Whither China? : restarting the reform agenda

353 Pages·2016·2 MB·English

by  Wu

Whither China?

Whither China?
Restarting the Reform Agenda
Wu Jinglian and Ma Guochuan
Translated by
Xiaofeng Hua and Nancy Hearst
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© Wu Jinglian and Ma Guochuan 2016
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CONTENTS
Preface   vii
Acknowledgments   xv
About the Authors   xvii
Dialogue 1: “Whither China?” in a New Context   1
dialogue 2: Why Should the Soviet- Type Economic System
Be Reformed?   16
dialogue 3: The Initial Emergence of Reform in 1956   30
dialogue 4: Reforms of the Economic Administration System
during the Maoist Era 45
dialogue 5: The Failure of State- Owned Enterprise Reforms
under Market Socialism   59
dialogue 6: Rural Household Contracting Leads to the Incremental
Reform Strategy   74
dialogue 7: The Sudden Rise of the Private Sector   92
dialogue 8: Opening to the World: A Driver of Domestic Reform   105
dialogue 9: The Role of the “Dual- Track” System and
Its Consequences   120
dialogue 10: Overall Promotion of Reform: A New Phase   135
dialogue 11: Redefining Property Rights   150
dialogue 12: Financial Institutions   163
dialogue 13: Returning to Public Finance   178
dialogue 14: The Long and Bumpy Road to a Social- Security System   194
dialogue 15: Economic Fluctuations and Macroeconomic Policies   210
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dialogue 16: Unfinished Market- Oriented Reforms   225
dialogue 17: Without Political Reform, Economic Reform
Will Not Succeed   240
dialogue 18: Difficulties in Shifting the Growth Model   254
dialogue 19: Why Did China Become a Rent- Seeking Society?   269
dialogue 20: Restarting the Reform Agenda   285
Further Reading  303
Index   309
PREFACE
In the last two decades of the twentieth century China achieved important progress in
its market- oriented economic reforms. However, shortly after the turn of this century,
an intense debate on “Whither China?” erupted in parallel with the deceleration of the
reforms. The intensity and level of participation in this debate exceeded that of any of
the previous debates since the late 1970s. At its center were two options: whether China
should continue on the path of economic and political reforms or whether it should
reinforce the so- called “China model,” whereby a powerful government is in command
of everything. The latter option may also include a return to practices of the Maoist era.
This book reflects the arguments of the authors during the course of this debate.
In the face of many historical crossroads since the beginning of the late nineteenth
century, China has had to address the question, whither China? For example, after the
initial launch of the reform and opening in 1978, this question (which is similar to
one of the questions that the great ancient Chinese poet Qu Yuan directed to Heaven)
was raised at many critical turning points. This time, however, the question was being
asked just as China was becoming a prosperous, democratic, civilized, and harmoni-
ous society. Because of the high stakes and the fact that the question had not been
addressed for a long time, it produced much anxiety in society.
As I state in this book’s dialogues with Ma Guochuan, by the end of the twenti-
eth century China had established a preliminary framework for a socialist market
economy. Under this framework, market exchanges have become the main form
of transaction, greatly encouraging the creativity of the private sector and lead-
ing to high economic growth. However, in many respects the economic system is
still under the influence of the old command economy. Even the functioning of the
market remains reined in by the government. Therefore, the current economy is a
transitional mix of a semi- command, semi- market economy. There are two possible
futures for such an economy. In the first scenario, if the government gradually phases
out its interventions in microeconomic activities and strengthens its public- service
functions, a rule- governed modern market economy might come into existence. We
call this a market economy based on rule of law. In the second scenario, if the govern-
ment continuously enhances its controls and interventions in the market and con-
tinues to strengthen the “control capacity” of the state sector, then China’s economy
might evolve into state capitalism whereby an authoritarian government controls
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socioeconomic development. Given China’s current social and historical conditions,
it is possible that this scenario will lead to crony capitalism.
Faced with these two destinies, where should China go from here?
After the onset of the debates, advocates of the second scenario took advantage
of the fact that the general public was seriously distressed about the rampant cor-
ruption and the sharp divide between the rich and poor, but it did not necessarily
understand the deeper roots of the problems. These advocates attempted to employ
some demagogic populist and nationalist slogans to lead the public astray. For a while,
such attempts, first known as the “Beijing consensus” and then as the so- called “China
model,” gained momentum. Advocates of this view held that China’s remarkable eco-
nomic performance since the end of the 1970s had been due to its strong government
and its powerful control of the state sector. According to such thinking, this model
had enabled China to concentrate its resources on doing big things and to enforce
the will of the state. They did not accept that the various social ills were due to the
“excessive placement, misplacement, or absence of the role of government” (that is,
“the government managed many things that it should not manage or that it could not
manage well, while it failed to manage many other things that it should manage and
that it could manage well”). They claimed that the problems were due to the impacts
and obstacles created by the market forces and the limited and ineffective government
control over the economy and society. Their conclusion was to further expand gov-
ernment power, enhance control over the economy by state- owned enterprises, and
reinforce an authoritarian developmentalism model in which GDP growth is driven
by a powerful government, large state- owned enterprises, and massive investments.
In this book, we review the history of the contemporary Chinese economy to pro-
vide an objective and in- depth analysis of its evolution— from the establishment by
Mao Zedong and his colleagues of a command economy under proletarian dictator-
ship to the entire process of reform and opening over the last thirty-p lus years. We also
explore the institutional causes for the social maladies and the correct ways to overcome
them. Through such reviews we have come to a conclusion that differs completely from
the foregoing argument. The facts show that it has been the Chinese people’s creativity
and entrepreneurship, unleashed by the market- oriented reform and opening, that have
sustained China’s strong economic growth for more than three decades. We strongly
believe that in the face of the various social ills caused by the delays in reform, the
only way out for China is to restart and firmly promote the market- oriented economic
reforms and to advance the rule- of-l aw and democracy- oriented political reforms.
We are pleased to note that the Chinese version of our book immediately became
a best- seller, and within two years more than 100,000 copies had been sold. This
enthusiastic reception indicates that hundreds of thousands of ordinary readers found
strong resonance with these views. After 2011, the realities of the so- called “miracle of
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high- speed railways” and the “Chongqing miracle,” which had been highly praised by
advocates of the so- called “China model,” were revealed in succession and the negative
effects of authoritarian developmentalism gradually surfaced. Debates about China’s
future direction intensified. More and more people came to realize that if China were
to turn back, it would face a dead- end, and the only way to achieve long- term stability
and prosperity would be to continue the reform and opening.
Against this backdrop and promoted by the joint efforts of people with keen
insight, the November 2012 Eighteenth National Communist Party Congress met the
people’s expectations by providing a clear answer to the question, whither China? The
answer is: “We must, with greater political courage and vision, lose no time in deepen-
ing reform in key sectors.” With respect to the economic reforms, the Party Congress
declared the need to adhere to the reform orientation of the socialist market economy,
to “strike a balance between the role of the government and that of the market,” and to
“leverage to a greater extent and in a wider scope the basic role of the market in allocat-
ing resources.” With regard to political reforms, the Eighteenth National Communist
Party Congress reiterated the statements of the Sixteenth and Seventeenth National
Communist Party Congresses to “work harder to enhance socialist democracy” and to
“build a socialist country based on the rule of law.”
After the conclusion of the Eighteenth National Communist Party Congress,
active and heated discussions regarding the design of an overall reform program took
place among government officials, the business community, and academics, as well
as among many individual citizens. Participants in the debate from academic circles
included both those “within-t he- system”—t hat is, those employed in government-
affiliated research institutions and nongovernment academic bodies—as well as domes-
tic scholars and overseas experts. This phenomenon of broad participation in the design
of the reform has rarely been seen in China’s thirty- five- year history of the reform and
opening. The participants took an issue- driven approach and scrutinized the main social
problems. They identified the institutional causes of the problems and suggested the
required reforms. Various lists of proposed institutional reforms were then drawn up.
Wu Jinglian, an active participant in these activities, holds the view that the core
task of economic reform is to establish a competitive market system. Specifically,
he advocates that the reform should: (a) clarify a property- rights system for the
market economy; (b) provide equal protection of property rights and equal access
to the factors of production for all economic entities under different owner-
ships; (c) let the market determine the prices of goods and production factors; (d)
improve competitiveness and eliminate local protectionism and administrative
monopolies that obstruct the proper functioning of the market; (e) follow the prin-
ciple of “let the market do what it can and let the society do what it is capable of”
to readjust the relationships between the government, the market, and the society,