Capitalism with Chinese Characteristics: Entrepreneurship and the State

Capitalism with Chinese Characteristics: Entrepreneurship and the State

Yasheng Huang

Language: English

Pages: 366

ISBN: 0521898102

Format: PDF / Kindle (mobi) / ePub

An Economist Book of the Year, 2008
This book presents a story of two Chinas - an entrepreneurial rural China and a state-controlled urban China. In the 1980s, rural China gained the upper hand, and the result was rapid as well as broad-based growth. In the 1990s, urban China triumphed. In the 1990s, the Chinese state reversed many of its productive rural experiments, with long-lasting damage to the economy and society. A weak financial sector, income disparity, rising illiteracy, productivity slowdowns, and reduced personal income growth are the product of the capitalism with Chinese characteristics of the 1990s and beyond. While GDP grew quickly in both decades, the welfare implications of growth differed substantially. The book uses the emerging Indian miracle to debunk the widespread notion that democracy is automatically anti-growth. The single biggest obstacle to sustainable growth and financial stability in China today is its poor political governance. As the country marks its 30th anniversary of reforms in 2008, China faces some of its toughest economic challenges and substantial vulnerabilities that require fundamental institutional reforms.













businesses in the country at the time – was only 1.1 million yuan.3 There is another way to illustrate just how substantial Mr. Nian’s operations were in 1986: 1 million yuan in 1986 is roughly equivalent to 3.14 million yuan in 2003. We have profit data on about 3,000 large private-sector firms as of 2003 from a private-sector survey conducted in 2004. (The survey is hereafter referred to as PSS2004. The Appendix to this chapter contains more details about PSS2004.) With 3.14 million yuan in

expend efforts and capital today. The security of property rights is an incentive device. It is here that the standard economic analysis finds China puzzling. This is a country without the conventional sources of property rights security, such as a constrained government, an independent judiciary, free media, and political power for the propertied class. Where, then, is the incentive for economic growth in this system? Deng’s perspective provides the answer. Property rights protection in China,

policies toward the private sector. In this section, 126 Capitalism with Chinese Characteristics I show that the policies toward TVEs became adverse in the 1990s and that it was this change in the policy environment more than those other factors emphasized by economists that explains the demise of TVEs. 2.1 The Downfall of the TVEs The period from 1978 to 1996 was the “golden era” for TVEs. The period since then has been one of retrenchment. China scholars have provided many explanations for

completely banned their operations in 1998. In the 1990s, the two terms siren and minjian completely disappeared from bank documents (except when announcing bans on private financial transactions). The crackdown on informal finance was both determined and ferocious. In 1991, an illiterate housewife in Wenzhou paid the ultimate price – Zheng Lefang was executed for “financial fraud.” Zheng personified the turning point in China’s financial policies. She had committed her alleged crimes in 1986 but

China’s two stock exchanges, had partial private revenue rights but complete state control rights. Between 1990 and 2003, only 6.97 percent of the initial public offerings on the two Chinese stock exchanges were from private-sector companies. The rest were SOEs that issued minority shares but in which managerial control remained very clearly in state hands.27 Put differently, because many shareholding firms in China have private revenue rights but their control rights still rest with the

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