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Long Run Industrialisation in China Long run industrialisation in China: A strategic perspective William Huw McKay March 10, 2016 A thesis submitted for the degree of Doctor of Philosophy of The Australian National University. © Copyright by William Huw McKay 2016 All Rights Reserved ii Declaration of originality I, William Huw McKay, hereby declare that this thesis is wholly my own original work. All spelling is in British-Australian English, formatted to the specifications of the AGPS Harvard guidelines. The document has been edited by Elite Editing, 213 Greenhill Road, Eastwood, South Australia, in compliance with standards D and E of the Australian Standards for Editing Practice. iii iv Abstract This study seeks to determine China’s long-run prospects for ascending to high-income status. The conclusion reached is that China’s chances of joining the ranks of wealthy economies that define the global frontier are sound, but they are not overwhelming. This judgement is reached following a detailed empirical examination of China’s very long term economic history up to the time of writing; a lengthy assessment of the industrialisation path of Asia’s first industrial giant, Japan; and a discussion of the strategies pursued by selected first and second generation industrialisers. The entire argument is framed by Snooks’ dynamic strategy theory, which is expounded in a novel form and extended to meet the requirements of the task at hand. A new concept, the strategic alternator, is introduced to provide a formal microeconomic bridge between the general theory and the pragmatic empirical requirements of the study’s ultimate objective. Both the theoretical extension and the application of the dynamic strategy theory to China’s very long run pathway represent unique and original contributions. v vi Contents Declaration of originality ....................................................................... iii Abstract .................................................................................................... v Contents ................................................................................................. vii List of tables .......................................................................................... xii List of acronyms, symbols, pro-numerals and abbreviations .............. xiii Bibliography of databases ................................................................... xvii Acknowledgements ............................................................................... xix Chapter 1: Long-run industrialisation in China: A strategic perspective ............................................................................................... 1 1.1 Introduction....................................................................................................... 1 1.2 The theoretical foundations of the thesis ..................................................... 2 1.3 Asia’s first industrial giant: Lessons from Japan .......................................... 9 1.4 China’s historical development path and its future prospects ................. 14 Chapter 2: The dynamic strategy theory, a formal statement ............... 25 2.1 Introduction and motivation ........................................................................ 25 2.2 The dynamic strategy theory ......................................................................... 27 2.3 An extension: The cycle and strategic confidence ..................................... 46 2.4 The strategic alternator: The microeconomic operation of the dynamic strategy theory .................................................................................. 50 2.5 Conclusions ..................................................................................................... 63 Chapter 3: Industrialisation sub-strategies: Theory and practice ......... 65 3.1 Introduction..................................................................................................... 65 3.2 Strategies and sub-strategies under the industrial paradigm .................... 65 3.3 A formal framework for sub-strategic diagnosis ....................................... 71 3.4 A diagrammatic exposition ........................................................................... 80 3.5 Selected empirical illustrations from the first and second generation of industrialisers ............................................................................................... 92 3.6 Conclusion ..................................................................................................... 112 Chapter 4: Asia’s first industrial giant: Japan’s strategic pursuit ......... 115 4.1 Introduction................................................................................................... 115 4.2 From Tokugawa seclusion to dynamic latecomer and imperial power: 1850 to World War II ...................................................................... 119 4.3 From being a miracle to needing one? Japanese strategy from 1950 ... 139 4.3.1 The 1950s and 1960s ............................................................................. 141 4.3.2 The 1970s onwards ............................................................................... 152 4.4 Beyond the bubble ....................................................................................... 178 4.5 Conclusions ................................................................................................... 182 Chapter 5: China’s imperial history viewed through the lens of the dynamic strategy theory ....................................................................... 187 vii 5.1 Introduction .................................................................................................. 187 5.2 An alternative periodisation of Chinese history ...................................... 190 5.3 Answering Needham: China’s strategic mix during and after the Song ................................................................................................................. 198 5.4 Longevity of empire in a dynamic strategy theory mirror ..................... 207 5.5 International engagement from the Song forward ................................. 213 5.6 Self-strengthening: A half-hearted and thus doomed attempt to engage with the industrial global strategic transition ............................... 235 5.7 From the demise of the Qing to the People’s Republic ........................ 244 5.8 Conclusions ................................................................................................... 250 Chapter 6: China’s economic performance and strategic pathway from the late Qing to the death of Mao ................................................ 254 6.1 Introduction .................................................................................................. 254 6.2 China’s relative living standards over two millennia ............................... 256 6.3 China’s relative living standards and absolute relevance since 1820 .... 258 6.4 The nature of Chinese strategy before 1890 as revealed by the composition of economic activity .............................................................. 264 6.5 Evidence of industrialisation between 1890 and the rise of the People’s Republic .......................................................................................... 271 6.6 Industrialisation in the People’s Republic: China under Mao ............... 282 6.7 Conclusions ................................................................................................... 299 Chapter 7: China’s economic performance and strategic pathway from 1978 .............................................................................................. 302 7.1 Introduction .................................................................................................. 302 7.2 The reform and opening up: The initial foray, 1978 to 1985 ................ 304 7.3 Instability and uncertainty: 1985 to 1992 ................................................. 314 7.4 Centralising, turning outward and ‘reform with losers’: 1992 to 2001 324 7.4. China’s engagement with the global trading apparatus ......................... 336 7.5 Dynamic substitution in China’s trade ...................................................... 342 7.6 China’s strategic pathway in the new millennium ................................... 354 7.7 Conclusions ................................................................................................... 371 Chapter 8: China’s current challenges and its future trajectory ........... 375 8.1 Introduction .................................................................................................. 375 8.2 China’s historical industrialisation path in comparative perspective ... 383 8.3 Policy parameters of the current and historical systems ........................ 393 8.3.1 Energy and the environment ............................................................... 399 8.3.2 The cost of capital and the reform of domestic and international finance .................................................................................................. 401 8.3.3 The remuneration of labour, particularly internal migrants ........... 413 8.3.4 Fiscal policy ............................................................................................ 419 8.3.5 International competitiveness and factor market distortions. ....... 425 8.4 A political-economic comment .................................................................. 436 8.5 Conclusions ..................................................................................................
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