Introduction to the Cultural Revolution The Great Proletarian Cultural Revolution ( 无产阶级文化大革命 ), was started in It was set up to secure Maoism and eliminate Political Opponents. It officially ended in 1969, when Mao himself admitted that the revolution had ended. Over this period of three years, many died and millions more imprisoned. The leaders of the Cultural Revolution remained in power, even after the end of the Revolution. The period is widely considered to have been a period of economic stagnation.

A short intro to the Red Guard The Red Guard is the name given to the hundreds of thousands of students who left their schools to spread Mao’s message; that the Moderates were bringing China down the ‘Capitalist Road’, and needed to return to pure Communism once again They were responsible for a majority of the chaos created during the Cultural Revolution They traveled the countryside and visited factories, etc. to spread the message At the end of the Cultural Revolution, they were sent to the countryside to ‘learn from the peasants’

Influence – The Red Guard They had the workers arrange meetings so frequent that production came to a standstill Anyone who complained was accused of being a bourgeois, etc. Vandalism was also common, as the Red Guard started to stamp out authorities, like the leader of the factory, etc. High levels of violence ensued This meant that national output fell dramatically during the course of the Cultural Revolution This caused the Chinese economy to be crippled through the three-year duration of the Cultural Revolution

Influence - Political Later, the Gang of Four, especially Jiang Qing considered everything as Capitalist; they condemned a basic theory that production power decided the relation of production to the character of the society as ‘Revisionism’; in a sense referring to looking back to the past. They agitated workers openly by saying ‘[not to] fear to stop production and work’. They disliked modernism; they referred the introduction of technological plants as ‘worshipping and toadying to foreign countries’. Most workers complained about the Four’s policies, and made an effort to produce. However, a decline in production was impossible, with their constant exposure to slogans created by Jiang's groups

A Success Story Average Annual Time Period % Growth (pre-reform) (post-reform) (Jan-June)8.2 Source: Morrison 2000

Source: U.S. Embassy in China, Trade & Investment Briefing

Hong Kong Japan USA Taiwan Other Singapore

China’ economic development strategy after 1978 had its advantageChina’ economic development strategy after 1978 had its advantage But after two decades, the strategy itself has created serious problem too.But after two decades, the strategy itself has created serious problem too. 1.Environment disruption 2.Counterfeit goods 3.Unfair treatment to migrant workers (“shattered dreams”) 4.Non uniform progress of reform results disparity in development and inequality in income distribution 5.Dual track systems result rent seeking behavior 6.Vigor and Chaos cycles of development 7.Bad debt, slow progress of the financial system reform and real estate bubbles 8.Unemployment 9.Grain production 10.Lack of significant progress in the SOE sectors A successful SOE reform is the key to solve these problems.A successful SOE reform is the key to solve these problems.

Unemployment

Unemployment Explicit unemployment VS implicit unemployment (layoffs)Explicit unemployment VS implicit unemployment (layoffs) In 1997, 3.1% VS % In 1997, 3.1% VS % Explicit unemployment: leave jobs and lose employment relationship. Implicit unemployment: leave jobs but maintain employment relationship Why? It is necessary for SOEs to layoff workers to become profitableWhy? It is necessary for SOEs to layoff workers to become profitable –Early retirement plan Promising a modest living standardPromising a modest living standard –But many SOEs were not able to pay benefit Social insatiabilitySocial insatiability

How Reforms Benefited China? Agriculture : Beginning of the reform process Unleashed people’s initiative Encouraged entrepreneurial spirits Unprecedented rural development Created support base for reform China’s rural economy has one of the drivers of high growth. Average annual growth in agriculture has been 4.3% during 1990s.

How Reforms Benefited China ? Price Reform: Helped in gradual introduction of market economy Encouraged people to work harder A great opportunity to improve well-being Industrial Reform: Generation of urban entrepreneurial class Generation of managerial community Production for profits Production for exports / world market

Infrastructure Huge public investment — Centre and provinces Facilitated commerce and trade Facilitated growth and modernisation Financial Sector  Capital Market Helped to develop corporate culture / capitalist economy Create moneyed class Modernisation of corporates  leading to globalisation of corporate sector. How Reforms Benefited China ?

SOE reform The biggest problem of China’s economic reform is from the SOEs.The biggest problem of China’s economic reform is from the SOEs. What are the troubles of SOEs?What are the troubles of SOEs? –A growing proportion of SOEs is losing money. The World Bank reportedThe World Bank reported –In 1994, 1/3 of SOEs lost money. –It was ½ in –It is now 2/3 Large and medium sized SOEs have suffered more while small SOEs adapted themselves to the marketLarge and medium sized SOEs have suffered more while small SOEs adapted themselves to the market We will focus on the large and medium-sized SOEsWe will focus on the large and medium-sized SOEs Certain industry as a whole suffered losses.Certain industry as a whole suffered losses. –Over-capacity In 1997, the state admitted that only 60% of the production capacity of SOEs was in useIn 1997, the state admitted that only 60% of the production capacity of SOEs was in use There are a lot of workers in surplusThere are a lot of workers in surplus –Serious losses in state assets In 1994, 82.8% for small SOEs, 59.4% for medium-sized SOEs,15.2% for large SOEs.In 1994, 82.8% for small SOEs, 59.4% for medium-sized SOEs,15.2% for large SOEs. –Too high asset-liability ratio 30% in 1980,40% in 1985,60% in 1990,75% in % in 1980,40% in 1985,60% in 1990,75% in 1994