China's learning curve
Li Yining, professor and dean of the Guanghua School of Management at the University of Beijing gave a talk recently at the Chamber and Enterprise in Valletta on Thirty Years Of China's Reform And Opening Up. The following is an abridged version of...
Li Yining, professor and dean of the Guanghua School of Management at the University of Beijing gave a talk recently at the Chamber and Enterprise in
Valletta on Thirty Years Of China's Reform And Opening Up. The following is an abridged version of that talk.
Prior to 1978, China had a highly centrally-planned economy where state-owned enterprises were dominant. At the time, the country had few economic interactions with the bigger world. China had to change to a market economy and although the state still played an important part, many non-state enterprises developed.
The Chinese began to realise that they had to abandon the planned economy and bring about reforms enabling the development of a market economy in order to accelerate its economic development and provide the people with an access to a better standard of living.
People were isolated from the rest of the world, unaware of the changes and developments in the world economy. An isolated environment facilitated the implementation of the planned economy which in turn aggravated the isolation.
In May 1978, a great debate ensued over the proposition that "Practice is the sole criterion for testing theory" which provided the impetus that assisted China to break away from the planned economy.
The debate emphasised that one should not have blind faith in doctrines and in everything that previous leaders had said.
"There is no doubt that without this liberation of thought and without the guidance of Deng Xiaoping's theory of building socialism with Chinese characteristics, it would have been impossible for us to break away from the planned economy," Prof. Li said.
The early stages of China's reform starting in 1978 consisted of the following three steps. Firstly, to develop the contract responsibility system in rural areas. Secondly, promote township-village enterprises and thirdly, establish special economic zones.
A year later, a special economic zone was set up in Shenzhen, Guangdong province, near Hong Kong. FDI was encouraged, new firms formed and economic activity was based on market rules.
The establishment of the special economic zone opened a window to the outside world and set an example to the country showing that Shenzhen could emulate what Hong Kong had managed to achieve.
Ten years later, China removed price controls but due to a lack of a preparation, panic spread and prices rocketed, eventually leading to a suspension of the price reforms.
The general design for China's reform was laid out in November 1993 based on four main segments. These were: the combination of a socialist system and a market economy; the establishment of modern corporations; the development of markets for production factors and the establishment of a set of macroeconomic policy instruments.
After 1994, the pace of state-owned enterprises reforms accelerated. Reforms of small and medium state-owned enterprises were even more rapid.
In 1997, the Congress of the Communist Party proclaimed that in a socialist society, the shareholding system was an effective form of public ownership.
The most serious problem was that the majority of shares were non-tradable and belonged to the government. So that even though the companies were publicly listed on the stock market, their behaviour remained unchanged.
The reform of non-tradable shares was completed by 2006.
By the end of 2006, as some large state-owned enterprises became listed on the stock market, the total market capitalisation of the country's two stock exchanges rose to more than 50 per cent of China's GDP. This was followed by a reform of the financial system and of a diversified banking system.
After 2002, China's economic reforms moved into a third phase where some urgent problems had to be faced.
These included: narrowing the gap between the rich and the poor by balancing income distribution; enabling farmers to share the benefits of economic growth and reform and achieve sustainable development through the use of the concept of scientific development. Another problem was for the government to transform itself to become service-oriented.
"It is increasingly urgent to transform the government's role. This calls for the continuous liberation of our minds and for a breaking free from all the outdated notions about the government's role that were rooted in the planned economy but still remain intact today.
"Only in this way can reform go forward and lead to the further development of China" Prof. Li said.
Valletta on Thirty Years Of China's Reform And Opening Up. The following is an abridged version of that talk.
Prior to 1978, China had a highly centrally-planned economy where state-owned enterprises were dominant. At the time, the country had few economic interactions with the bigger world. China had to change to a market economy and although the state still played an important part, many non-state enterprises developed.
The Chinese began to realise that they had to abandon the planned economy and bring about reforms enabling the development of a market economy in order to accelerate its economic development and provide the people with an access to a better standard of living.
People were isolated from the rest of the world, unaware of the changes and developments in the world economy. An isolated environment facilitated the implementation of the planned economy which in turn aggravated the isolation.
In May 1978, a great debate ensued over the proposition that "Practice is the sole criterion for testing theory" which provided the impetus that assisted China to break away from the planned economy.
The debate emphasised that one should not have blind faith in doctrines and in everything that previous leaders had said.
"There is no doubt that without this liberation of thought and without the guidance of Deng Xiaoping's theory of building socialism with Chinese characteristics, it would have been impossible for us to break away from the planned economy," Prof. Li said.
The early stages of China's reform starting in 1978 consisted of the following three steps. Firstly, to develop the contract responsibility system in rural areas. Secondly, promote township-village enterprises and thirdly, establish special economic zones.
A year later, a special economic zone was set up in Shenzhen, Guangdong province, near Hong Kong. FDI was encouraged, new firms formed and economic activity was based on market rules.
The establishment of the special economic zone opened a window to the outside world and set an example to the country showing that Shenzhen could emulate what Hong Kong had managed to achieve.
Ten years later, China removed price controls but due to a lack of a preparation, panic spread and prices rocketed, eventually leading to a suspension of the price reforms.
The general design for China's reform was laid out in November 1993 based on four main segments. These were: the combination of a socialist system and a market economy; the establishment of modern corporations; the development of markets for production factors and the establishment of a set of macroeconomic policy instruments.
After 1994, the pace of state-owned enterprises reforms accelerated. Reforms of small and medium state-owned enterprises were even more rapid.
In 1997, the Congress of the Communist Party proclaimed that in a socialist society, the shareholding system was an effective form of public ownership.
The most serious problem was that the majority of shares were non-tradable and belonged to the government. So that even though the companies were publicly listed on the stock market, their behaviour remained unchanged.
The reform of non-tradable shares was completed by 2006.
By the end of 2006, as some large state-owned enterprises became listed on the stock market, the total market capitalisation of the country's two stock exchanges rose to more than 50 per cent of China's GDP. This was followed by a reform of the financial system and of a diversified banking system.
After 2002, China's economic reforms moved into a third phase where some urgent problems had to be faced.
These included: narrowing the gap between the rich and the poor by balancing income distribution; enabling farmers to share the benefits of economic growth and reform and achieve sustainable development through the use of the concept of scientific development. Another problem was for the government to transform itself to become service-oriented.
"It is increasingly urgent to transform the government's role. This calls for the continuous liberation of our minds and for a breaking free from all the outdated notions about the government's role that were rooted in the planned economy but still remain intact today.
"Only in this way can reform go forward and lead to the further development of China" Prof. Li said.