An Overview of the Chinese Economy in the Past 30 years, Some Experiences and Lessons for Government and Businessmen Dr. Hongjun Zhao Professor of Economics and Development Shanghai University of International Business and Economics May 12, 2013

Topics How did China Make its Economy Successful since 1978? How did government and businessmen interact well with each other in this process? Some experiences and lessons for government and foreign businessmen 1

I. How did China Make its Economy Successful since 1978? FDI in flow as the share of GDP since 1978

Export and Import since 1978

Exp. & Imp. in current or constant price

China’s GNP and GDP

GDP in current US$

Urban, Rural disposable income

Fixed assets investment

Fiscal income

GDP growth Rate

China’s growth compared to others

Female and male life expectancy since reform

Why did China make so much progress? Backward advantage Open up policy Decentralization Government’s good policy Citizen and peasants can choose their occupation, making their economic decision relatively freely

How did the government make these work? Government realized that if there were no economic reform, China will still lag behind, even fall apart like the Former Soviet Union, East European Countries Policies and Institutions matter Household Responsibility System was launched since 1978 Town Village Enterprises (TVE) promotion Act have been passed since 1983 Urban financial reform, exchange reform, foreign trade reform, real estate reform ect since 1986 Fiscal decentralization since 1994 Market-oriented+ Government-supported

The wars in Chinese History

Domestic Wars

Foreign invasion and aggressions

Why was Chinese government so strong to do so? merchants Government Peasants Bureaucrats Meritocrats Schools/University merchants Confucianism dominated Favorable geography for agriculture

II. How did Government and businessmen interact well with each other since 1978? In Chinese history, government suppresses businessmen and business activity all along the Chinese history –Businessmen have to go out of city or town to trade with each other –Businessmen’s property tax was raised by at least 50% since the W. Han –Business activities, such as trading, with aim of maximizing profit were not encouraged –why so?

The rank of businessmen in society was the lowest one Very important goods such as salt, iron, wine were monopolized by government Only one social upward mobility

Imperial examination Champion ( A.D)

Government deregulated planning economy since 1978 Household Responsibility System was launched since 1978 –Peasant becomes the “real” farmer, extra produces are their own surplus, therefore profit –Peasants could sell their produce surplus to market –Town and village could set up enterprises, TVE promotion Act have been passed since 1983 –Rural banks relaxed their loan requirements to peasants, and TVE

Double-track pricing system 1981, extra production of oil was permitted to export at international price 1983, extra production of petroleum and coal could be sold out to private dealers 1984, extra production of industrial materials could be sold out at 20% price mark-up 1985, extra production of industrial materials could be sold out at market price 1988, price ceiling was imposed in industrial materials 1989, the price of most products was marketized

Market-oriented Institutional Reforms Urban financial reform, more banks available Exchange reform, managed fluctuation The monopolized Foreign trade system was marketized More FDI, joint-ventures were welcome Fiscal decentralization since 1994 Every city, province could make their own economic decision relative independently

Government-Business Interaction Infrastructure Investment, helping G provide public service, earning profit Made in China, contributing to consumption, manufacturing, employment, earning profit Service in China, research, consulting, training, purchasing

Government and business relation in the new times Peasants merchants Government Peasants Bureaucrats Meritocrats Schools/University workers Business,merchants dominated Favorable geography for agriculture

III. Some Experiences and Lessons for Government and Businessmen Joint-ventures are more preferred to wholly foreign- owned enterprise Well government-business relationship is welcome everywhere Paying more attention to Chinese governmental and industrial guidelines Localization is one of the very important strategies for Chinese market “Made in China” faces more competition Service in China is one of the good choice for investment in China

My study on Chinese Economy