View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by LSE Theses Online The London School of Economics and Political Science China as a Post-Socialist Developmental State: Explaining Chinese Development Trajectory Andrzej Bolesta A thesis submitted to the Department of Government of the London School of Economics for the degree of Doctor of Philosophy Declaration I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others. The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. 2 Abstract This thesis is intended to contribute to the discussion on China’s socio-economic development during the post-socialist period of reform and opening up. It is aimed at providing an explanation of the Chinese contemporary development trajectory, by establishing an institutional and policy model, which China is believed to have been following. This model is also believed to offer some general solutions to the underdeveloped countries in systemic transformation. The thesis argues that China’s post-socialist development trajectory has been determined by the provisions of the Developmental State (DS) model, as far as state development policies, state ideology, and state institutional arrangements are concerned, and to the extent, that China has become a genus of the Post-Socialist Developmental State (PSDS) model – this model being an alternative to the post-socialist neo- liberalism. In the course of scholarly enquiry, China’s development trajectory is analysed against the paths of historical developmental states, and against the general and developmental aspects of the process of post-socialist transformation. I start by analysing the features of the historical developmental states and by investigating whether the provisions of the DS model are viable contemporarily and how the model extends to the discussion on China’s development. I then examine China’s post-socialist transformation, partly in its DS context. Next, I analyse the features of China’s development trajectory in comparison with the features of historical developmental states, as far as ideology and political and economic arrangements as well as state development policies are concerned. Finally, based on the previous analyses, I explain the DS-determined post- socialist development trajectory of China, address the causal relation between the DS institutionalisation and post-socialist transformation, and construct the PSDS model, as a general guideline for states in transition. 3 List of Contents Introduction ………………………………………………………………………. 7 1. China and the Relevant Models of Socio-Economic Development ... 7 2. Post-Socialist China and the Developmental State Model: Explaining Chinese Development Trajectory ……………………… 11 3. The Methodology and Chapter Composition ………………………. 15 Chapter 1: The Developmental State: Its Conditionality and Its Future …... 20 1.1. The Definitions ……………………………………………………... 20 1.1.1. The Geographical and Temporal Limitations ……………. 22 1.1.2. The State-Society Relations: From “Embedded Autonomy” to “Subordinate Society” ……………………. 26 1.1.3. The State Development Policies: From Import Substitution Industrialisation to Export Oriented Industrialisation …………………………………………... 31 1.1.4. The State Ideology: Economic Nationalism ……………… 33 1.1.5. The Quantitative Definition ……………………………… 35 1.2. The Political Conditionality ………………………………………… 38 1.3. The Economic Conditionality ………………………………………. 47 1.4. The Future of the Developmental State ……………………………. 58 1.5. China and the Developmental State ………………………………… 67 Chapter 2: Post-Socialist Transformation in China …………………………. 71 2.1. Post-Socialist Transformation – The Overview ……………………. 71 2.2. Post-Socialist Transformation – The Debate ……………………….. 78 2.3. Post-Socialist Transformation in China ……………………………. 83 2.3.1. China during the State Command Period ………………... 84 2.3.2. China in the Process of Post-Socialist Transformation ….. 87 2.3.3. Political Reforms and the Gradual Path ………………….. 93 2.3.4. Economic Reforms ………………………………………. 99 2.3.5. The Chronology ………………………………………….. 107 2.3.6. The Chinese Perspective …………………………………. 111 4 Chapter 3: China’s Development Trajectory and the Developmental State Model: Ideology, Political and Economic Arrangements ………. 117 3.1. Economic Nationalism in China ……………………………………. 118 3.2. The Political Arrangements of the State ……………………………. 129 3.3. The Interaction of the Four Actors of the Developmental State – “The Relational Aspects” …………………………………………... 136 3.4. The Economic Arrangements of the State ………………………….. 147 Chapter 4: China’s Development Trajectory and the Developmental State Model: Comparative Policy Analysis …………………………….. 157 4.1. The Perceptions on Industrial Policies and the Developmental State Model ………………………………... 157 4.2. Agrarian Reforms and Rural Industrialisation ……………………… 166 4.3. The DS Policy of Industrial Development …………………………. 169 4.3.1. Industrialising by Learning and by Innovating …………... 170 4.3.2. The Targeting …………………………………………….. 179 4.3.3. The Business Actors ……………………………………... 191 4.4. The DS Policy of Import Discrimination and Export Support ……... 193 4.5. The DS Financial Policy of Support for Industrial Development and Export …………………………….. 202 4.5.1. The Monetary Policy and the Banking Sector …………… 203 4.5.2. Indirect and Direct Subsidies …………………………….. 207 4.5.3. Price Control, Investment Policy and Foreign Direct Investments ………………………………………………. 213 Chapter 5: China – The Post-Socialist Developmental State ………………... 217 5.1. The Unordinary Character of China’s Post-Socialist Development Trajectory ………………… 217 5.2. China’s Post-Socialist Development and the Developmental State Model ………………………………... 223 5.3. Post-Socialist Developmental State Model: The Natural Choice of Systemic Transformation? …………………. 236 Bibliography ……………………………………………………………………… 247 5 Appendix ………………………………………………………………………….. 281 1. National Development and Reform Commission’s (NDRC) Main Duties ………………………………………………………… 281 2. Ministry of Commerce’s (MOFCOM) Main Duties ……………….. 284 3. Socio-Economic Indicators ………………………………………… 288 List of Tables Table 1: Development-related Indexes of Post-Socialist States (1990-2005) .. 288 Table 2: HDI Change in Historical Developmental States …………………... 289 List of Figures Figure 1: Four Actors of the Developmental State …………………………… 136 Figure 2: HDI Change in Post-Socialist and Developmental States ………….. 289 6 Introduction 1. China and the Relevant Models of Socio-Economic Development In the course of economic history, various civilisations have risen and fallen and the gravity of mankind’s socio-economic development has shifted from one region to another. There is an abundance of often interconnected factors which constitute a successful developmental model, among which are institutional arrangements, systemic environment, state policies, societal capacity, as well as geo-political and geo-economic locality. This thesis concerns the contemporary developmental model China has been following during the post-Mao period of reforms and opening up (gaige kaifang). Up until the nineteenth century, China was the largest economy in the world and Adam Smith (2003) would see it more appropriate to compare the Chinese economy with that of the entire Europe, rather than separate European states. Maddison (2007) claims that China owed its position to the intensive economic growth between the seventh and the thirteenth centuries and this was attributable to the development of an intensive and sophisticated agrarian production sector, to the creation of an internal market to trade goods, and to the well-organised and effective state1 supported by a highly qualified state bureaucracy. At least until the end of the fifteenth century, China’s civilisation was considered to be more advanced than European civilisation. Smith pointed out in 1776 that ‘no other country has yet arrived at this degree of opulence [and that] China had probably long ago acquired that full complement of riches’ (Smith 2003, p.132). Nevertheless, the overall progress of mankind in terms of socio-economic development in the first eighteen centuries A.D. was relatively slow as compared with the subsequent time periods. Kolodko (2008, pp.68,70) points out that it is estimated that the aggregated output of the world’s economy between year 1 and 1000 did not increase and between 1000 and 1800 increased by a meagre 50%, with an average annual economic growth of 0.05%. 1 The state, defined by Max Weber as a compulsory association claiming control over a territory and the people therein (cited in Evans 1995, p.5), is considered here to be the structure of governance institutions (Wade 1990, p.8). In keeping with Wade (1990), the term state is often used interchangeably with the term government. 7 The consequences of the Industrial Revolution of the late eighteenth and early nineteenth centuries2 allowed for a significant acceleration of socio-economic development and subsequently firmly established the representatives of the so-called Western world as the leaders of developmental advancements, first – the United Kingdom, then the United