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Home , Economy of China

Clair Yang The Jackson School of International Studies University of Washington Email: [email protected] Office: Thomson Hall 218 Class Time: Tuesday and Thursday, 9:30 – 11:00 am, THO 134 Final Exam: Wednesday, Mar 20, 10:30 – 12:20 pm, THO 134 Office Hour: Monday, 2:00 pm – 4:00 pm

Course Syllabus JSIS 484 Wi 2019

Political Economy of

Course Description and Objectives:

The past few decades have seen China increasingly rising as a political as well as economic superpower. Some economists have predicted China to surpass the as the world’s largest economy sometime over the next 50 years. Given its unique scale, China’s global footprint is already considerable. To become an active participant in today’s world requires a basic understanding of the county and the broader Asia-Pacific region.

The course is organized into two broad segments: 1) The and the Chinese Economic Miracle since 1978; 2) contemporary issues. This first part will only capture the key periods and turning points in historical China, which is necessary for understanding how historical institutions continue to shape the economy today. The course’s primary focus will be on the Chinese economic takeoff since 1978 and contemporary issues, with an emphasis on political economy and cross-country comparisons.

The evaluation of the course will depend on class participation, an in-class presentation of a starred paper, a midterm exam, and a final exam or a final project.

Assessment and

Grading: 30% Midterm exam 40% Final exam or final project 15% In-class presentation of a starred paper (20-min) 15% Homework and class participation

Homework assignments: Each week I will post homework assignments on Canvas related to the reading assignments. Students should bring their typewritten answers to class and hand them in at the end of the class. The assignments will not be graded, but will be part of the participation grades. We will also discuss the questions in class and similar questions will appear on the exams.

Exams: There will be two exams, each covering approximately one-half of the course materials. The exams will be in class, closed-book, and take approximately one hour and a half. Exam one will be held in session 10, covering material from sessions 1 to 9. The final exam will be held during the final exam week, covering material from sessions 11 to 19. The dates of the exams are listed below in the Course Outline Table. Please make sure you can attend the exams as they cannot be re-scheduled and no alternative test could be offered.

The midterm exam is required for everyone, while the final exam is optional. Students could choose between taking the final exam or writing a final paper. The paper must be on a contemporary economic issue of China. Students who want to write the final paper must decide about their topic and obtain the instructor’s consent no later than week 3. Those who fail to do so will be taking the final exam by default. The final paper could either take the form of a literature review or a research proposal. There is no page limits. Students that choose to write the final paper should also prepare for a 10 to 15-minute in class presentation on the last day of the class. The final essay should be emailed to the instructor electronically no later than the last day of class. Hard copies are appreciated.

Honor Code: Any cases of cheating on tests (which includes allowing others to copy your work) or plagiarism will be referred to the University Disciplinary Committee. All of your homework answers must be in your own words, with citations from the reading materials highlighted appropriately. Here is a link to information about expected student conduct and plagiarism: https://depts.washington.edu/grading/pdf/AcademicResponsibility.pdf All students taking this class automatically give the instructor consent to check their work for plagiarism. This class does not tolerate plagiarism. You will fail the class if your work is not your own.

Course Outline

The schedule is subject to change. Changes made after the school starts will be announced in class and on Canvas. Lecture Topic Contents Part One: Historical Background and the Chinese Economic Miracle 1 Introduction Course overview 2 The Origin of Institutions The origin of the Chinese civilization; geography and economic endowments; the transition from feudal system to centralized bureaucracy; 3 The Great Divergence The Han dynasty and government interventions in private sectors; the great divergence; from divergence to convergence 4 The Chinese Economic Reforms (1) Early communist China; The Economic Reform of 1979; the three stages of reforms; household responsibility system; SOE restructuring; WTO and the rise of export; 5 The Chinese Economic Reforms (2) Reform since ; market approach vs. ownership approach; evaluating policies; student presentations 6 Growth Theory The Solow Growth Model; The source of growth of Chinese economy; Overview of China’s ; China compared to other East Asian countries; global regional comparisons 7 The Political Incentives of Growth (1): Federalism vs. Centralization; policy Federalism experimentation;

8 The Political Incentives of Growth (2): Motivating bureaucrats; promotional incentives The Bureaucracy and GDP growth;

9 Industrial Policies and the Role of The East Asian developmental model; evolution of Government industrial policies in China; investment in ; the state sector and SOEs

10 Midterm Exam Part Two: Contemporary Issues 11 No Class 12 Human The “demographic dividend”; health and education; characteristics of the internal labor market; problem of an aging population 13 Social Welfare, Inequality, Corruption ; the urban-rural inequality; the issue of Corruption; urbanization; the system; the problem of an aging population; environmental issues; sustainable growth 14 I The benefits of trade; trends in international trade; trade integration of the region; 15 International Trade II China and world trade governance; WTO; US- China trade war 16 The Domestic Financial Market Composition of the financial market; the ; the banking system and private sector; ; financial reforms; basics of financial crisis 17 International and foreign reserve; China’s reform towards global financial integration; RMB as a global reserve currency 18 Innovation in developing countries; intellectual (Final paper due) property right protection in China; 2025 19 Predicting China’s Growth The Chinese real estate; the fiscal expansion since 2008; the slow-down of the economy; the issue of government debt; the need for structure change; 20 Student presentation for final paper

Reading List:

This is a tentative reading list. Final version of the reading list will be provided on Canvas in the first week of class. Papers under “Required Reading” are to be discussed in class, and students are expected to read them before each class. Papers under “Additional Reading” are not required but are recommended for further research on the relevant topics. Papers marked with a * are available for student presentation.

Journal articles are available online through the UW Library E-Journal collection or by clicking the links provided in this syllabus. There are two required books for the class:

Kroeber, Arthur R. China's Economy: What Everyone Needs to Know®. , 2016. Prasad, Eswar S. Gaining Currency: the Rise of the . Oxford University Press, 2016.

Both of the books are accessible electronically through the UW library using your UW NetID. Physical copies of the books are also available for purchase online. Additional readings will be available on Canvas.

Part I: Historical Backgrounds and The Chinese Economic Miracle

1. Introduction and Course Overview

2. The Origin of Institutions Required Reading: North, D. C., & Weingast, B. R. (1989). Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England. The journal of economic history, 49(04), 803- 832.

3. The Great Divergence Required Reading: Brandt, Loren, Debin Ma, and Thomas G. Rawski. "From divergence to convergence: reevaluating the history behind China's economic boom." Journal of Economic Literature 52, no. 1 (2014): 45-123.

4. The Chinese Economic Reforms (1) Required Reading: Perkins, Dwight H. East Asian Development. Harvard University Press, 2013. Chapter 5: From Command to in China and .

5. The Chinese Economic Reforms (2) Required Reading: *Huang, Yasheng. "How did China take off?" The Journal of Economic Perspectives 26, no. 4 (2012): 147-170. *Lin, Justin Yifu. "Rural reforms and agricultural growth in China." The American economic review (1992): 34-51.

Economist, “The Mixed Legacy of Zhu Rongji, China’s outgoing prime minister.” (2003)

6. Growth Theory Additional Reading: Commission on Growth and Development at the World . "The growth report: Strategies for sustained growth and inclusive development." Washington, DC (2008). (Overview, Page 1-12; Part 1, Page 17-31)

7. Political Incentives of Growth (1): Federalism Required Reading: *Montinola, G., Qian, Y., & Weingast, B. R. (1995). Federalism, Chinese style: the political basis for economic success in China. World politics, 48(01), 50-81. *Lü, X., & Landry, P. F. (2014). Show me the money: Inter-jurisdiction political competition and fiscal extraction in China. American Political Science Review, 108(3), 706-722.

8. Political Incentives of Growth (2): Bureaucratic Control Required Reading: Alesina, A., & Tabellini, G. (2007). Bureaucrats or politicians? Part I: a single policy task. The American Economic Review, 97(1), 169-179. (skim the theory part) *Li, Hongbin and Li-An Zhou, 2005. "Political Turnover and Economic Performance: The Incentive Role of Personal Control in China." Journal of Public Economics, 89(9-10), pp. 1743-1762. *Xu, Chenggang, “The Fundamental Institutions of China’s Reforms and Development,” The Journal of Economic Literature, 2011, 49:4, 1076-1151. *Blanchard, O., & Shleifer, A. (2001). Federalism with and without Political Centralization: China Versus . IMF Staff Papers, 171-179. Kroeber, Arthur R. China's Economy: What Everyone Needs to Know®. Oxford University Press, 2016. Chapter 6: The Fiscal System and Central-Local Government Relations.

9. Industrial Policies and the Role of Government Required Reading: Kroeber, Arthur R. China's Economy: What Everyone Needs to Know®. Oxford University Press, 2016.

Chapter 3: Industry and the Rise of the Export Economy. Chapter 4: Urbanization and Infrastructure, part II, page 83-86. Chapter 5: The Enterprise System.

Additional Reading: Li-wen Lin and Curtis Milhaupt, “We Are the (National) Champions,” Stanford Law Review, Vol 67, April 2013, pp. 697-760. http://www.stanfordlawreview.org/wp- content/uploads/sites/3/2013/05/Lin__Milhaupt_65_Stan._L._Rev._697.pdf

10. Midterm Exam

Part II: Contemporary Issues

11. Human Capital Required Reading:

Kroeber, Arthur R. China's Economy: What Everyone Needs to Know®. Oxford University Press, 2016.

Chapter 9: Demographics and the Labor Market.

* Hannum, Emily, Jere Behrman, Meiyan Wang, and Jihong Liu. "Education in the reform era." China’s great economic transformation (2008): 215-49.

12. Social Welfare and Inequality Required Reading: Kroeber, Arthur R. China's Economy: What Everyone Needs to Know®. Oxford University Press, 2016. Chapter 11: the social compact – inequality and corruption. Chapter 4: urbanization and infrastructure, part I, page 67-83. *Chan, Kam Wing. "Children of migrants in China in the twenty-first century: trends, living arrangements, age-gender structure, and geography". Additional Reading: Chan, Kam Wing. "Migration and development in China: Trends, geography and current issues." Migration and Development 1.2 (2012): 187-205. Huang, Xian. "Four worlds of welfare: Understanding subnational variation in Chinese social health insurance." The China Quarterly. 222 (2015): 449-474.

Benjamin, Dwayne, Loren Brandt, John Giles, and Sangui Wang. "Income inequality during China’s economic transition." China’s great economic transformation (2008): 729-75.

13. International Trade I Required Reading: * Athukorala, Prema-chandra (2013). “Global production sharing and trade patterns in East Asia,” Chapter 13, Kaur and Singh, eds., Oxford Handbook of the Economics of the Pacific.

Additional Reading: Athukorala, Prema-chandra (2013). “The political -pacific trade agreements,” Chapter 12, Kaur and Singh, eds., Oxford Handbook of the Economics of the Pacific.

W. Brian Arthur, “Increasing Returns and the New World of Business,” Harvard Business Review, July 1996, p.1-10

14. International Trade II Required Reading: *Mark Wu, “The ‘China, Inc.’ Challenge to Global Trade Governance,” Harvard Journal of International Law, Vol. 57, No. 2, Spring 2016, pp. 261-324. Part II: page 284 – 324. Available at: http://www.harvardilj.org/wp-content/uploads/HLI210_crop.pdf

* Branstetter, Lee, and Nicholas Lardy. China's embrace of globalization. No. w12373. National Bureau of Economic Research, 2006. Part II, China’s WTO accession agreement and its implementation, page 649-677.

Additional Reading: Athukorala, Prema-chandra (2013). “The political economy of Asia-pacific trade agreements,” Chapter 12, Kaur and Singh, eds., Oxford Handbook of the Economics of the Pacific.

Gregory Shaffer and Henry Gao, “China’s Rise: How It Took on the US at the WTO.” University of Illinois Law Review, Spring 2018, pp. 116-184. Available at: https://ssrn.com/abstract=2937965

15. The Domestic Financial Market Required Reading:

* Allen, Franklin, Jun Qian, and Meijun Qian. "Law, finance, and economic growth in China." Journal of financial economics 77, no. 1 (2005): 57-116. Kroeber, Arthur R. China's Economy: What Everyone Needs to Know®. Oxford University Press, 2016. Chapter 7: The Financial System. Part I. Page 128-141. Additional Reading: Song, Z., Storesletten, K., & Zilibotti, F. (2011). Growing like china. The American Economic Review, 101(1), 196-233. Bai, Chong-En, Chang-tai Hsieh and Yingyi Qian, "The Return to Capital in China", Brookings Papers on Economic Activity, 2006, No.2, pp. 61-101.

16. International Finance Required Reading: Prasad, Eswar S. Gaining currency: the rise of the renminbi. Oxford University Press, 2016. Chapter 2: Currency Concepts. Chapter 6: Reserve Currency. Baniya, Suprabha; Rocha Gaffurri, Nadia Patrizia; Ruta, Michele. 2019. Trade Effects of the New Silk : A Gravity Analysis. Policy Research working paper; no. WPS 8694.

Additional Reading: Prasad, Eswar S. Gaining currency: the rise of the renminbi. Oxford University Press, 2016. Chapter 9: Rising global influence. [News] IMF Adds Chinese Renminbi to Basket, https://www.imf.org/en/News/Articles/2016/09/29/AM16-NA093016IMF-Adds-Chinese-Renminbi-to- Special-Drawing-Rights-Basket John Hurley, Scott Morris, and Gailyn Portelance, Examining the Debt Implications of the from a Policy Perspective. Center for Global Development Policy Paper 121. March 2018. https://www.cgdev.org/sites/default/files/examining-debt-implications-belt-and-road-initiative- policy-perspective.pdf

17. Innovation Required Reading: * Chen, Y., & Puttitanun, T. (2005). Intellectual property rights and innovation in developing countries. Journal of development economics, 78(2), 474-493. (Introduction only)

* Wei, S. J., Xie, Z., & Zhang, X. (2017). From “Made in China” to “Innovated in China”: Necessity, Prospect, and Challenges. The Journal of Economic Perspectives. Recommended Reading: McKinsey report, the China effect on global innovation, 2015 Antràs, P., Garicano, L., & Rossi-Hansberg, E. (2006). Offshoring in a Knowledge Economy. The Quarterly Journal of Economics, 31-77. Hsieh, Chang-Tai, and Peter J. Klenow. "Misallocation and TFP in China and ." The Quarterly journal of economics 124.4 (2009): 1403-1448. * Hu, Albert GZ, and Gary H. Jefferson. "FDI impact and spillover: evidence from China's electronic and industries." The World Economy 25.8 (2002): 1063-1076.

Qian, Yi. "Impacts of entry by counterfeiters." The Quarterly Journal of Economics 123.4 (2008): 1577-

1609.

18. Predicting China’s Growth Required Reading: Kroeber, Arthur R. China's Economy: What Everyone Needs to Know®. Oxford University Press, 2016. Chapter 12: changing the growth model. *Li, Hongbin, et al. "Human Capital and China's Future Growth." The Journal of Economic

Perspectives 31.1 (2017): 25-47. *Perkins, Dwight H., and Thomas G. Rawski. "Forecasting China’s economic growth to 2025." China’s great economic transformation (2008): 829-86. *Bai, C. E., Hsieh, C. T., & Song, Z. M. (2016). The Long Shadow of a Fiscal Expansion (No. w22801). National Bureau of Economic Research. Additional Reading Glaeser, E., Huang, W., Ma, Y., & Shleifer, A. (2017). A real estate boom with Chinese Characteristics. The Journal of Economic Perspectives, 31(1), 93-116. Prasad, Eswar S. Gaining currency: the rise of the renminbi. Oxford University Press, 2016. Chapter 8: the house of cards. , China's Next Debt Bomb Is an Aging Population, [https://www.bloomberg.com/news/articles/2018-02-05/china-s-next-debt-bomb-is-an-aging- population]