Economy

Question 1

Central thesis of Gallagher

Answer 1

Reform and Openness. Answers the question: why has China not experienced mass instability and demands for reform despite significant economic growth? Rebuts two hypotheses for this: China had gradual nature of change compared to other countries’ shock therapy (which is incomplete), and that China had reforms without losses (which is wrong). Argues that the timing and sequencing of China’s FDI liberalisation contributes to this, in particular 1) China’s pattern of ownership diversification and 2) China’s mode of integration into the global economy.

Question 2

Gallagher: Why was the timing and sequencing of its FDI liberalisation special? (2)

Answer 2

It 1) preceded both the privatisation of state industry and the development of a domestic private sector, and 2) became the primary method of investment, so there was no need for well-established ties to other countries’ capital.

Question 3

Gallagher: Why did FDI lead to strengthened authoritarianism?

Answer 3

1) Foreign-invested sector of the Chinese economy acted as a ‘laboratory for reform’ and fragmented the urban working class;
2) created competitive pressure between regions and firms, and within firms, so there was pressure to adopt capitalist practices. Such competition between types of workers watered down the power of the previously powerful urban working class.
3) Competition was identified as domestic vs foreign, so the public-private ownership debate lost saliency over time. Hence, privatisation was acceptable as it was justified in nationalistic terms and ‘save Chinese industry from the threat of foreign competition’.

Question 4

Gallagher: Why did such FDI liberalisation take place?

Answer 4

1) FDI liberalisation was much less destabilising than direct privatisation which comes straight for powerful interest groups,
2) it was sold as a necessary step to stop the collapse of many SOEs which were in debt,
3) it allowed for gradual relaxation of labour norms, and introduced market competition for workers.

Question 5

Gallagher: What were the effects of reform and openness?

Answer 5

1) A strengthened Chinese state,
2) a weakened civil society (especially labour),
3) a delay in political liberalisation, and
4) reduces societal resistance to reform. It ultimately led to rapid, export-led growth without the concomitant creation of a strong private business class

Question 6

Gallagher: How did China compare to other East Asian states?

Answer 6

1) There were direct comparisons, eg. early SEZs were based on the zones Taiwan established, and the PRC encouraged SOEs to form large, diversified industrial groups modeled after the Korean chaebols.
2) Other East Asian states had much less FDI and depended on a business class closely allied with the state vs private industry was still in its infancy in China

Question 7

Huang: What is the conventional view of why the Chinese economy can grow so quickly despite its inefficiencies? (just one)

Answer 7

That such seemingly inefficient policies and institutions perform underlying efficient functions specifically in China, and their growth is due to unique, context-specific local institutional innovations - eg. local state of township and village enterprises (TVEs), decentralization, and selective financial controls, non-conventional mechanisms of growth private ownership, property rights security

Question 8

Central thesis of Huang

Answer 8

Argues that the heyday of Chinese reforms was in the 1980s when the entrepreneutiral spirits were unleashed, especially in the rural sector, but were compromised by the move in the 1990s to bring back urban-inspired, top-down state capitalism. Contrasts the ‘Zhejiang’ entrepreneurial model with the ‘Shanghai’ state capital model. Argues that rural areas were better off in the former, and that there was a reduction of equity from 1990s in the latter, with household incomes and general welfare lagging.

Question 9

Huang: How did Huang characterise the 1980s?

Answer 9

He called it the Entrepreneurial Decade with ‘directional liberalism’, arguing ‘there is no China puzzle at all because the conditions of 1) private ownership, 2) financial liberalisation and 3) security of property rights were actually relatively fulfilled in the 1980s. The TVEs in the countryside were mostly completely private, with an explosion of indigenous private entrepreneurship marked by rural policy bias, financial liberalization, and security of proprietors.

Question 10

Huang: What did Huang argue happened in 1990s?

Answer 10

He argued there was a policy reversal and statist investment bias post-1989, with pragmatic reformers in rural areas replaced by Shanghai technocrats. Directional liberalism turned into directional illiberalism. Rural experiments like the TVEs stopped. Entrepreneurs were squeezed by regulations and tighter credit, leading to the rural population becoming cheap, migrant labour rather than potential entrepreneurs.

Question 11

Ang: What are her responses to existing accounts of why China has grown so fast despite vast corruption?

Answer 11

1) Levels of corruption are unsustainable and China will collapse - but why hasn’t it yet?
2) China’s growth has been enough to offset corruption - but other thriving economies have not been able to survive corrupt governments.
3) China’s corruption is less disruptive, because their arrangements of profit-sharing turns potential opponents of reform into participants - but little evidence to support this

Question 12

What are some existing accounts of why China has grown so fast despite vast corruption?

Answer 12

Wedeman - corruption in China intensified over time and transformed into higher-stakes transactive corruption in the 1990s when large-scale privatization of public assets was carried out; meanwhile, the Chinese government’s top-down anti-corruption initiatives have kept corruption under control.

Zhu and Zhang - the Chinese political system may make corruption relatively predictable and hinder private businesses less in China

Question 13

Central thesis of Ang (Gilded Age)

Answer 13

Unbundles corruption into different categories. Classifies types of corruption by transaction types (theft vs. exchanges) and major actors (elites or nonelites): petty theft, grand theft, speed money (bribes used to secure permits and licenses quicker and overcome administration delays), and access money (securing government contracts etc). Corruption in China is dominated by access money where private enterprises seek to nourish political relations with officials so that more risk-taking initiatives can be granted, which is relatively less damaging than one dominated by speed money corruption. Uses example of Bo Xilai to exemplify that favour-exchanging mdoe of administration created substantial benefits, but are unsustainable. Argues ‘access money is the steroid of capitalism’ - growth-enhancing but with serious side-effects, distorting the markets especially the market for credit.

Question 14

Ang: Why is access money the dominant form of corruption?

Answer 14

1) Local leaders profit from the local economy - profit-sharing is key, making Chinese officials ‘stationary bandits’, who are invested in promoting collective welfare, as they can fleece off a percentage of gains, rather “roving bandits” who just rob and flee”; 2) Access money allows politicians to spur development and collect bribes; 3) Other more damaging forms of corruption are stamped out by regional competition for FDI, because foreign firms don’t want to invest anymore.

Question 15

Central thesis of Ang (How China Escaped the Poverty Trap)

Answer 15

uses new paradigm of complex adaptive systems to show that China’s transformation was not due to centralised authoritarian control but ‘directed improvisation’, which is top-down directions from Beijing paired with bottom-up improvisation among local officials, (with Maoist guerilla strategy). The state ‘franchised the bureaucracy’ and used red, black and grey lines, setting broad limits, promoting variation and picking winners, leads to chaotic capitalism. Argues that 1) transformative change requires an adaptive governing system that empowers ground-level actors to create new solutions for evolving problems, and 2) first step out of poverty trap is to ‘use what you have’ and harness existing resources to kickstart new markets. Rejects linear explanations or chicken-and-egg explanations for institutions vs growth, instead using a ‘coevolutionary narrative’.

Question 16

Central thesis of Naughton

Answer 16

Argues that there were gradual, piecemeal economic reforms which eventually tipped the state-market balance in the economy without a ‘big bang’, hence there was little political disruption

Question 17

Naughton: What happened during the socialist era?

Answer 17

1) Heavy investment in industry (‘big push’ strategy) with China investing 26% of its GDP,
2) specialisation in strategic industries such as steel,
3) Zhou Enlai pursued moderate strategy - investment more evenly spread, re-establishment of economic relations with the capitalist world, but was limited by Mao hence deadlock 1974-76.

Question 18

Naughton: What was the legacy of the socialist period?

Answer 18

1) The political instability and dissatisfaction meant that there was a willingness to experiment,
2) it created a strong human capital base with education and health investments,
3) basic industrial skills were widespread.

Question 19

Naughton: What happened during market transition? (three-part)

Answer 19

1) Piecemeal reforms, and gradually the process of attracting new entrants into ‘pockets’ in the planned economy went far enough so the overall balance between plan and market began to shift, 2) use of instruments of planned economy to shift resources towards households and relieve macroeconomic stress, 3) 1993 second phase: a) planning was completely eliminated and the dual-track system ended, b) regulatory changes in banking and tax, c) joined the WTO

Question 20

Central thesis of Yang Dali

Answer 20

Rebuts the idea that the Chinese political system is about to collapse, arguing the state has made enough changes to state apparatus to adapt to market economy transition such that the state has become more capable and effective, and that China is moving to a model of limited government in the economic sphere.

Question 21

Yang: What are these economic reforms?

Answer 21

1. Downsize
2. Abolish industrial ministries
3. Divest PLA of state operations
4. Civil service merit-based
5. Competitive bidding

To a) strengthen the central state’s fiscal and regulatory capacity;
b) downsize government at all levels;
c) alter relations between state and business by abolishing most industrial ministries and by divesting the People’s Liberation Army and other party and state institutions of their business operations;
d) transform China’s patronage-based civil service into one based on merit;
e) encourage competitive bid ding and online auctions for state land-use allocation and for state procurement and construction projects, in order to reduce corruption;
f) increase transparency; and
e) strengthen legislative oversight and other institutions of horizontal accountability.

Question 22

Central thesis of Wang Shaoguang (responded to by Yang Dali)

Answer 22

Argues China is in the midst of an overwhelming crisis of governance due to growing challenges of
1) unemployment,
2) income inequality,
3) peasant and worker discontent,
4) lawlessness, crime, corruption
5) environmental degradation
6) jailing whistleblowers.

Question 23

Yang: What was the impetus for the economic reforms?

Answer 23

Argues the impetus of reforms were due to 1) economic conditions eg. the declining profitability of SOEs, 2) political leadership and 3) the real and perceived sense of crisis, which served as ‘catalysing events’ focusing leaders on problems which could undermine regime stability eg. a) collapse of Communism in Eastern Europe, b) concern about Deng’s possible death, c) fall of crony governments in Indonesia etc in 1997-78 Asian financial crisis.

Question 24

Central thesis of Wu and Cheng

Answer 24

Argue that the elites and the new middle class prefer legal resolutions to civil/administrative disputes, but after controlling for economic and cultural resources this disappears, though the rural-urban divide remains. Rebuts the ‘law from below’ perspective, because most cases involved are related to administrative disputes (disputes with government offices), but these are very few in number compared to civil disputes (disputes with other citizens). Hence education expansion, urbanisation, emergence and growth of the middle classes have positive contributions to the legal development in China. The ruling elite’s alliance with the middle class is important in promoting the rule of law and by extension party stability, because it minimises petty protests. Conclude that there is huge popular demand for the rule of law in China as seen from a discrepancy between actual use and ideal preference.

Question 25

Wu and Cheng: Why are there class differentials in using legal methods?

Answer 25

1) Rational-choice explanation: people mobilize a specific means to solve their problems based on a calculation of the available resources, costs, and expected returns of different courses of actions. 2) Cultural/institutional approach: cultural preference in China to support mediation not litigation

Question 26

(Good) Critique of Wu and Cheng

Answer 26

Good quantitative study with data and detailed separation of individuals to six different classes, but fewer qualitative explanations for why. Also good distinction between civilian and administrative disputes

Question 27

Central thesis of Jaros

Answer 27

argues for spatially equitable development, and that even though large cities are economic powerhouses, concentrated urban growth can worsen regional inequalities, governance challenges, and social tensions. Argues that whether a province’s spatial policy favors metropolitan areas or small and medium-sized cities depends on: 1) the balance of power between different government levels and 2) the relative economic performance of a province. Stronger provincial control means concentrating resources in leading metropolitan areas, while stronger central control means pressure to disperse resources across non-metropolitan jurisdictions. If provinces are outperforming economically, addressing interal disparities becomes more important than enhancing external competitiveness. Examines ‘metropolitan-oriented development’, where strong but lagging provinces adopt development policies that are biased heavily in favor of the provincial capital.

Question 28

Central thesis of Rozelle

Answer 28

Argues that the urban-rural divide threatens China’s rise. Rural-urban migration was 350 million and China’s growth was based on the sheer number of unskilled workers allowing them a comparative advantage in low-skilled production, though as wages have risen firms have invested in automation or relocated. Such a transition has meant a lack of investment in human capital, with very poor educational attainment preventing China from moving away from unsustainable low-skilled labour model.

Question 29

Rozelle: What are the effects of the rural-urban divide? (numbers)

Answer 29

1) children are under-stimulated intellectually, 2) they do not get healthy diets, 3) they do not get treated for simple diseases such as intestinal worms or bad vision. 70% of children today have rural hukou status, while there are 60 million left-behind children.

Question 30

Rozelle: How is China stuck in the middle-income trap?

Answer 30

China faces the middle-income trap (past the Lewis turning point), with the exhaustion of its ‘unlimited’ supply of labour and rising wages making low-skilled manufacturing uncompetitive. Eg. Mexico viewed as ‘the next Taiwan’ and full of FDI in early 1990s, but then became a trapped economy known for a fast-growing informal sector and rampant crime. China ‘stuck in no-man’s land’, with wages too high for low-wage work and skills too low for large-scale high wage work

Question 31

Rozelle: Why is China particularly susceptible to the human capital crisis?

Answer 31

1) ‘time inconsistency’, where human capital requirements have to be built up before the economy becomes strong, but China grew too rapidly; 2) the hukou system is like ‘a state-sponsored caste system’, 3) decentralised fiscal system leaves fiscally poor local governments responsible for providing rural social services in their jurisdiction, 4) local governments have strong incentives to focus on short-run growth.

Question 32

Rozelle: What are the solutions to the human capital trap in China? (1)

Answer 32

The wall between urban and rural has become increasingly penetrable: a proof of rental housing over several years is enough to qualify rural migrants for urban hukao (Chen and Fan), and since 2022, a ‘zero threshold’ is required for rual residents’ transfer to urban hukou in small cities

Question 33

Central thesis of Tsai (Capitalism without Democracy)

Answer 33

Explains China’s authoritarian stability, arguing that
1) the CCP has successfully co-opted the Chinese bourgeoisie and those in the business community eg. most C-suites have their own branch of the CCP in big corporations,
2) most businesspeople do not act as a unified class, do not recognise their own unified interests and do not act collectively to secure them, and
3) this may be a result of its impressive persistent growth (Przeworski argues this leads to stability),
4) China’s state has also been very flexible and adapted its institutions to meet needs, eg. ‘red-hatted’ entrepreneurs who used their social enterprises as a cover for their privately funded businesses in the 1980s and 1990s.

Question 34

Central thesis of Hillman

Answer 34

Factional politics and ‘bureaupreneurs’ emerged as a creative response to new pressures associated with fiscal and administrative decentralisation in the 1980s due to new incentives: bureaucratic entrepreneurialism was rewarded with career advancement and improved prospects for (further) private wealth accumulation. By 1990s China had become one of the most decentralised states in the world, with a competition over spoils driving ‘bureaupreneurs’ to 1) sell natural resources beyond official quotas through informal channels or 2) exploit the difference between market price and price paid to villagers. Factionalism created by 1) the pressure to generate revenues, 2) local fiscal autonomy, and 3) increased opportunities for profiteering. Patronage networks became relatively stable, and factions grew like ‘vines’ (Andrew Nathan). Faction bosses had to secure positions of influence for one’s people (zijiren), with factionalism allowing for better competition with other groups for control over public power and resources

Question 35

Central thesis of Graeme Smith

Answer 35

Argues townships are becoming ‘hollow shells’ which are squeezed from above and below: 1) from above, inspections and annual assessments mean leaders are forced to try and attract investment and are subject to ongoing ‘soft-centralisation’ (increasingly placed under provincial government control), unable to provide basic services due to the cutting of taxes in the 1990s and 2000s; 2) from below, leaders face challenges in enforcing family planning policies and maintaining social stability

Question 36

Smith: What are the problems created by change in township structure?

Answer 36

1) Great sums spent on attracting investors because key priority,
2) Frequent inspections force township staff to spend and focus on these,
3) Township leaders spend little time in township and tend to focus on their careers,
4) Only the least talented staff left,
5) the local state views farmers as problems, rather than as clients or citizens

Question 37

Central thesis of Teiwes and Sun

Answer 37

Argue that there was a ‘drift towards decollectivisation’ with no radical departure from Mao’s ‘socialist agriculture’, with Hua (neo-Maoist) and by extension Mao, contributing to some extent to the economic miracle. Decollectivisation was a slow process, and leaders at the time supported the Dazhai model, including 1) mechanisation, 2) large-scale farmland construction, 3) scientific farming and 4) rural industrialisation.

Question 38

Central thesis of Ding Fei

Answer 38

Proposes a new framework of ‘worlding developmentalism’ to understand China’s special economic zones. Looks into the relationship between the state encouraging domestic growth and overseas investment, and how the population reacts; ‘synergy between a polymorphous yet capable state in directing the path of domestic growth and overseas ventures, spearheading the country’s international presence, and a population who actively captures emerging economic opportunities in transnational contexts for their own economic and social benefits’. Rejects traditional development theories, including ‘planetary theory’, which proposes a complete, planetary urbanisation of human society, and subaltern literature, which valorises individual’s embodied livelihood negotiations. ‘Worlding’ recognises multiple trajectories of becoming urban, which can be both universal and particular to individuals. Zoning in SEZs shows working with capitalist logic and socialist legacies.

Question 39

Central thesis of David Wall (short)

Answer 39

Charts the process of opening up in China and the role played by the SEZs, noting some of the economic benefits but also risks and harms that have been introduced, especially because capitalist policies are still working through a communist political framework

Question 40

Wall: Why were SEZs introduced?

Answer 40

1) Economies of scale in the development of land, 2) External economies of scale from the geographical grouping of industry, 3) Allows for a geographical limit on the operation of some policies, 4) Restriction of certain activities to certain areas, 5) Because Deng wanted to and opposition had to concede but wanted to a) show it failing and also b) limit its extent of harm.

Question 41

Wall: What were the fears of the state of SEZs?

Answer 41

1) zones grant power to those who run them at the expense of the centre (like federalism), 2) race to the bottom among those who run the zones, eroding tax base and distorting allocation of resources, 3) foreign firms are already at an advantage compared to domestic firms so SEZs are less attractive for them.

Question 42

Wall: What was the timeline for the SEZs?

Answer 42

1979 - four SEZs, then whole of Guangdong and Fujian were declared open;
1983 - 14 coastal cities opened up, and later the Yangtse and Pearl River Deltas;
1988 - Hainan established as fifth SEZ;
1990 - Shanghai was recognised and given policy privileges of SEZs AND encourage foreign investors into trade and financial sectors.

Question 43

Wall: What were the problems with SEZs more widely?

Answer 43

1) Chinese state trying to introduce market mechanisms into societies without the institutional frameworks for market economies,
2) no checks and balances so those in power can capture the lion’s share,
3) nepotism in allocating licenses, residence permits and jobs, the resented guanxi system, and
4) economic crime from smuggling to prostitution rife in SEZs especially Shenzhen

Question 44

Central thesis of Ong

Answer 44

Argues that China’s zoning technologies have displayed a flexible and creative approach to invoke exceptions to normalised forms of political control and economic activities and incorporating capitalist systems into China, creating a pattern of ‘variegated but linked sovereignty’. Zoning with selective, ethnically Chinese-dominated capitalist neighbours create zones of political exception to Chinese rule, generating economic, social and political conditions which could provide a potential model for political integration with Hong Kong, Macao and even Taiwan

Question 45

Central thesis of Rithmire and Chen

Answer 45

Argue there exist mafia-like business systems in China and a collusion between the state and the private sector. Large non-state business groups and mafialike business systems are 1) centered on extortion, 2) share organizational principles (plunder and obfuscation) and 3) means of growth and survival (relations of mutual endangerment and manipulation of the financial system). This is the result of capitalism mixing with illiberalism, with limited formal property rights protections.

Question 46

Rithmire and Chen: What is ‘stealth privatisation’ and one example of the business system they discuss?

Answer 46

Stealth privatisation = individuals take control of state assets, access preferential state loans then privatise these assets without public notice but with informal political support, with everyone expecting to get a ‘cut’ along the way

Example of CMIG - 1) practiced organized plunder with the state’s resources, 2) everyone was related to the founding chairman, much like a mafia organisation.

Question 47

Central thesis of Liu and Tsai

Answer 47

Argue there are structural constraints on China’s global economic power:
1) The compromised competitiveness of China’s corporate sector due to the domination of state-owned enterprises,
2) Limits on the ability of Chinese firms to develop leading transnational corporations,
3) Early openness to and continued dependence on foreign capital, (and)
4) The West resisting China’s rise eg. ambivalence over China’s participation in 5G and a consensus to keep China out.

Question 48

Liu and Tsai: Explanations for the mechanisms and examples

Answer 48

1. The private sector’s full potential for profit accumulation is hampered by 1) party’s political concern over regime survival and 2) state sector’s enormous material base. Because party survival (which requires growth) most important - SOEs prioritised over private firms in terms of who is given access to capital, despite private sector being more profitable.
2. Constraints on going global due to TNCs well-established before China’s rise, hence eg. even Alibaba has not fully internationalised, with hostility of Western regulators perceiving such corporations’ statist connections.
3. For dependence of foreign capital, in 2013, a third of China’s GDP could be attributed to the foreign sector, 8 out of 10 of China’s top export companies were foreign owned, heavily reliant on foreign supply of critical intermediary goods. The West are inside China but China is not inside the West

Question 49

Central thesis of Leutert

Answer 49

Asks the question: how has Xi recentralised authority over China’s politics? Common answers are: 1) his ‘core leader’ status, 2) his revolutionary heritage, 3) his informal network of loyalists. Leutert argues instead that the recentralisation of authority is grounded in existing governance mechanisms and techniques, and that Xi has leveraged existing mechanisms (central leading group, the cadre management system, party committees and campaigns) to reclaim central authority. For example, central leading groups are deep in the economic realm with high-ranking officials from government agencies. Xi’s approach in limiting the power of SOEs (eg. anti-corruption campaigns) shows that power can be accumulated by altering practice and does not have to involve the reform of whole institutions

Question 50

Central thesis of Peter Nolan

Answer 50

Argues that it is a myth that China’s expansion has been fuelled by the growth of small enterprises, instead arguing that large enterprises have played a key role as well. China consciously nurtured a group of large enterprises it hoped would challenge the world’s leading industrial enterprises. Grasp the large, let go of the small, zhuada fangxiao. China created policies to develop the ‘national team’, with national industries providing considerable economic benefit and providing China influence and a source of national pride. SOEs given fabourable treatment by state banks with protectionist barriers