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Economic Reform in China: Problems and Future Prospects University of Montana ScholarWorks at University of Montana Graduate Student Theses, Dissertations, & Professional Papers Graduate School 1988 Economic reform in China: Problems and future prospects Peide Gao The University of Montana Follow this and additional works at: https://scholarworks.umt.edu/etd Let us know how access to this document benefits ou.y Recommended Citation Gao, Peide, "Economic reform in China: Problems and future prospects" (1988). Graduate Student Theses, Dissertations, & Professional Papers. 5149. https://scholarworks.umt.edu/etd/5149 This Thesis is brought to you for free and open access by the Graduate School at ScholarWorks at University of Montana. It has been accepted for inclusion in Graduate Student Theses, Dissertations, & Professional Papers by an authorized administrator of ScholarWorks at University of Montana. For more information, please contact [email protected]. COPYRIGHT ACT OF 1976 Th is is an unpublished m anuscript in which copyright s u b s i s t s , Any further r e p r in t in g of it s contents must be APPROVED BY THE AUTHOR, Ma n s f ie l d Library Un iv e r s it y of Montana Date : 1 9 8 8 ECONOMIC REFORM IN CHINA— PROBLEMS AND FUTURE PROSPECTS By Peide Gao B.A.E., Shanghai University of Finance & Economics 1983, P.R. of China Presented in partial fulfillment of the requirements for the degree of Master of Business Administration University of Montana 1988 Approved by Chairman, Board of Examiners Dean, Graduate School Date UMI Number: E P 4 0 6 1 3 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation PaHiaMni UMI E P 4 0 6 1 3 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code P roQ u est LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 TTaftolltg tmlF Onrofaggpfcs Page Introduction ................. .1 Chapter 1 Literature Review Chapter 2 The Chinese Model of Economic Development ..8 Traditional Central Planning System .......8 The Economic Development 1949-78 .........13 Chapter 3 The Economic Reform since 1979 ...19 Pressures for Reform .......................19 Progress of Reform .......................22 Economic Achievements of the Economic Reform ......................32 Chapter 4 Current Obstacles to the Economic Reform ..35 Traditional Resistance to Reform ..........35 Political Factors ........... 37 Economic Factors ........ .......41 Quality of the Population ..................45 Chapter 5 Future Prospects of the Economic Reform ..48 The Progress of Political Reform .........48 Social and Ideological Reform ..... .......51 Economic Reform ...... .53 Chapter b Summary and Conclusions ..................60 Endnotes .£>2 Works Cited ........................... b 7 ggytargKtfacr-fcigmni In 1978, China announced plans -for economic reform and opened her door to the outer world. Today, ten years later, China has experienced significant changes in various areas under the waves of reform. This paper introduces the Chinese model in a developing a "socialist economy." It briefly explores and analyzes the Chinese model of a centrally planned economy, and the economic development from 1949 to 1978. Then, the economic reforms since 1979, which include such internal and external environmental influences as the Cultural Revolution and the open door policy, will be discussed. Progress of reform since 1979, which includes budgetary devolution, reform of the state economy, reform of the urban collective and individual sector, as well as the commune sector will be explored. Key points of China’s economic achievements since the economic reform of 1979 will be discussed briefly. Finally, future prospects for economic reform are discussed in relation to the obstacles to progress, since economic reform depends on the progress of political, social, and ideological reform. Concerning the above issues, the paper reviews some works by several economic experts on China. 1 2 Currently, China faces many obstacles to the progress of economic reform and the development of the economy. These include traditional resistance to reform (the party apparatus and ministerial bureaucracy, and old ideologies), political factors (inconsistency and instability of politics, and lack of comprehensiveness of democracy and law), economic factors (lack of comprehensiveness and internal consistency of the reform and need of some economic variables), and human problems (overpopulation, and the spiritual situation of the Chinese people). One objective of this paper, therefore, is to review the development of the economic reform since 1979 and to explore current bottlenecks for further economic development. With reference to the past records and current development, this paper also tries to explore various factors affecting the future of economic reform and development and to pursue the future of the reform. China is a giant in all aspects but one. Her history spans three thousand years; her artists, men of letters, and inventors have contributed greatly to the advance of world culture and civilization; with almost one-quarter of the world's population, the numbers of her people are staggering; the size of her territory is comparable to other world powers; the industriousness, ability, gentility, and occasional cruelty of her people are second to none; and their fighting ability, when aroused, is awesome.1 The one 3 aspect in which China has been less than a giant is e conomic. Another objective of this paper * therefore? is to explore the Chinese model of economic development— a central planning system* which can in part explain the backwardness of Chinese economy. Ot&3&fcsar 11 tLS-ftcesraafauang BSggaigaa Since 1978, with the open door policy of China* more and more Western economic experts have started to discuss the issues of the Chinese economy and have written a great many articles and works. This chapter reviews some of the current literature about the Chinese economy. Peter Knight* an economic expert from the World Bank* explored in detail the Soviet model of a central planning system adopted by "socialist” countries including China. He pursued the model in five aspects: ownership of the means of production* the locus of economic decision-making* price formation* incentives to producers* and competition. Although simply an abstract* his description of what may be called the traditional central planning system is quite clear and understandable. He also examined the economic reforms in "socialist” countries. From the reform experiences of those countries* he suggested that the success of reform depended largely on "the strength of political support* the comprehensiveness and internal consistency of the reforms* the length of time they are 4 5 pursued without interruption* and the availability of some economic slack." Mhile Peter Knight's comments on the central planning system and economic reform are quite general* Gregory Chow gave a more specific description of a central planning system with a Chinese style. As a professor of economics at Princeton University, Chow explored the features of the Chinese model of economic planning in terms of the interrelationships among individual consumers, enterprises, and the government in the market and the roles they played. He also pointed out that the economic reform since 1979 is leading China toward a more market—oriented economy. However, because of the forces holding back the reform such as “ideological resistance, vested interests, bureaucracy, inertia inherent in economic organizations, and the lack of education among the middle management personnel in government and in state enterprises," he noted, "precisely how far the reforms toward adapting features of a market economy will go in the next decade is difficult to predict." Chow further stated that the market forces would be by far "the major means used by the Chinese government to achieve its planning objectives." The same opinion is held by Robert Dernberger. According to Dernberger, "the program of economic reforms being pursued by the current leaders in China is a modification, not a replacement, of the traditional Soviet— & type economy." As -for the future of the reform, he further stated that "the economic results of the economic reforms introduced thus far are so impressive that the leadership,..., will be convinced of the economic benefits" (and/or be forced) to continue the economic reforms* even including systemic reform. In terms of current obstacles to economic reform and development* the Uorld Bank covered in detail the purely economic factors: the prevalence of the old system* the distorted price system* and the need for some economic resources such as arable land* foreign exchange* and energy. It is obviously true that China faces a tough task ahead to deal with this "resource crisis," as Dwight Perkins pointed out. However, Perkins put more emphasis on political support* "The greatest uncertainty about China’s economic future lies in the realm of politics." He further stated: If the political environment does remain supportive, there is every reason to believe that China will undergo an economic and social transformation
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