China’s Economic Rise & Current Landscape

Wanli Hu

UMass Boston

National Chinese Language Conference

April 7, 2013

Table of ContentsI. Deng’s Economic Reform

Deng’s pragmatism replaced Mao’s ideology of class struggle

A “revolution” of ownership transformation Top-down state owned enterprises reform

II. Open-Door Policy III. Economic MiracleIV. China’s Current ChallengesV. Discussion

I. Deng Xiaoping Resumed his Power and Launched China’s Economic Reform in 1978

I-1. Pragmatism Replaced Mao’s Ideology of Class Struggle

New mindset:Deng remarked that “a liberation of thoughts” was

necessary and the leadership must “seek truth from facts” - Third Plenum of the Eleventh CCP Congress, Dec. 1978

"To get rich is glorious” Deng’s economic reform delivered this message indirectly.

To Get Rich is Glorious: China in the 80s-Orville SchellOne fifth of humanity…… are now fully unleashed in an

epic pursuit of material wealth.- New York Times, January 2, 1994.

Focus of the Chinese Communist Party:

“Economic Development is the core of the Party work.”

Approaches: “It doesn’t matter whether its is a white cat or

a black cat, it is a good cat as long as it catches mice”

“ Planning and market forces are not the essential difference between socialism and capitalism.” Both planned economy and market economy are acceptable.

“Cross the river by stepping over stones”

I-2. A “Revolution” of Ownership Transformation

Three marginal bottom-up “revolutions” Household responsibilities in the countryside in

1979 Xiaoguang Village: A harvest output larger than previous

5 years combined, per capita income increased 20 timesAgricultural production increased 6.7% every year from

1979-1984Township & Village Enterprises (TVE)

Its output in the national GDP reached 26%, and hired

130 million people in 1996 -Harold Coase & Wang Ning

Individual economy in cities Individual businesses ( 个体户） appeared & solved 20

million people’s job in 1980s

State Owned Enterprises (SOE) Reform

A top-down economic reform from 1980 to 2006 A failure of SOE reform in 1980s led to the June 4

Incident 52% of SOE enterprises were in debt in 1994

To invigorate large enterprises while relaxing control over small ones ( 抓大放小） 85% of SOE enterprises ownership were transformed to

shareholding or private companies from 1997-2006 Non-state owned economy reached 65% of China’s GDP

in 2008

2010: 42 SOE enterprises in 500 Strong

III. The Open-Door Policy• New thinking:

• Mao: If you are not with us, you are against us.

• Deng: If you are not against us, you are with us

• Normalization with Japan (1972), US (1979) & the Soviet Union (1989)

• 2001: China entered the WTO• China’s tariffs dropped to 9.8% from

an average of 15.3% in five years• 2003, China surpassed the US as the

largest recipient of FDI, 2012:$100 billion• Study abroad and welcome foreign

students to China• 2011-12:194,000 Chinese students in US• China’s three “ten thousands” plan

IV. China’s Economic Miracle 1. GDP has grown at an annual average

rate of 9.5% from 1978-2010

2. China becomes world’s second largest economy in 2011, and largest exporter and second largest importer

3. China’s development is a powerful driving force behind the global economic growth. In 1990 2002, China was placed first, with a contribution as high as 27.1%.

4. Foreign reserves: $3.2 trillion (2011; ranked 1st).

Since 1978, 400 million people have been lifted out of poverty in China—about 75 percent of the world's total poverty reduction over the last century.

In two decades China has experienced the same degree of industrialization, urbanization and social transformation as Europe did in two centuries - Newsweek, Issue 1, 2008

Newsweek, Issue 1, 2008

IV. Current Challenges

• Imbalance between Economic Great Leap Forward & Stagnation of Political Reform

• Imbalance between the Rich & the Poor

• Imbalance between Wealth Increase & Integrity Decline

• Imbalance between Economic Growth & Environment Deterioration

IV-1. Corruption in ChinaHu Yaobang, Zhao Ziyang, two enlightened reformers were dismissed.

China suffers from widespread corruption. For 2010, China was ranked 78 of 179 countries in Transparency International's Corruption Perceptions Index.

Some 668,000 party members have been punished for corruption in the past five years (2008-12), according to official figures that represent only the tip of the iceberg, experts says. Peter Ford, The Christian Science Monitor, November 24, 2012

Continue“Naked officials” ( 裸官） phenomenon (officials who stay in China while their wives and children live abroad).

The term "naked official" was selected as one of China's top 10 buzzwords in 2009

From 1978 to 2003 about 4,000 corrupt officials left China, taking at least $50 billion out of the country- 2010-02-24, China Daily

Corruption in the eyes of Chinese people & new leader of China

• Corruption remains the No 1 concern among Chinese people

• Xi Jinping warned that corruption could lead to "the collapse of the Party and the downfall of the state."

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• “Wealth Drain” phenomenon

Nearly 60% of people who have more than 10 million yuan ($1.53 million) claim that they either consider emigration abroad (47%) or have completed the process (27%).

IV-4. Imbalance between Economic Growth & Environment Deterioration

“Made in China” is the largest brand product in the world, which made China the second largest economy and largest exporter globally.

What is the cost of this economic development?

Land Challenge to China

• Only 7 % arable land supports 20 % population of the world

• 28 % of its territory turned to desert• An estimated 100 square miles of land is lost to

desert per year• 400 million people are affected by desertification • A sandstorm brought 330,000 tons sand to Beijing

one night in April 2006

Water Challenge to China

Water Resources:• With 20% of the world’s population but only 7% of

global water resources (China has only one-fifth as much water per capita as the United States).

• More than half of China’s 660 cities suffer from water shortages, affecting 160 million people.

• 90% of cities’ groundwater and 75% of rivers and lakes are polluted.

• As a result of widespread water pollution, 700 million people drink contaminated water every day.

Greenhouse Gas

In 2008, China surpassed the United States as the largest global emitter of greenhouse gases by volume. It contributes to sulfur dioxide emissions and acid rain, which falls on over 30 percent of the country.

Only 1 percent of the country’s 560 million city inhabitants (2007) breathe air deemed safe by the European Union.

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Environment pollution and related health issue cost China 9 % of the annual income in 2008, World Bank

The government received six hundred thousand environment-related complaints in 2006, a figure that has increase roughly 30 percent each year since 2002.

Energy Challenge to ChinaEnergy crisis:• China has passed the U.S. to become the world's biggest energy

consumer in 2010.

危机： Turn Crises into Opportunity

China is a world leader in green energy & China is about to be the largest green energy market hydropower, wind, solar, and biofuels.

China is the largest hydroelectricity producer, representing around 17 percent of domestic electricity use.

China is home to about 80% of the world’s solar panel manufacturing capacity

ContinueBloomberg placed China as the established global leader in wind industry for the past four years

China’s wind power is 26.8% (US 21.2%) globally

Approximately 9.5% of China’s energy consumption is green energy by 2015.

Discussion

1. Why did Deng Xiaoping call the Economic Reform as a “second revolution?”

2 . What factors lead to China’s economic miracle?

3. What kind of difficulties/challenges did Deng have during the Economic Reform?

4. What kind of crises and challenges is China facing?

5. Is China’s development pattern sustainable? If not, how to change it?