Socialism and the Command Economy

1
Socialism and the Command Economy

• Socialism an economic system emphasizing on
  public ownership
• command economy central economic planning,
  distribution of resources and setting price by
  administrative methods
• an emphasis on developing heavy industry and the
  urban areas by keeping the prices for
  agricultural products low
• closed to the external world
• high rates of industrial growth in the first
  three decades, but inefficiency

2
Patterns of Reform Policies

• Gradualism
• Administrative decentralization
• Particularistic contracting

3
Gradualism

• Shock therapy versus gradualism
• Gradualism crossing the river by feeling for the
  stones reform without a grand plan the market
  sector was expanded at the fringe of the plan
  sector accommodating the possible political
  resistance to reform by protecting established
  interests and giving substantial side payments to
  influential players gradualism as the only
  politically feasible approach

4
Administrative Decentralization

• Decentralization to whom? Local governments or
  enterprises
• decentralization to local governments as a
  strategy to gain local support for reform
• enterprises still tightly controlled and
  intervened by administrative agencies
• competition among localities and economic
  consequences strong incentives to develop
  industry and market segmentation

5
Particularistic Contracting

• Reforms and decentralizations were negotiated
  individually
• Gradualism, administrative decentralization and
  particularistic contracting
• particularistic contracting and political support
  for reform
• creating demands for lucrative reform
  opportunities

6
Reforms relating to foreign investment by
particularism

• Political expediency and geographical
  particularism
• Setting up special economic zones in south China
• to reduce opposition from conservative political
  leaders and bureaucracies with established
  interests
• exploit the political advantages of particularism
• preferential policies given to the special
  economic zones, and Guangdong and Fujian

7
Extending the Open Policy

• Pressure from other provinces for preferential
  policies
• Zhao Ziyangs coastal development policy
  unbalanced growth between coastal and inland
  areas
• shifting the emphasis from Guangdong to Shanghai
• spread of preferential policies to inland
  provinces by allowing local government to create
  development zones within their jurisdictions
  loss of control over the establishment of
  development zone and re-centralization
• geographical particularism and re-orientation of
  officials toward opening
• broadened local support for reform

8
Decentralization of Foreign Trade Authority

• Decentralization from the central ministry to
  local authorities
• provincial and municipal governments as well as
  ministries were permitted to establish their own
  trading companies to compete with the national
  trading companies
• retention of foreign exchange earnings and
  assignment of foreign exchange rights on a
  particularistic basis
• shifting the authority to issue import and export
  licenses from central to local officials, but the
  number of products requiring licenses has
  increased
• import and reselling of imported goods in the
  domestic market

9
Consequence of Trade Decentralization

• Loss of national bargaining power with foreigners
• increase in corruption the case of car scandal
  in Hainan island

10
Foreign Trade Contracting

• Each province negotiated a contract with the
  central ministry of foreign trade
• the amount of foreign exchange earnings
• the amount of foreign exchange to be remitted to
  the central level
• a fixed amount of domestic currency the center
  would provide to subsidize losses on export
• Greater local autonomy in foreign trade

11
Opening the Domestic Market

• International pressure on removing import
  barriers and lowering tariffs, and entry to WTO
• import barriers and protection of national
  industries
• resistance from industrial ministries to removing
  trade restrictions and promoting competition

12
WTO and Opening of Domestic Market

• Why does China want to join the WTO?
• Wider access to world market
• to promote domestic market reform
• to join ahead of Taiwan
• to rid itself of the annual review of most
  favored nation status by the U.S. government

13
Chinas Entry to the WTO

• Who benefit?
• Consumers
• Chinese industries that are competitive in the
  international market
• Who suffer?
• Service industries in China (banks, insurance
  firms)
• heavy industries and agriculture
• Would Hong Kong Benefit?