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Economic, Social and Legal Issues in China's Transition to a Market Economy

The Asia Institute was founded in 2000 as a consortium of UCLA's principal Asian-focused research centers and programs. The Asia Institute promotes Asian studies at UCLA and fosters greater understanding of Asia through a wide variety of outreach activities including teacher training, curriculum development, public symposia, film series, and exhibitions. The Institute is the UCLA home of the USC-UCLA East Asia National Resource Center.

Cover page of The Political Economy of China's Urban Reforms

The Political Economy of China's Urban Reforms

(2000)

Why did China's national authority (the center) allow some provinces to adopt deeper urban reforms than others? This paper evaluates alternative answers found in political-economic literature. My data analyses suggest that the center, in implementing urban reforms in the provinces, primarily tried to increase revenue income. The center also attempted to garner political support from the rural consumers and surplus labor, and generate higher returns from material inputs in the provinces. Interest groups appear to be irrelevant. This conclusion is reached by testing the growth, revenue, political-support, and interest-group explanations for different extents of provincial involvement in urban reforms.

Cover page of The River Runs Dry: Examining Water Shortages in the Yellow River Basin

The River Runs Dry: Examining Water Shortages in the Yellow River Basin

(2000)

The Yellow River (Huang He) has been deservedly cast as a source of great prosperity and great despair in the annals of Chinese history. Droughts have been a part of the struggles of the Yellow River basin’s population and, in an arguably less dramatic fashion, exacted an even more crippling toll than floods. In recent years, a lack of water has once again reawakened the anxiety caused by droughts, attracting the attention of Chinese policymakers and the Chinese media. In 18 out of the past 26 summers the Yellow River has run dry further and further upstream for longer and longer periods of time. During the summer of 1998, the river failed to reach its mouth at Bohai Bay for over 250 days.

Water managers in China cite a combination of unique characteristics or tedian as factors that contribute to the basin’s water shortages. The most obvious of these tedian is the yellow soil or huang tu from which the Yellow River gets its name. The Yellow River is the most heavily sediment-laden river in the world, holding nine-times as much sediment as the Ganges River, the closest standard for comparison. Less often mentioned as a factor contributing to water shortages in China is growth in agricultural, municipal and industrial rates of water usage that followed the liberalizing of the Chinese economy in the late 1970s and early 1980s. The least frequently mentioned reason for water shortages, however, is the system that manages the Yellow River. Over the past two decades, economic reforms have been sporadic and uneven, creating gaps between subsidized input prices for items such as water and marketized output prices for items that water helps to produce. The optimal long-term strategy for remedying the basin’s current water shortages is neither a demand-side nor a supply-side measure; instead, the most effective approach to resolving water problems is reforming the river’s management system.

Cover page of Social Challenges of Transitions: Individual Narratives about the Impact of Transition on Self, Family, and Society

Social Challenges of Transitions: Individual Narratives about the Impact of Transition on Self, Family, and Society

(2000)

The social dimensions of economic transition that make headlines -- unemployment, corruption, the reemergence of prostitution and drug use, a huge floating population, and the rise of new millionaires -- tend to sensationalize the changes taking place on the Chinese social landscape. Yet there are other changes that have been no less dramatic for the individuals who experience them, and economic transition could not be taking place without them. Many of these new features may seem so familiar to the Western reader that it is hard to understand what is new about them. However, when highlighted against the way things were before, even eight years earlier, it is clear that the changes are real and significant. Among the most striking social changes affecting ordinary Chinese is increasing social differentiation, an important dimension of which is the emergence of an urban middle class.

In this paper I will describe some of the signs of transition that are evidenced in interviews I conducted in China in 1997-98 among members of this emerging social class. These interviews focused mainly on the career paths of young English teachers and business managers, who had been my colleagues and students when I taught English at a business college in a major provincial city (the MPC), in a coastal province in China, from the fall of 1989 through the spring of 1990. I was interested in how economic transition had influenced their careers, including the value of their education, opportunities available, decision-making processes, career goals, and job satisfaction. I was also interested in what they thought about the changes in China in general. With the exception of one English teacher, this paper is about my former students, who are now managers in a range of companies and government departments at the provincial level, and will focus on concerns central to all of the interviews: the growing importance of money and income differences, mobility and travel, and personal conflicts and reassessments.

Cover page of Dramatic Polilcy Shifts and Methodical Institutional Modifications: Developing an Indicator of Unemployment

Dramatic Polilcy Shifts and Methodical Institutional Modifications: Developing an Indicator of Unemployment

(2000)

Since the initiation of market reforms in 1978, the central government has used the principles of gradualism and experimentation to develop a labor market with Chinese characteristics. We show how these principles have manifested themselves in the development of an unemployment indicator. We find that top leaders of the party state make broad compromises that middle level officials seek to carry out given their inherited situation. Government agencies sometimes vary in their willingness to break with the status quo. In the quest to define and measure unemployment, the National Bureau of Statistics has championed straightforwardness and market transparency.

Cover page of The Implications of China's Accession to the World Trade Organization

The Implications of China's Accession to the World Trade Organization

(2000)

China formally applied to rejoin the GATT in 1986. After more than ten years of negotiation, however, China’s entry into WTO seems as remote as ever. This unprecedented long application time in the GATT/WTO history, coupled with the uniqueness of the China case and the rapid growth of the Chinese economy, has made this subject one of the heated topics in the IPE field. Many works have addressed the rules and principles of WTO and status quo of China’s trade regime to imply a gap in between. By doing so, these works emphasize the insufficiency of China’s progresses on reductions of tariff and non-tariff barriers, lack of transparency in its laws and regulations, and the lack of national treatment of foreign companies. These are the major issues on the negotiation table; however, little work has been done the goal of the Chinese economy, which is the reason behind its economic and trade policies and its reform on the regime. To some degree it will have deeper impacts on its policies than the nature of its economy does. Because if China is simply during the transition from non-market economy to market economy, then we can make sure that economic liberation is under way. However, if today China’s situation is a combination of a transitional economy and a nationalist economy, then we have to reconsider the whole framework.

By emphasizing the uniqueness of the China case as both a transitional economy and a nationalistic economy, I shall draw two main propositions from the following analysis. First, neither China nor WTO are ready for China’s accession. Second, the WTO membership is crucial for China’s further openness, but in the meantime, further liberalization is required of China, especially in the area where the role of the state is to be minimized. In the following sections of the paper, I shall first examine the current incompatibility between WTO, an important international economic institution, and China, a complicated unit to be incorporated. I shall then explore the uniqueness of the China case in an attempt to answer the question why neither side is ready for China’s accession at this time. In the end, I shall provide certain policy recommendations for both China and WTO on this matter.

Cover page of The Domestic Distributional Effects of China's Opening to the International Economy and the Politics of Institutional Choice

The Domestic Distributional Effects of China's Opening to the International Economy and the Politics of Institutional Choice

(2000)

China’s opening to the international economy has brought about a great transformation in its economy, society, and political system. Allowing trade, investment, international finance, and other vehicles of the international economy into China’s domestic economy has changed the distribution of assets in society and, in turn, has changed the distribution of political power among important domestic constituents. I argue in this brief survey that the pattern and timing of China’s opening was driven by the anticipated distributional effects on important domestic constituents of specific opening policies. Similarly, the areas that remain closed can be explained with the same distributional logic.

This survey of the patterns of China’s opening is based on a simple, and highly stylized, three-actor model in which top leaders vie for support from subordinate constituents in either central government or local government positions. The main thrust of the argument is that top leaders design and promote policies and regulatory structures in order to deliver support from one or the other set of constituents to individual top leaders. The simple point made is that, rather than being driven by an enlightened bureaucracy, or driven by multilateral economic negotiations, a sector will be opened only when the political payoffs to top leaders from opening outweigh the payoffs from intervention and protection in a sector. These payoffs are related to the distribution of political power within society and the industrial organization of the sector in question. Top leaders used the distributional effects of opening to the international economy to their own benefit, and allowed for opening in areas where opening would either help current constituents, or attract new constituents to their supporting coalitions.

Cover page of The April 25 Incident and Its Implications: A Study of the Buddhist Cult "Falun Gong" vis-a-vis the CCP's Ideological Education Work Among the Youth in a Period of Dramatic Economic Reforms

The April 25 Incident and Its Implications: A Study of the Buddhist Cult "Falun Gong" vis-a-vis the CCP's Ideological Education Work Among the Youth in a Period of Dramatic Economic Reforms

(2000)

How did Falun Gong strike such a deep chord in so many Chinese people and find such a fertile ground for recruitment? This paper studies the nature of Falun Gong, and attempts to address issues concerning the Chinese Communist Party’s (CCP) ideological work on the Chinese youth, and crisis of faith among the Chinese people brought forth by economic reforms in recent years. The hypothesis is: the CCP’s reemphasis on ideological education only aggravates the crisis of faith among the youth because the ideological work idealized by the CCP pushes for one direction, but the realities experienced by the youth push for a different direction. This has also allowed alternative values, such as Falun Gong, to fill the void left open by the decline of the CCP’s official ideology.

Cover page of Work Units and Income Inequality: the Effect of Market Transition in Urban China

Work Units and Income Inequality: the Effect of Market Transition in Urban China

(2000)

Nee's market transition theory claims that redistributive power will decline and returns to human capital will increase as state socialist economies are transformed into market economies. However, many other scholars have discovered that either the influence of redistributive power persists or returns to human capital decline. In this paper, I analyze the effect of marketization on individuals= income inequality in urban China as mediated by work units, which are classified into three types: Low Profit State Firms (LPFs), High Profit State Firms (HPFs), and Market Firm (MFs). LPFs are farthest from the market, HPFs are closer to the market and MFs have to be completely exposed to market conditions. Results based on two urban survey data sets show that while the influence of redistributive power declines, returns to human capital do not monotonically increase, as market transition theory predicts. Although returns to human capital are higher in the market sector than in the state sector, the effects of education on earnings are weaker in HPFs than LPFs within the state sector. The inconsistency is attributed to the effects of bonuses that are equally distributed among employees in HPFs.

Cover page of Corruption and Market Reform in China

Corruption and Market Reform in China

(2000)

Everyone knows that officials in China are corrupt. It would be difficult to find a China scholar who would disagree outright with this statement. However, because official corruption is illegal, immoral or both, it is painstakingly concealed from the public and from researchers alike. So, what do we do about it if we can’t even measure it? Many authors have answered this challenge by using descriptive methods that discuss political corruption as a broad phenomenon that has commonalties of both cause and effect across many different situations. These works often focus more on the effects and potential future effects of corruption than on explanations and possibly helpful responses to its existence. In this paper, I propose that a solution to the problem of studying political corruption in China can be found in the analytic approach of game theory. I model particularistic gift-giving from citizens to officials for necessary goods as a product (equilibrium outcome) of choices made by different players attempting to maximize their individual payoffs in the context of certain clearly understood and common priors (a specific institutional framework and incentive structure). Using this method, we can then proceed to a discussion of how part of a “stably corrupt system” such as China’s might be altered or broken by exploring how changes in the system and the incentive structure might shift players’ choices and thus the equilibrium outcome. In this way, I hope to replace interesting but vague and finally unhelpful descriptions of modernization, democracy and marketization as ‘natural’ and long-term cures for corruption with a more concrete discussion of specific policy options and institutional and political structural changes that can begin to address corruption and its related problems in the short to medium term (though may not promise to eliminate it). Thus, using game theory, not only can we hope to explain the macro phenomenon of corruption as an aggregation of individual choices , but we will also discover that it takes extreme environmental changes to crack corruption as the modus operandi of Chinese citizen/official interactions.

Cover page of Housing Choices and Changing Residential Patterns in Transitional Urban China

Housing Choices and Changing Residential Patterns in Transitional Urban China

(2000)

Aiming to introduce market mechanisms to an administratively managed and heavily subsidized housing system, the ongoing housing reform in urban China has brought dramatic changes in housing provision and consumption. Chinese households have started to enjoy freedom of housing choice that was not possible in socialist China. Yet, their choices are constrained because of the transitional nature of the current housing system where both institutional forces and market mechanisms operate. It is the goal of this research to examine how these two types of forces interact and how households make their housing choices in the transitional housing system. In contrast to the economic and socio-demographic perspectives on housing choices in the Western literature, I argue that a framework incorporating social relationships between the state, work units and employees is needed to understand households’ housing choice in transitional urban China. Associated with housing choices, the homogenous residential pattern in socialist China is gradually changing and a residential sorting is in process. It is also my goal to study the change of residential patterns and its dynamics in urban China.

Four research questions are proposed: (1) What kinds of individual and household characteristics affect housing choice, and how relevant are the existing Western theories? (2) What are the roles of work units in housing choice in transitional urban China? (3) What is the role of the central state in constraining housing choice in transitional urban China? (4) Is a new form of residential pattern emerging? What factors contribute to the change of residential patterns and how relevant are the existing Western theories? A complementary methodology combining both quantitative and qualitative analyses, both national studies and case studies will be employed. The data include a national survey data, in-depth interviews in three cities, and archival data such as housing policies and housing statistics. A multi-level logistic model will be used to examine individual, household, work unit level and state level factors affecting households’ housing choices, and maps on residential patterns will be created.