A CRITICAL OVERVIEW OF THE EAST ASIAN DEVELOPMENT: THE CASES OF MIRACULOUS EAST ASIAN ECONOMIES AND CHINA A THESIS SUBMITTED TO THE GRADUATE SCHOOL OF SOCIAL SCIENCES OF MIDDLE EAST TECHNICAL UNIVERSITY BY MERYEM NERGİS YALÇINKAYA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN POLITICAL SCIENCE AND PUBLIC ADMINISTRATION DECEMBER 2006 Approval of the Graduate School of Social Sciences Prof. Dr. Sencer Ayata Director I certify that this thesis satisfies all the requirements as a thesis for the degree of Master of Science/Arts / Doctor of Philosophy. Prof. Dr. Feride Acar Head of Department This is to certify that we have read this thesis and that in our opinion it is fully adequate, in scope and quality, as a thesis for the degree of Master of Science/Arts/Doctor of Philosophy. Assist. Prof. Dr. Galip Yalman Supervisor Examining Committee Members Assist. Prof. Dr. Galip Yalman (METU, ADM) Assoc. Prof. Dr. Cem Somel (METU, ECON) Instructor Dr. İpek Eren (METU, ADM) I hereby declare that all information in this document has been obtained and presented in accordance with academic rules and ethical conduct. I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work. Name, Last name : Meryem Nergis Yalçınkaya Signature : iii ABSTRACT A CRITICAL OVERVIEW OF THE EAST ASIAN DEVELOPMENT: THE CASES OF MIRACULOUS EAST ASIAN ECONOMIES AND CHINA Yalçınkaya, Meryem Nergis M.S., Department of Political Science and Public Administration Supervisor : Assist. Prof. Dr. Galip Yalman December 2006, 146 pages East Asia has been one of the most important regions in the global economic system. In this thesis, the East Asian miracle and the success of China’s transition are studied by overviewing the literature. The East Asian economies had experienced sustainable rapid growth from the 1960s to the end of 1990s, until the Asian crisis in 1997. China started her transition from the central planning system at the end of the 1970s. Since the transition began, China has grown at rates even higher than developed countries and she is one of the countries which survived the Asian crisis nearly without damage. Comparing these two experiences in East Asia would give an idea on the features of development in this region. The conclusion is that China shares the features of developmental state which is attributed to the miraculous East Asian economies. Keywords: East Asia, China, economic growth, development iv ÖZ DOĞU ASYA KALKINMASININ ELEŞTİREL İNCELEMESİ: MUCİZEVİ DOĞU ASYA EKONOMİLERİ VE ÇİN Yalçınkaya, Meryem Nergis Yüksek Lisans Tezi, Siyaset Bilimi ve Kamu Yönetimi Bölümü Tez Yöneticisi : Yar. Doç. Dr. Galip Yalman Aralık 2006, 146 sayfa Doğu Asya küresel ekonomik sistemdeki en önemli bölgelerden biridir. Bu tezde, Doğu Asya mucizesi ve Çin’in geçiş döneminin başarısı literatür taraması biçiminde ele alınmıştır. Doğu Asya ekonomileri, 1960’lardan 1990’ların sonuna kadar, Asya krizine kadar, istikrarlı bir hızlı büyüme süreci yaşadılar. Çin merkezi planlama sisteminden geçiş dönemini 1970’lerin sonunda başlattı. Geçiş başladığından beri, Çin gelişmiş ülkelerden bile daha hızlı büyümektedir ve Asya krizinden neredeyse hiç zarar görmeyen ülkelerden biridir. Doğu Asya‘daki bu iki tecrübeyi karşılaştırmak bölgedeki kalkınmanın özellikleri hakkında fikir verecektir. Sonuç, Çin’in Doğu Asya ülkeleri ile ilişkilendirilmiş olan kalkınmacı devlet özelliklerini paylaştığıdır. Anahtar Kelimeler: Doğu Asya, Çin, ekonomik büyüme, kalkınma v To My Family and Friends vi ACKNOWLEDGMENTS The author wishes to express her deepest gratitude to his supervisor Assist. Prof. Dr. Galip Yalman for his guidance, advice, criticism, encouragements and insight throughout the research. The author would also like to thank Assoc. Prof. Dr. Cem Somel and Instructor Dr. İpek Eren for their suggestions and comments on the thesis and their contributions to the author’s knowledge on academic writing. vii TABLE OF CONTENTS PLAGIARISM........................................................................................................ iii ABSTRACT ........................................................................................................... iv ÖZ............................................................................................................................v DEDICATION........................................................................................................ vi ACKNOWLEDGMENTS...................................................................................... vii TABLE OF CONTENTS...................................................................................... viii LIST OF TABLES....................................................................................................x LIST OF FIGURES ............................................................................................... xii CHAPTER 1. INTRODUCTION.......................................................................................... 1 2. THE EAST ASIAN EXPERIENCE ............................................................... 5 2.1 The East Asian Miracle......................................................................... 5 2.1.1 Characteristics of the East Asian Growth................................... 7 2.1.2 Three Views on the East Asian Growth..................................... 9 2.2 Asian Crisis .........................................................................................18 2.2.1 How did the Crisis Happen?.....................................................21 2.2.2 Macroeconomic Problems........................................................25 2.2.3 Crony Capitalism .....................................................................29 2.2.4 Financial Liberalization............................................................33 2.2.5 Capital Inflows.........................................................................37 2.2.6 Creditor Panic ..........................................................................40 viii 2.2.7 Rescue Programs ..............................................................................41 2.3 Conclusion ..........................................................................................46 3. CHINA’S TRANSITION..............................................................................49 3.1 Introduction.........................................................................................49 3.2 Initial Conditions.................................................................................55 3.3 Rapid Growth......................................................................................59 3.3.1 Two Perspectives .....................................................................59 3.3.2 Economic Explanation .............................................................61 3.4 Reforming the Economy......................................................................64 3.4.1 Problems of China’s Transition ................................................64 3.4.2 Opening the Economy..............................................................70 3.4.3 Decentralization.......................................................................79 3.4.4 Township and Village Enterprises............................................85 3.4.5 Recentralization .......................................................................88 3.4.6 Reforms in the Financial System..............................................92 3.4.7 Fiscal Reforms.........................................................................97 3.4.8 Reforming the State-owned Enterprises..................................100 3.5 Conclusion ........................................................................................108 4. THE FUTURE OF THE EAST ASIAN GROWTH.....................................113 4.1 Comparing China and the Other East Asian Economies .....................114 4.2 China during the Asian Crisis ............................................................118 4.3 The Impact of China on the Rest of East Asia ....................................122 5. CONCLUSION...........................................................................................133 REFERENCES .....................................................................................................139 ix LIST OF TABLES TABLES Table 2.1 GDP Growth ............................................................................................. 6 Table 2.2 Life Expectancy at birth ............................................................................ 7 Table 2.3 Exports of East Asian Economies.............................................................. 8 Table 2.4 Annual Growth Rates of Sectors in the East Asian Economies................. 11 Table 2.5 Short-term Debt and Reserves ................................................................. 21 Table 2.6 Net Private Capital Flows in East Asia .................................................... 23 Table 2.7 Annual Growth Rate of GDP................................................................... 24 Table 2.8 Government Budget ................................................................................ 27 Table 2.9 Average Annual Inflation ........................................................................ 28 Table 2.10 Saving and Investment........................................................................... 28 Table 2.11 Current Account Balance......................................................................