Analysis of the Chinese Economy: Policy Implications of Inflation and Employment

ABSTRACT

The global economy is being hit by the financial crisis. Negative growth is expected across the board in 2009, particularly in developed countries. With the upcoming 30th anniversary of its “reform and open-door” policy, 2009 will be a milestone year for the Chinese economy, which continues to draw attention. However, what 30 years of “reform and open-door” policy has or has not changed remains largely unclear.

Chinese policymakers did not expect the impact of the financial crisis to have such reach. Until October 2008, Zhou Xiaochuan, Governor of the People’s Bank of China, insisted that the trend in financial policy was mainly to curb inflation.

The Chinese government is on high alert for social unrest as a result of the economic downturn. The Chinese media has set “maintaining 8% growth” as a “duty” for 2009. Though it is unlikely that economic growth will drop below 8%, employment conditions are expected to remain bleak.

The “reform and open-door” policy entered a new phase in 2009. The goal for future reform is to develop an institutional framework where all members of society – government, markets, companies, and consumers – can maximize their own profit without impeding the pursuit of others under an independent judicial system.

The Communist Party of China (CPC) has made consistent efforts to forge democracy within the party. Under this logic, functional enhancement of the National People’s Congress (NPC) would realistically be the most effective institutional reform. Almost all NPC leaders are members of the CPC. In terms of party members, democracy within the CPC is manifested in creating an environment for free speech and strengthening check-and-balance functions.

Regarding legislative powers, almost all of the many ordinances and regulations imposed by the State Council should be eliminated, and legislation should be reopened for debate at the NPC. Going beyond the authority given by the NPC and implementing the budget because of the “urgent” situation are inexcusable moves from a government supposedly striving to create a nation ruled by law.