Loren, and Thomas G. Rawski, eds. China’s Great Economic Transformation. Cambridge, UK: Cambridge University Press, 2008.

      DOI: 10.1017/CBO9780511754234Save Citation »Export Citation »E-mail Citation »

      This volume contains twenty detailed articles by leading economists with greater technical detail than Naughton 2006. It is substantially more up to date than Garnaut and Huang 2000.

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    • Garnaut, Ross, and Yiping Huang, eds. Growth without Miracles: Readings on the Chinese Economy in the Era of Reform. Oxford: Oxford University Press, 2000.

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      This collection contains thirty seminal articles about China’s reforms written by some of the most significant economists—both Chinese and non-Chinese—who have analyzed various aspects of the reforms since 1978.

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    • Lin, Justin Yifu, Fang Cai, and Zhou Li. The China Miracle: Development Strategy and Economic Reform. Rev. ed. Hong Kong: Chinese University Press, 2001.

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      Lin, Cai, and Li provide background on the Chinese economic system under Mao and then explore in detail why the reformed system is better suited to China’s labor-rich, land-scarce resource endowment. However, the authors also discuss candidly the problems with the reforms.

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    • Naughton, Barry. The Chinese Economy: Transitions and Growth. Cambridge, MA: MIT Press, 2006.

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      After providing background information on China’s geography and on the economic developments before 1978, Naughton analyzes the reforms in both agriculture and industry and developments in international trade and investment. His coverage includes the labor market and demography, the financial sector, and environmental issues.

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    • Wu, Jinglian. Understanding and Interpreting Chinese Economic Reform. New York: Thomason Texere, 2004.

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      This book provides an excellent discussion of the origins of central planning, the problems that emerged, and the gradual evolution of the reforms. This is a translation of Wu Jinglian 吴敬琏, Dangdai Zhongguo jingji gaige (当代中国经济改革) (Shanghai: Yuandong chubanshe 上海远东出版社, 2003).

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    • Xu, Chenggang. “The Fundamental Institutions of China’s Reforms and Development.” Journal of Economic Literature 49.4 (2011): 1076–1151.

      DOI: 10.1257/jel.49.4.1076Save Citation »Export Citation »E-mail Citation »

      This thoughtful article explores both Douglass North’s key question (how are markets embedded in a society’s institutions?) and Ronald Coase’s famous question (what is the boundary of the firm?) in the specific context of China’s reforms. Available online by subscription.

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      Statistical Sources

      In contrast to the situation under Mao Zedong, when statistical information was both sparse and wildly inaccurate, the period of the reforms has seen extensive gathering and publication of serious statistical materials. These statistical materials for contemporary China, like those of other countries as well, suffer from various errors and omissions, but much can be learned from them nevertheless. The primary source of such information is the National Bureau of Statistics of China (see National Bureau of Statistics of China 1981a–, National Bureau of Statistics of China 1981b–), but other central government agencies, such as the People’s Bank of China (the central bank) and the Ministry of Commerce, also publish extensive economic information, much of which is available in both printed and electronic form. The China Data Center at the University of Michigan also maintains an extensive database about China. A well-informed evaluation of the quality of China’s various economic statistics is in Rawski and Xiao 2001. Careful evaluations of Chinese gross domestic product (GDP) data are in Holz 2008.

      Research Guides

      The American Economic Association’s research guide EconLit and the Chinese-language research guide Zhongguo Zhiwang are both very helpful for identifying materials relevant to China’s economic reforms.

      Journals

      Many valuable articles about China’s reforms appear in journals focused on the economy of China: some in Chinese, some in English, and less extensively some in other languages. However, many useful articles appear in journals that focus on China more broadly (not just economics) and in journals that cover economics more broadly (not just China). Thus, careful research on any aspect of China’s economic reforms must cast a wide net in journals and periodicals—certainly in English and in Chinese and also sometimes in other languages (Japanese, French, Russian). Much of the high-quality research on China’s reforms is circulated in the working papers series of international organizations, research institutions, and major universities. Only some of these working papers find their way into more formal publication in the major journals, typically only after substantial delays. Therefore, up-to-date research must consult these working papers, but these must be used with caution, because they have not been formally peer reviewed.

      Economy of China

      From the early days of the reforms, important articles by such authors as Sun Yefang 孙冶方 and Lin Senmu 林森木 appeared in two Chinese-language journals, Jingji yanjiu (经济研究) and Jingji guanli (经济管理). Before long, articles also began to appear in new journals focused on the economy of China, such as the China Business Review, China Economic Journal, China Economic Review, Frontiers of Economics in China, Jingjixue jikan (经济学季刊), and Journal of Chinese Economic and Business Studies.

      China Studies Journals

      Many valuable articles about China’s economic reforms appear in journals more broadly devoted to Chinese studies (or even Asian studies), including the Journal of Asian Studies, Journal of East Asian Studies, and Modern China. The Journal of Contemporary China and the China Quarterly are very similar in coverage and quality. The China Journal is not as well known as some of the other journals, perhaps because of its antipodean origins, but is generally of high quality.

      Economics Journals

      Almost all of the major academic journals in economics and finance publish valuable articles on China at least occasionally. A hundred or more such journals are published, but a starting list includes the American Economic Review, Economic Development and Cultural Change, the Journal of Comparative Economics, the Journal of Economic Literature, the Journal of Economic Perspectives, the Journal of Finance, the Journal of Political Economy, and World Development. To stay abreast of developments in China and to understand the articles published in the journals, it is helpful to read one or more of the serious newspapers regularly, of which the Economist (with a small l liberal perspective) and the Wall Street Journal Asia (with a small c conservative perspective) are possibilities.

      Working Papers

      Many international organizations, research institutions, and major universities circulate working papers to encourage early feedback from colleagues. This feedback is less strict than formal peer review, and the working papers must be handled accordingly. Some of the organizations that have established good reputations for the quality of their working papers are included here. The major international organizations Asian Development Bank, International Monetary Fund, and World Bank need little introduction, and each has an essential website. In China the China Center for Economic Research was the earliest and remains one of the best institutes of academic research on China’s economy. Outside of China four strong research institutes are the Institute for the Study of Labor (for labor issues), the International Food Policy Research Institute (for agricultural issues and more), the National Bureau of Economic Research (for macroeconomics generally), and the Peter G. Peterson Institute for International Economics (for trade issues).

      Origins of the Reforms

      The two key elements in classical (centrally planned) socialism are (1) government ownership of all industrial enterprises and (2) quantitative control of the production plans by a central government planning agency articulated in sequential five-year plans. From the earliest days of Stalinist socialism, three schools of thought about potential reforms of central planning have been explored by various economists. Excellent analyses of the elements of classical Stalinist socialism and of the various attempts to reform it are in Kornai 1992 and Ellman 1988. The first school of reform, which could be labeled “mathematical socialism,” included the Russian mathematical economist Leonid Kantorovich, who won the Nobel Prize in Economics in 1975 (Kantorovich 1975). The second school of proposed reforms, which is properly labeled “market socialism,” also emerged quite early, for example, in the writings of the Polish economist Oskar Lange in the 1930s. Lange and Taylor 1964 provides an accessible introduction to this second school. As advocated by Lange and others, market socialism does not challenge state ownership of factories but does argue that the central planning agency should replace quantitative production targets with price signals. Whether such a reform is desirable and how such a reform could be implemented in practice is a subject of intense debate in the centrally planned economies, including China after 1949. A particularly important Chinese contributor to this debate was Sun Yefang 孙冶方, whose ideas are discussed in Wu 2004 (cited under General Overviews). The third school of proposed reforms (referred to officially in China as “market socialism with Chinese characteristics” even though it is quite different from the second school) advocates changes to both of the key elements of classical socialism. In fits and starts the ideas of this third school of thought have provided much of the foundation of China’s economic reforms actually pursued since 1978. At the same time, a deep commitment to central control of the economy and to state ownership of key industries remains important in the underlying ideology of China’s leaders. For this reason, implementation of the reforms remains incomplete and contentious. Both Huang 2008 and Fan, et al. 2011 provide useful insights into the continuing policy disagreements papered over by the official phrase “market socialism with Chinese characteristics.” Zhao 2009 is Zhao Ziyang’s 赵紫阳 surreptitious memoir of his career and of the internal Communist Party struggles over the reforms. A thoughtful discussion of the state of China’s reforms is in Kornai and Qian 2008.

      • Ellman, Michael. Socialist Planning. 2d ed. Cambridge, UK: Cambridge University Press, 1988.

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        As a thoughtful complement to Kornai 1992 (or a substitute if that book is unavailable), this book is very helpful for understanding socialism in China.

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      • Fan, Joseph P. H., Randall Morck, and Bernard Yeung. Capitalizing China. National Bureau of Economic Research Working Paper 17687. Washington, DC: National Bureau of Economic Research, 2011.

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        This paper explores in some detail what is meant by the official label “market socialism with Chinese characteristics” and argues that “China is not copying free market institutions, but trying something substantially different” in which “its heart remains resolutely socialist” (p. 1). Available online by subscription.

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        • Huang, Yasheng. Capitalism with Chinese Characteristics: Entrepreneurship and the State. Cambridge, UK: Cambridge University Press, 2008.

          DOI: 10.1017/CBO9780511754210Save Citation »Export Citation »E-mail Citation »

          Huang’s first chapter (“Just How Capitalist Is China?”) is an excellent introduction to China’s contentious, incomplete reforms. As Huang rightly argues, “The devil is in the empirical details” (p. 29). The remaining chapters are also valuable.

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        • Kantorovich, Leonid Vitaliyevich. “Mathematics in Economics: Achievements, Difficulties, Perspectives.” Lecture given at the Nobel Prize in Economics ceremony, 11 December 1975.

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          Lecture given at the Nobel Prize in Economics ceremony in 1975.

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          • Kornai, János. The Socialist System: The Political Economy of Communism. Princeton, NJ: Princeton University Press, 1992.

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            Although this book does not explicitly discuss China as a particular case, it is widely acknowledged to be the best explanation of socialism available in print. Those attempting to understand China’s economy should not overlook this book, which is lengthy but invaluable.

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          • Kornai, János, and Yingyi Qian, eds. Market and Socialism: In the Light of the Experiences of China and Vietnam. Basingstoke, UK: Palgrave Macmillan, 2008.

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            This extremely interesting collection of twelve papers provides an up-to-date view of the reforms in China (and the parallel developments in Vietnam, which in the early 21st century is also pursuing market reforms). The paper by Kornai, which distinguishes five varieties of socialism, clarifies the semantic confusion surrounding the term “market socialism” and is particularly illuminating.

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          • Lange, Oskar, and Fred M. Taylor. On the Economic Theory of Socialism. New York: McGraw-Hill, 1964.

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            The article by Oskar Lange is interesting both for the specifics of the reforms he was proposing and for the evidence that Stalinist central planning faced socialist critics from the beginning. First published in 1938; reprinted in 1970 (New York: Kelley).

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            • Zhao Ziyang. Prisoner of the State: The Secret Journal of Premier Zhao Ziyang. Translated and edited by Bao Pu, Renee Chiang, and Adi Ignatius. New York: Simon and Schuster, 2009.

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              This secret diary, written while Zhao Ziyang was under house arrest after 1989, presents a fascinating account of the policy struggles at the highest levels of the Communist Party. It is by its nature unsubstantiated.

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            Opening to the Outside World

            Before the reforms China’s trade with the outside world was tightly controlled by what Naughton 2006 (p. 380; cited under General Overviews) characterizes as a “double air lock” system. All imports and exports could be handled only by twelve state-owned foreign trade companies (FTCs) and only when authorized by the central plan. In addition, the Chinese currency was totally inconvertible without central permission. With the reforms China moved gradually to a system in which nearly all commodities could be traded freely (Ho and Huenemann 1984; see also Naughton 2006, pp. 377–424, and Brandt and Rawski 2008, pp. 633–682, both cited under General Overviews). The first small step was the creation of four Special Economic Zones (SEZs) at Zhuhai, Shenzhen, and Shantou in 1979 and at Xiamen in 1980. In these four coastal cities, enterprises—including foreign-invested enterprises (FIEs)—were given permission to import raw materials and machinery freely as long as they then exported their final products (permission to sell the products into the domestic market evolved only slowly). The same Export-Processing Zones (EPZs) concept was then gradually expanded to other coastal areas and ultimately even to inland regions. At the same time, the controls on foreign currencies were relaxed, although the renminbi (人民币) is still not fully convertible (Goldstein and Lardy 2008). In the early years foreign investment was largely limited to joint ventures (that is, a Chinese partner was required). However, as Naughton 2006 (pp. 412–413) notes, these “marriages” were often unsatisfactory to both sides, and from about 1988 wholly foreign-owned enterprises (WFOEs, “woofies,” colloquially), without Chinese partners, spread rapidly. As Huang 2002 argues persuasively, much of the foreign investment in China (including but not limited to the bizarre phenomenon of “round-trip” foreign direct investment [FDI]) probably occurs as an indirect way of achieving economic viability for non-state-owned enterprises in the face of major distortions in the domestic institutions that are tilted in favor of state-owned enterprises. By the 1990s capital flows out of China began to be important as well as inflows, creating Chinese multinational corporations (MNCs) in their own right (Larçon 2009). In 2001 China finally achieved membership in the World Trade Organization (WTO) (Bhattasali, et al. 2004) with the expectation that this would solidify China’s reforms. However, two decades later substantial frictions remained in China’s trade with the rest of the world.

            • Bhattasali, Deepak, Shantong Li, and Will Martin, eds. China and the WTO: Accession, Policy Reform, and Poverty Reduction Strategies. Washington, DC: World Bank, 2004.

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              This volume is divided into three equally important sections: policy reforms associated with China’s WTO accession, economic impacts of the accession, and the impacts on households and on poverty. The individual papers alone are worthwhile, but they also provide extensive leads to other references.

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            • Goldstein, Morris, and Nicholas R. Lardy, eds. Debating China’s Foreign Exchange Rate Policy. Washington, DC: Peter G. Peterson Institute for International Economics, 2008.

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              This collection of thought-provoking papers focuses on the question of how the exchange rate between China’s currency (the renminbi [人民币] or the yuan [元]) and other major currencies, especially the US dollar, affects the pattern of international trade. In an important comment, Lawrence Summers notes that “China’s exchange rate is not the primary source of the US current account deficit” (p. 350).

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            • Ho, Samuel P. S., and Ralph W. Huenemann. China’s Open Door Policy: The Quest for Foreign Technology and Capital. Vancouver: University of British Columbia Press, 1984.

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              Although written early in the reform era, this book remains a valuable source of information about the policy debates, the Special Economic Zones (SEZs), and the various forms and purposes of foreign-invested enterprises (FIEs). As the subtitle asserts and the discussion makes clear, China’s “opening up” was not driven by a commitment to Ricardian free trade principles but by the quest for more advanced technology.

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            • Huang, Yasheng. Selling China: Foreign Direct Investment during the Reform Era. New York: Cambridge University Press, 2002.

              DOI: 10.1017/CBO9780511815164Save Citation »Export Citation »E-mail Citation »

              This eloquent book is essential reading to understand the reforms (and the underlying ideological struggle between state-owned enterprise and private enterprise). Huang argues that “China’s reform strategy, so far, has been motivated to save, not to dismantle, socialism. Partial reforms, while having successfully increased the scope of the market, have so far failed . . . to tackle some of the fundamental inefficiencies in the Chinese economy” (p. xvi).

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            • Larçon, Jean-Paul, ed. Chinese Multinationals. Hackensack, NJ: World Scientific, 2009.

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              This extremely useful survey of China’s multinational corporations, prepared by a team of authors from Hauted Études Commerciales de Paris (HEC Paris) and the School of Economics and Management, Tsinghua University (Tsinghua SEM), includes case study materials on Lenovo, Haier, Wahaha, TCL Corporation, and other companies.

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            Agriculture

            Somewhat paradoxically, healthy development of agriculture is essential for a successful industrial revolution. As Brandt and Rawski 2008 (pp. 467–505; cited under General Overviews) explores in detail, there are five facets of this agricultural contribution to industrialization: urban labor (through migration), food supplies for the growing industrial workforce, raw materials for factories (wool, cotton, etc.), exports to pay for imports of machinery, and higher incomes for those who remain on the farms. Under Mao Zedong, agriculture was collectivized, first into relatively small cooperatives of about 100 to 250 households but in 1958 into larger communes of more than 5,000 households. Also traditional markets were suppressed, and production quotas were imposed by the state. The overall result was that the grain supply expanded only slowly even in good years; from 1958 to 1962 China suffered a severe famine, causing an estimated forty-five million deaths, according to Dikötter 2010. During the 1960s and 1970s the communes were broken up into smaller units, as described in Naughton 2006 (cited under General Overviews), but agriculture remained planned, collectivized, and inefficient. The reform began in 1978 in a village in Anhui Province, where the peasants, well aware that what they were proposing to do was unauthorized, indeed illegal, agreed among themselves that the land would be distributed to individual households for cultivation (Wu 2004, pp. 110–111; cited under General Overviews). Thus was born the household responsibility system (decollectivization), which spread like wildfire to 98 percent of China’s rural households by 1983. According to an oft-cited econometric study by Justin Yifu Lin 林姨夫, China’s total crop production expanded by 42 percent between 1978 and 1984, and the new household responsibility system accounted for nearly half (47 percent) of this growth (Lin 2000). As Wu Jinglian notes, “Rural reform was the genuine starting point and the driving force of China’s economic reform” (Wu 2004, p. 93). The positive results of decollectivization were then gradually reinforced by central government decisions to abandon production quotas and restore rural markets and also by China’s version of the green revolution (Brandt and Rawski 2008, pp. 467–505, and Naughton 2006, pp. 231–270). Long, et al. 2010 has documented how the changes in agriculture look at the village level. Statistical details about China’s agriculture are in Zhongguo nongye nianjian, issued annually.

            • Dikötter, Frank. Mao’s Great Famine: The History of China’s Most Devastating Catastrophe, 1958–1962. New York: Walker, 2010.

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              Based on archives only recently opened to foreign researchers, this book analyzes the multiple causes of China’s famine. An essential source for understanding the Great Leap Forward and its disastrous consequences.

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            • Lin, Justin Yifu. “Rural Reforms and Agricultural Growth in China.” In Growth without Miracles: Readings on the Chinese Economy in the Era of Reform. Edited by Ross Garnaut and Yiping Huang, 137–169. Oxford: Oxford University Press, 2000.

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              If there were a list of the ten most important journal articles about China’s reforms, this article would definitely be included on that list—near the top. Originally published in American Economic Review 82.1 (1992): 34–51.

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            • Long, Norman, Jingzhong Ye, and Yihuan Wang, eds. Rural Transformations and Development: China in Context; The Everyday Lives of Policies and People. Cheltenham, UK: Elgar, 2010.

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              The fourteen papers in this volume explore many aspects of rural transformation in China’s villages: the struggle over land title, the challenges faced by people left behind by out-migration, the evolution of microfinance, and much more.

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            • Zhongguo nongye nianjian (中国农业年鉴). 1980–.

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              Published in Beijing by Nongye chubanshe. The China agricultural yearbook is the essential primary statistical source for China’s agricultural sector. Some of this information but not all of it can also be found in Zhongguo Tongji nianjian (中国统计年鉴) (National Bureau of Statistics of China 1981b–, cited under Statistical Sources).

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              Industry

              Prior to the reforms virtually all of China’s industrial firms were state-owned enterprises (SOEs) controlled by Stalinist central planning. In this context, any reform involves questions about goals (What is the purpose of the reform?), questions about structure (How will China’s enterprises differ from the Stalinist SOEs?), and questions about process (How do we get from SOEs to the new system?). From the outset, China’s reforms were vague on all three aspects. Even in the early 21st century there are unanswered questions on all three aspects. Wu 2004 (chapters 4 and 5, pp. 271–374) and Naughton 2006 (both cited under General Overviews) provide excellent surveys of the historical evolution of the industrial reforms, both the shift of the SOEs from a planned economy to a market economy and the parallel emergence of non-state-owned enterprises, predominantly the interesting Chinese hybrids known as township and village enterprises (TVEs). Naughton 2006 is particularly useful for its discussions of the State Asset Supervision and Administration Commission (SASAC) formed in 2003 to carry out the government’s functions as owner of SOEs and the SASAC’s continuing conflict with the power of the Chinese Communist Party (CCP) to make key personnel appointments. For a more detailed analysis of the SASAC, see Naughton 2005. Ho 1994 and several of the articles included in Garnaut and Huang 2000 (pp. 170–307; cited under General Overviews) provide rich details on the TVEs: how they were created, what they produce, and most importantly what contribution they have made to China’s economic growth. In Brandt and Rawski 2008 (cited under General Overviews), chapter 10 (pp. 337–374), on the political economy of private sector development in China discusses the deep and unresolved issue of how public (government) and private enterprise may contribute to economic development, whereas chapter 15 (pp. 569–632), on China’s industrial development provides illuminating details on how the quality of industrial products has improved over time. Nolan 2001 also provides details on several key industries. More specific information about the automobile industry is in Thun 2006. Excellent detailed information about China’s steel industry is in Steinfeld 1998. Huenemann and Zhang 2005 analyzes China’s airline industry in the regional and global contexts. Wu 2008 sheds much useful light on the telecommunications sector. Many of the authors cited here raise the important point that, although China has abandoned the central planning of industry, substantial support still exists in China’s leadership for undiminished control of Vladimir Lenin’s “commanding heights” of the economy (“pillar industries,” in Chinese terminology).

              • Ho, Samuel P. S. Rural China in Transition: Non-agricultural Development in Rural Jiangsu, 1978–1990. Oxford: Clarendon, 1994.

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                This book is an essential source for understanding township and village enterprises (TVEs): what they are, how they were created, and how they contribute to economic development in China.

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              • Huenemann, Ralph, and Anming Zhang. “The Airline Industry.” In Competition Policy in East Asia. Edited by Erlinda M. Medalla, 145–169. London: Routledge, 2005.

                DOI: 10.4324/9780203312353Save Citation »Export Citation »E-mail Citation »

                This study of China’s airline industry (that is, the service industry that provides transportation, not the manufacturing industry that produces airplanes) argues that, with explicit government encouragement, the industry is coalescing around three large carriers, although the maverick carrier Hainan Airlines remains independent.

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              • Naughton, Barry. “SASAC Rising.” China Leadership Monitor 14 (April 2005).

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                This illuminating analysis of the SASAC is made available by the Hoover Institution (Stanford University).

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                • Nolan, Peter. China and the Global Business Revolution. Basingstoke, UK: Palgrave, 2001.

                  DOI: 10.1057/9780230524101Save Citation »Export Citation »E-mail Citation »

                  This extensive study of China’s industrial sector covers both general issues in chapters 1–3 and 11–14 and specific developments in several key industries in chapters 4–10. Nolan’s focus is on the importance of very large firms, those that the Chinese refer to as “national champions.” The author explicitly rejects Justin Yifu Lin’s assertion that China “must develop the clothing industry instead of the automobile industry” (p. 6).

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                • Steinfeld, Edward S. Forging Reform in China: The Fate of State-Owned Industry. Cambridge, UK: Cambridge University Press, 1998.

                  DOI: 10.1017/CBO9780511625831Save Citation »Export Citation »E-mail Citation »

                  By examining several different steel firms in depth, Steinfeld explores the diversity of heavy industry in China. Although the specifics are about the steel industry, the lessons are broader.

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                • Thun, Eric. Changing Lanes in China: Foreign Direct Investment, Local Government, and Auto Sector Development. Cambridge, UK: Cambridge University Press, 2006.

                  DOI: 10.1017/CBO9780511610738Save Citation »Export Citation »E-mail Citation »

                  This book, based on extensive confidential interviews with officials in China’s automobile industry, argues persuasively that differences among localities (of political structures, economic geography, etc.) contribute to the success of some automobile firms and the failure of others. Like Nolan 2001, Thun challenges Justin Yifu Lin’s view that successful development must be based on static comparative advantage.

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                • Wu, Irene S. From Iron Fist to Invisible Hand: The Uneven Path of Telecommunications Reform in China. Stanford, CA: Stanford University Press, 2008.

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                  Wu worked in the International Bureau of the Federal Communications Commission (FCC) in the United States while writing this book, and her firsthand exposure to the complex issues of the telecommunications sector is evident in this study. As Wu documents, China went from a nation with 2 million telephones in 1980 to one with 744 million phones by 2005 while shifting from landline to cellular technology and also shifting from central planning to market reforms.

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                Labor Market

                The labor market in China (how many people work? at what jobs? with what incomes?) has been shaped primarily by two overarching systemic considerations: a complex demographic history and the institutional residue of central planning. Over the past century or so, China has passed through the demographic transition typical of many countries, rendered more complicated by two major external shocks: the massive famine that followed the Great Leap Forward and the official family-planning policies. The wan-xi-shao (晚稀少; later [marriages], longer [spacing], fewer [children]) family-planning policy introduced in 1971 was followed by the much more draconian one-child policy introduced in 1980. Naughton 2006 (pp. 161–178; cited under General Overviews) provides a clear introduction to this demographic complexity. Brandt and Rawski 2008 (pp. 136–166; cited under General Overviews) covers the same issues in greater technical detail. Since the reforms the employment pattern in China has changed dramatically, as workers in large numbers have moved from villages to cities and from agriculture to industry. From 1978 until the early 1990s, much of the increase in nonagricultural employment took place in the rapid expansion of township and village enterprises (TVEs), while the urban employment in state-owned enterprises (SOEs) also expanded, although more slowly. In the 1990s the pattern changed dramatically, as TVE growth slowed and, even more importantly, the SOEs began shedding large numbers of redundant workers. In this period about fifty million urban workers lost their jobs. Details of this transition (“smashing the iron rice bowl,” in Chinese terms) are in Naughton 2006 (pp. 179–208) and in Brandt and Rawski 2008 (pp. 167–214). Lee 2007 argues persuasively that two quite different groups of workers, each in its own way, have borne the brunt of the market reforms. Murphy 2002 provides an illuminating description of how migrant laborers in Jiangxi Province left their villages to find work in the cities. Wong 2011, based on an extensive survey of migrant workers in four regions of China, describes the migrants’ struggle to achieve their rights. Chang 2008 and the documentary China Blue (Peled 2005) both provide deeply human descriptions of the migration from village to city. Chi, et al. 2012 analyzes the substantial changes in wages, returns to education, and other aspects of the labor market after the reforms. Giles, et al. 2011 explores another aspect of China’s labor market changes—the shifting pattern of the age of retirement and pension arrangements.

                • Chang, Leslie T. Factory Girls: From Village to City in a Changing China. New York: Spiegel and Grau, 2008.

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                  In deeply human terms, this book captures the experiences of young migrants going to work in a big city—both the positives and the negatives.

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                • Chi, Wei, Richard B. Freeman, and Hongbin Li. Adjusting to Really Big Changes: The Labor Market in China, 1989–2009. National Bureau of Economic Research Working Paper 17721. Cambridge, MA: National Bureau of Economic Research, 2012.

                  DOI: 10.3386/w17721Save Citation »Export Citation »E-mail Citation »

                  Using the extensive survey data from the annual Urban Household Survey from 1989 to 2009, this paper analyzes the changes in the labor market following the reforms. The wage dispersion increased along several dimensions, and returns to education increased. As the “iron rice bowl” broke down, the enterprises significantly reduced the nonwage benefits (housing, education, medical care, etc.) that had been provided to workers in the prereform era. Available online by subscription.

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                  • Giles, John, Dewen Wang, and Wei Cai. “The Labor Supply and Retirement Behavior of China’s Older Workers and Elderly in Comparative Perspective.” World Bank Policy Research Working Paper WPS 5853. Washington, DC: World Bank, 2011.

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                    This paper documents China’s dual retirement system, which has relatively generous formal pension benefits at a relatively early age for urban workers in larger enterprises and government organizations but has little retirement support beyond family contributions for urban workers in smaller enterprises and for rural workers.

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                    • Lee, Ching Kwan. Against the Law: Labor Protests in China’s Rustbelt and Sunbelt. Berkeley: University of California Press, 2007.

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                      As Lee describes in detail, in the “rustbelt” of the Northeast older workers in SOEs have experienced loss of jobs, loss of pensions, and other hardships arising from bankruptcy, whereas in the “sunbelt” of the South young migrant workers have experienced nonpayment of wages, extensive mandatory overtime, and other hardships arising from the competition for export markets.

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                    • Murphy, Rachel. How Migrant Labor Is Changing Rural China. Cambridge, UK: Cambridge University Press, 2002.

                      DOI: 10.1017/CBO9780511550003Save Citation »Export Citation »E-mail Citation »

                      This excellent book, based on extensive field research in Jiangxi Province, documents the “boomerang effect”—the return flows of migrant workers, their remittances, and their worldly information to their home villages.

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                    • Peled, Micha, dir. China Blue. DVD. Oley, PA: Bullfrog Films, 2005.

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                      A documentary film produced for the Independent Lens series on the Public Broadcasting Service (PBS). Filmed surreptitiously in China, this portrays the working conditions in an export-oriented factory producing blue jeans. More information about this film is available online.

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                    • Wong, Linda. “Chinese Migrant Workers: Rights Attainment Deficits, Rights Consciousness, and Personal Strategies.” China Quarterly 208 (December 2011): 870–892.

                      DOI: 10.1017/S0305741011001044Save Citation »Export Citation »E-mail Citation »

                      Based on an extensive survey of migrant workers in four major cities, this article describes the laws and regulations governing migrants’ treatment by their employers and discusses the migrants’ awareness of the legal and political contexts of their employment. Available online for purchase or by subscription.

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                      Financial System

                      China’s financial system has four components: the financial intermediation sector (banks and near banks), the standard financial markets (for stocks and bonds), the informal (nonstandard) sector, and foreign participants. As described in succinct and accessible terms in Naughton 2006 (chapter 19, pp. 449–484) and in substantially more technical terms in Brandt and Rawski 2008 (chapter 14, pp. 506–568; both cited under General Overviews), China’s financial system has been dominated by banks (primarily the “big four,” all state-owned enterprises [SOEs]) into the early 21st century, with stock markets problematical and bond markets very thin. However, the informal sector has become important to the most dynamic portion of the economy (the non-SOE portion), whereas foreign participation has grown slowly, although facilitated since 2001 by China’s accession to the World Trade Organization (WTO). Shih 2007 provides an excellent analysis of the domination by the Chinese Communist Party (CCP) of the formal banking system, the rivalry between factions within the CCP, and how this political situation creates the continuing problem of nonperforming loans (NPLs) in the banks, reflecting inefficient investment decisions. The situation described by Vincent C. Shih helps explain the importance of informal financial institutions to the non-SOEs noted in Brandt and Rawski 2008 (pp. 506–568), so the two sources should be read jointly. Lardy 1998 is somewhat dated but remains an excellent source for understanding the role of political alliances with SOEs in the creation of the banks’ massive problem with NPLs. Wu 2004 (chapter 6, pp. 217–254; cited under General Overviews) provides a helpful description of the “speculation mania” that occurred in China’s stock market. More detailed information on China’s stock market with helpful explanations of the complexities of A, B, and H shares; qualified foreign investment institutions (QFIIs); and so on are in Green 2003 and Su 2003. Zhu and Pan 2011 provides an update to 2005.

                      • Green, Stephen. China’s Stockmarket: A Guide to Its Progress, Players, and Prospects. London: Economist Books, 2003.

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                        This introduction to China’s stock market covers all of the essentials that a foreigner would need to know when considering the possibility of buying shares in a listed Chinese company, written in the easy-to-understand language that characterizes the Economist. It also provides a brief history of stock market developments, including the important role played by Zhu Rongji in sustaining the reforms after the “8.10 riot” in Shenzhen in 1992.

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                      • Lardy, Nicholas R. China’s Unfinished Economic Revolution. Washington, DC: Brookings Institution, 1998.

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                        Although written in 1998 and therefore necessarily somewhat dated, Lardy’s detailed description of the evolution of China’s commercial banking system from the earlier “mono-bank” remains quite valuable.

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                      • Shih, Vincent C. Factions and Finance in China: Elite Conflict and Inflation. Cambridge, UK: Cambridge University Press, 2007.

                        DOI: 10.1017/CBO9780511790591Save Citation »Export Citation »E-mail Citation »

                        More explicitly than any other work cited in this section, Shih’s monograph describes the essential role of China’s Communist Party leadership (and its factions) in shaping the state policies—especially the CCP’s continuing commitment to supporting the big SOEs—that “preclude fundamental banking reform” (p. 3).

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                      • Su, Dongwei. Chinese Stock Markets: A Research Handbook. River Edge, NJ: World Scientific, 2003.

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                        Su says that his monograph “is intended as . . . a benchmark of reference which, I hope, will be of considerable use to academia, practitioners, and policy-makers interested in issues surrounding state enterprise reform and equity market development in China” (p. ix). The research presented undoubtedly meets this standard, but its theoretical rigor and econometric sophistication may make it inaccessible to some readers.

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                      • Zhu, Huaiqing, and Changfeng Pan. “Condition Constraints and Player Behavior in China’s Stock Market.” In China’s Economy in the Post-WTO Environment: Stock Markets, FDI, and Challenges of Sustainability. Edited by Lilai Xu, 29–49. Cheltenham, UK: Elgar, 2011.

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                        This is a useful discussion of the phenomena observed on China’s stock market, including the problem of “tunneling”—an “illegal business practice in which a majority shareholder or high-level company insider directs company assets or future business to themselves for personal gain” (p. 41). Unfortunately, although this paper was published in 2011, the latest data examined were from 2005.

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                      Fiscal and Monetary Policy

                      At the macroeconomic level, a healthy economy has two aspects. In the near term, aggregate supply and demand must be balanced, so that neither extensive unemployment (recession) nor price inflation (overheating) exists. In the longer term, there must be satisfactory economic growth and distribution of income, although in most countries, including China, what is satisfactory to some may be unsatisfactory to others. This section explores China’s short-term performance and the policy levers shaping it. (Economic Performance: Income Growth and Distribution discusses the long-term issues of growth and income distribution.) Naughton 2006 (chapter 18, pp. 427–448; cited under General Overviews) provides a good overview of China’s macroeconomic issues. Broadly speaking, an economy’s macrobalances have three facets, which are intertwined: imports versus exports, savings versus investment, and taxes versus government expenditures. Brandt and Rawski 2008 (chapter 12, pp. 429–466; cited under General Overviews) provides an illuminating detailed analysis of China’s government budget (taxes and expenditures) both central and local and both official and “off budget.” The important 1994 fiscal reform is described in detail, but further fiscal reform is undoubtedly needed. Wang and Hussain 2010 also provides a useful analysis of China’s budget problems. Wu 2004 (chapters 9–10, pp. 327–384; cited under General Overviews) and Shih 2007 (cited under Financial System) shed light on China’s episodes of price inflation and the political causes and consequences. As described in Financial System, the stock market plays only a small role in enterprise finance. Many enterprises finance their investments through their own retained earnings, and non-state-owned enterprises (non-SOEs) look to the informal banking institutions for much of their funding. Brandt and Rawski 2008 (chapter 14, pp. 506–568) provides details on these informal quasi-banks. Since the global financial crisis, which began in 2008 in the United States but spread throughout the world, China has responded with a massive short-term stimulus package, mostly implemented through government instructions to the big banks to lend for infrastructure projects. Ji 2010 attributes China’s relatively quick recovery from the crisis to the strong state control of the banks. However, Woo and Zhang 2011 and Yao and Wu 2011 both challenge this view and argue that what is needed is further liberalization of China’s financial system. Park 2010 and Wang and Hussain 2010 both place the Chinese experience in the wider Asian context.

                      Economic Performance: Income Growth and Distribution

                      The long-term performance of an economy has two aspects. First, how steadily and rapidly does the economy grow (as measured—imperfectly—with such statistics as gross domestic product [GDP])? Second, how equitably is income distributed? The official price-corrected GDP statistics show an average annual compound growth rate of 9.7 percent between 1980 and 2009. This growth was not steady, varying from a slowest growth rate of about 4 percent in 1989 to a highest rate of about 15 percent in 1984 (Zhongguo Tongji nianjian 2011, p. 44; see National Bureau of Statistics of China 1981b–, cited under Statistical Sources). Nevertheless, the result of this rapid growth over more than three decades of reforms has been a significant improvement in the Chinese standard of living, as reported and analyzed in Naughton 2006 (chapter 9, pp. 209–228) and in Brandt and Rawski 2008 (chapter 18, pp. 729–775; both cited under General Overviews). Looking to the future and the key question of whether China can sustain its economic growth in the face of serious imbalances, Lardy 2012 provides an indispensable analysis. Ravallion and Chen 2004 calculates that the number of people living below the poverty line fell from 53 percent of the population in 1981 to 8 percent in 2001, which translates into about 530 million of the very poor in 1981 and about 100 million of the very poor in 2001. Chen and Ravallion 2008 makes important adjustments to the calculations in Ravallion and Chen 2004. As discussed in Dollar 2007, rural poverty is harder to cure than urban poverty. However, as Solinger 2009 points out, this does not mean that urban poverty is easy to solve. The varied papers published in Riskin, et al. 2000 explore the patterns and causes of income inequality in both urban and rural areas. Gustafsson and Sai 2008 explores the problems encountered by China’s ethnic minorities. The World Bank issued an important overall assessment of China’s poverty problems and what is needed to improve the situation (World Bank 2009). As Naughton 2006 (p. 209) summarizes the situation, “Chinese society has become much better off, much less poor, but much more unequal . . . Within China an increasingly widespread perception holds that society is less equal than it used to be and less fair than it should be.”

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