An Analysis of Structural Change in China
No.73
April 2000
Research Fellow Long Ke
ABSTRACT
The Chinese government's "reform and liberalization" policies begun in 1979 have yielded striking growth for the Chinese economy, while at the same time the economic and industrial structure of the economy is continuing to change. The greatest characteristic of this change can been in the shift of the one-dimensional economic structure of a state-run economy to a multi-dimensional structure consisting of a state-owned sector, a collective-ownership sector, a private sector, and foreign capital. As a result, the macroeconomic productivity of China's economy has grown tremendously. Surrounding the issues of China's economy, however, three questions remain.
- Despite heavy-handed protectionist policies by the state, why are state-owned enterprises falling into the red?
- With continuing operating deficits by state-owned enterprises lying at the core of the national economy, how has China's rapid economic growth been supported?
- Can the growth of China's economy be supported in the years to come? What kind of changes will be brought about by China's accession into the WTO?
Regarding the issue in question (3) of whether or not China's economic growth can be supported in the future, the answer hinges on whether or not resource allocation can be accomplished by moving labor and capital from the low-productivity of the state-owned sector to the highly productive non state-owned sector. As one method to encourage the transfer of labor, if the government provides subsidies to businesses for the relief of workers who lose their jobs, businesses with no hope of recovery will be weeded out, and labor and capital should move to those businesses with a high level of productivity.
Of course, there are limits to government reforms. The government-owned business sector is the foundation of the state's regime, and protecting this sector as much as possible is the true intent of the state. In this way, accession into the WTO will be a lifesaver for continuing the reform process. Accession into the WTO will entail the further liberalization of the market and will compel China into submitting to global standards, thereby accomplishing the true goals of allowing China's accession: correcting social and economic distortions. If the market is liberalized, the framework of China's ownership system will crumble, signaling the tipping point toward a privatized economy.
CONTENTS
Introduction
- The change of economical structure and the reform by gradualism
- The reform of state-owned enterprises
- The incentive and economic reform
- The growth of non state-owned sector
Conclusion
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