Political Economy China

How does China deal with economic planning? intro How does China deal with economic planning?

Political Economy China

All property was state owned and the economy was centrally planned. China Communism Communism From 1949-1978 China used a Soviet style communist political economic model Mao promised an “iron rice bowl” of lifetime health care, work, and retirement security) All property was state owned and the economy was centrally planned. This system favored industrial production at the expense of consumer goods. Industries were nationalized from 1949-1952 & land redistributed to 300 million peasants before the Great Leap Forward

China Communism Industrialization Mao used a “Reds vs Experts” policy putting party cadres against those with economic training. Small scale labor intensive industries developed Economic energy was shifted from agriculture to inefficient industry After the Great Leap Forward, industries began to emphasize expertise over political goals

China Communism Cultural Revolution Mao attacked the “experts” as capitalists Cultural Revolution Persecutions affected those with the most expertise in economics The impact on the economy was devastating After the Cultural Revolution, China was a poorly functioning and isolated economy

China Reform & Opening Deng Reform & Opening began in 1978 Leadership shifted its focus from communist goals to creating rapid economic growth Agricultural communes of the GLF were replaced with by the household responsibility system This system meant land was contracted out to families who still had to give some amount of their produce to the state, but could sell the surplus Food production improved and famines no longer occurred

China Reform & Opening Deng Industries were decentralized. Town and village enterprises were given more economic freedom & encouraged to generate profits. Private industry was permitted by the middle of the 1980s The govt created special economic zones that offered incentives for foreign investment in coastal cities. During the 1990s even more economic decision making was given to local officials and private entrepreneurs.

China Reform & Opening Growth Growth was unprecedented The economy grew annually at 10% for three decades after reform & opening Hundreds of millions of people were lifted out of poverty This became the new source of legitimacy for the govt. Economic growth made people trust the govt.

State Capitalism China

21st Century China is definitely capitalist State Capitalism Capitalism 21st Century China is definitely capitalist Party state reformers have sold or closed tens of thousands of state owned enterprises The remaining SOEs are very large, important, and given favor by the party

China State Capitalism State Owned Enterprises China has tightened its control of a few strategic industries 85 Chinese companies are in the Fortune 500 and all but 7 of them are SOEs. These control industries like oil, coal, transportation, & telecommunications. They receive preferential lending from the state & favored market access These policies have enhanced their growth and made employment in them desirable for Chinese elites

China has tightened its control of a few strategic industries State Capitalism State Capitalism China has tightened its control of a few strategic industries 85 Chinese companies are in the Fortune 500 and all but 7 of them are SOEs. These control industries like oil, coal, transportation, & telecommunications. They receive preferential lending from the state & favored market access These policies have enhanced their growth and made employment in them desirable for Chinese elites

The Chinese model is more neomercantilism China State Capitalism Beijing Consensus China’s state led model of capitalism is known as the Beijing consensus As opposed to the neoliberal free market model known as “Washington consensus” The Chinese model is more neomercantilism The state nurtures infant industries and gives preferential treatment to domestic firms There has been significant liberalization in China, but the economic system is substantially closed

Challenges of Economic Growth China

China Challenges Challenges Reform & opening have caused problems as well as great successes The iron rice bowl of Mao has been replaced by labor mobility, job insecurity, and high unemployment After emphasis on equality, reform has made China much less equal. Inequality has grown between rich and poor, as well as between urban & rural. Gini coefficient was 0.16 in 1978; 0.39 in 1988; and peaked at 0.49 in 2008 US is 0.45

Regional inequality is a major problem China Challenges Inequality Inequality has grown between rich and poor, as well as between urban & rural. Gini coefficient was 0.16 in 1978; 0.39 in 1988; and peaked at 0.49 in 2008 US is 0.45 Regional inequality is a major problem Foreign investment is concentrated on the east coast. Much of China’s inland territory has gotten little investment. Urbanization is increasing rapidly, but more than half the population is rural

Reforms have focused on China’s cities Challenges Migrants Reforms have focused on China’s cities Migrant workers who come to cities lack a residency permit and are therefore excluded from the urban welfare system They don’t have health care, pensions, unemployment insurance, or education Even with these challenges facing migrants, their numbers continue to grow Recent leaders have promised to deal with the imbalance between urban and rural benefits

China Challenges Slowing Growth Since 2012, GDP is only growing at 7% This growth is still more than any other advanced industrialized nation The govt’s legitimacy is based on their ability to continue to deliver prosperity to their people

China Challenges Factions in the Party Populists want to address China’s growing inequality problems Hu Jintao & Li Keqiang are both populists – they worked their way up through the CCP from humble beginnings in rural areas – they see the need for change Elitists favor economic freedom and efficiency over equality Jiang Zemin & Xi Jinping are both elitists – they are children of former high ranking officials and they want to emphasize China’s role in the global economy.

Foreign Relations China

Creation of PRC and it’s break with USSR made China isolated globally Foreign Relations Isolation Creation of PRC and it’s break with USSR made China isolated globally The height of its global isolation was during Cultural Revolution when Mao attacked foreign cultural & economic influences Deng finally helped China emerge from isolation with his “opening” policies By the end of the 1970s most countries had normalized relations with PRC

It’s economically interdependent with the world’s largest economies China Foreign Relations Improvement There are increasing outbursts of nationalists rhetoric from PRC leaders China has continued to improve its relations with the rest of the world It’s economically interdependent with the world’s largest economies The 2008 Olympics were very important to show China can participate as a peaceful leader of the international community

China Foreign Relations Taiwan Chiang Kai-shek established the Republic of China on Taiwan in 1949 Chiang claimed it as the temporary home to the legitimate govt of all of China It prospered as a capitalist authoritarian state under KMT rule It was forced to surrender its UN seat to PRC in 1971. The US ended formal diplomatic relations with it in 1979 when it normalized relations with PRC

CCP leadership has always regarded Taiwan as a province of China. Foreign Relations Taiwan CCP leadership has always regarded Taiwan as a province of China. China would view any Taiwanese declaration of independence as an act of war & expects its full integration Taiwan democratized in the 1980s, which made tensions with the PRC worse. The USA continues to promise military protection & sells weapons to Taiwan Taiwan & China signed a free trade pact in 2010 & now China is Taiwan’s biggest trading partner

China Foreign Relations Hong Kong The United Kingdom returned Hong Kong to China in 1997 China used a policy called “one country, two systems” in dealing with HK Hong Kong has virtual autonomy for a transition period of 50 years. Hong Kong has its own economic & administrative systems China expects to have Hong Kong fully integrated into China in 2047 although it is unclear what that will mean.

China Foreign Relations Japan Tension exists between China & Japan dating back to occupation in WW2 The two have competing claims over islands equidistant between them Japan currently maintains control over the islands, but both claim & exercise fishing and drilling rights. Despite tensions, Japan & China have strong economic ties.

China Foreign Relations South China Sea China has been increasing its sovereignty in the South China Sea by building islands on coral reefs These allow China to claim exclusive economic rights to the water around them China has disputed claims to these waters which are also claimed by Philippines, Vietnam, Malaysia, & Brunei

Xi knows these answers… China

State owned enterprises Main Ideas China Reform and Opening Economic inequality State owned enterprises Mao’s Main Ideas Foreign relations