Economic reforms in China and Vietnam: A brief comparison

Transcription

1 Economic reforms in China and Vietnam: A brief comparison Dr. Dinh Van An President- Central Institute for Economic Management (CIEM) MA. Luu Minh Duc Researcher, Dept. for research on Macroeconomic Policies, CIEM Introduction: The economic reform in China has undergone for nearly 3 decades and the Doi Moi (Renovation) process in Vietnam for 21 years, upto the year Both of them.derived from Socialist economies with high levels of central- planning, bureaucracy and state protection. Both was kicked-off as the international stage observed critical changes since the Socialist system was to collapse in 1980s. Generally, the two countries economic reforms have shared fundamental similarities. They have been oriented to market economies which was perceived as a Capitalism-owned feature. It can be said that these reform efforts were revolutionary shifts in the ideology of the relationships in production and economic institutions in each country. At the moment, after a long path enough for us to review, ones can see that the two reforms have gained significant achievements. The economies of China and Vietnam are leading the regions in terms of GDP growth rates with nearly 10% and 9% respectively. Both countries have become the most attractive arrivals for foreign investments among the area. Our exports have been competitive even in Western countries. This paper focuses on the similarities and differences, and challenges emerging in the economic reforms of the two countries, as follow. Its structure comprises 2 major parts. The first one reviews the changes, strategic directions and policy packages, and achievements in each period of the two reform processes; whilst the latter one compares similarities and differences, and challenges confronting the two countries in the coming time. I. Strategies and orientations, and macroeconomic policies in each stage of the reforms: 1.1. China ( ): 1

2 The course of Reform and opening Building the Socialist market economy with Chinese characteristics should be divided into two major stages: from and present. a. Stage 1 ( ): The 3 rd Central Convention of Chinese Communist Party s 11 th plenary in December 1978 launched the reform and opening process for modernization of the country on all socio-economic and polititcal aspects. For the first time, market values was recognized. Essentially, the reform in this initial period was taken on careful steps in order to create the stimulus of and extend the resources allocation to the market. In fact, the reform aimed at institutional changes for a better respectation of market regulation on the background of a central- planning economy, still kept in place. The perceptions and values of market regulation were gradually and selectively introduced; for example, the market s invisible hand (supply and demand), trade economy (1984), and by 1987, the separation of the state administrative functions from enterprise management (companies ruled by markets, and markets ruled by the State). The State reaffirmed its planning funtion as outlining macroeconomic directions, goals, missions and policies for socio-economic development; and harmonise the economic interests among social groups and demographic regions; whilst the markets play its role in resources allocation. For this purpose, the State gradually withdrew the range of the State- planning production and pricing, reduced legislative plans, abolished the restrictions on business rights, giving plant managers self-rule and self-reliance, unbound the trading rights for all market players, and lifted up the State monopoly in foreign trade The step-by-step approach was clearly observed in reforms of pricing policy. Pricing was first liberalised to the market firstly in agricultural products, then in consuming and durable goods, in production materials and services, and lastly in exports and imports. The system of dual price, which was applied as a transitional form in 1984, was also ended in In rural reforms, the cooperative system was replaced by output- assignment to each household. Especially, it is worth to note that since the very early period, Guangzhou and Fuzhou provinces were piloted to establish first special opened economic zones to attract foreign direct investment. b. Stage 2 (1993- present): The economic reform in China got its second phase as the Communist Party s 14 th National Congress in 1992 officially announced the target of building a socialist market economy and giving the economic reform a push on every fields. As well in this congress, limitations of the 2

3 planning economy s first, market regulation s second model in the previous stage were learnt, and a modern market system, which in fact comprised of internationally recognised Best Practices, while maintaining political leadership of the Communist Party, was envisoned. It can be seen that, after 15 years of reform, the ideology system guiding the reform always has regularly been reviewed and upgraded to keep up with the practical demands for development. The doctrine of Socialist market economy has been developed and matured as the 15 th Communist Party s National Congress, in 1997, affirmed its target of completing the transition to a Socialist market economy (also called as Chinese coloured market economy ) by The second phase of reform has been implemented by the following bunches of policy: - (i) Promoting the establishment and development of markets of all types: unifying the goods market from cities to rural areas; developing credit market, stock and bond market; and liberalising domestic labour market; - (ii) Renovating the public finance system by decentralizing for localities and autonomous territories; - (iii) Monetary policy: single rates policy; liberalising foreign exchange markets; enhancing the competitiveness of export-import companies; cutting taxes, reducing trade licenses; taking foreign trade as priority; strengthening international reserves and maintaining exchange rates low and stable; - (iv) Demand stimulus: enriching household incomes, and encouraging demands; - (v) Science and technology development: applying advanced management system and encouraging high-tech production, and increasing labour productivity; - (vi) Diversifying development of small and medium enterprises (SMEs), especially in services and consuming goods industries; the Company law was introduced; - (vii) Revitalizing state- owned enterprises (SOEs). The government has withdrawn from business management functions by methods of enterprising, privatising and making those companies listed on securities markets; the SASAC was established; 3

4 - (viii) Opening up: applying for GATT (1986), then becoming WTO member in 2001, attracting foreign direct investment; - (ix) Regional development policy: development stating in Eastern coastal provinces, and later rolled-up into more internal regions in the West; - (x) Cutting administrative procedures: simplification and transparency, fighting corruption. At the 16 th Congress in 2001, Chinese Communist Party unveiled its strategic plan: doubling the country s GDP from ; further double fold by And by the time, Chinese per capita incomes would be 3,000 USD, and a rather rich and better- off society on every aspects should be achieved. c. The 17 th Congress (2007): In October this year, the 17 th Congress was held. This is a significant event marking the transition to the fourth leadership generation of President Hu Jin Tao. The economic reform and openess have been reaffirmed. President Hu Jin Tao emphasized: Reform and opening up is an inevitable path to realise the Chinese nation s great rejuvenation. However, the Congress adjusted the Party Charter to introduce President Hu Jin Tao initiative of scientific development scheme, which calls for resolution of environmental problems and increasing social welfare for rural peasants and urban workers, whose incomes have not been improved as other Chinese in the reforms. Obviously, this is a considerable breakpoint in the economic development strategy of China in the coming years. The country s leaders have recognised the significance of the problems in the environment and social welfare. The high growth rate is no longer a priority. In stead, the economic growth must go along with the improvement of life quality for Chinese people of all social statures Vietnam: ( ) Similar to China, the process of Doimoi and integration- building a Socialist market- oriented economy in Vietnam has also past more than two stages: (i) from ; (ii) ; (iii) present. a. Stage 1 ( ): It was like the context of China 8 years earlier, the socio-economic situation in Vietnam was really closed to a overall crisis due to negative consequences of the longtime central planning economy, added by destruction of consecutive wars and the threat of losing the assistances from Soviet Union block. This urgent context pushed Vietnam s reformers to start the renovation course (called in Vietnamese as Doimoi) at the 6 th Party National Congress, in The Party has recognised the existence of trade market and market economy, and 4

5 promote a multi-sector economy, including private and foreign entities. A series of reforming policies were done, such as liberalising price; removing barriers in distribution channels; promoting exports; prioritizing agricultural products and consumming goods; establishing markets for capitals and real estate and labour; attracting foreign direct investment. In rural areas, the output- assignment system was widely introduced, unchaining the production forces in this important field. Just over a three year period, from , Vietnam has transformed itself from a country of food- shortage to a country of highest rice exporting growth rates in the world. The Party 7 th National Congress in 1991 consolidated the Doimoi policy and confirmed that the development of a Socialist oriented multi-sectoral economy in market mechanism under the state regulation was the path to Socialism in Vietnam. The reforms got more intensive momentum. Remarkably, the legal frame was constructed although in preliminary periods, but laying importants backgrounds for economic activities. The Rule of laws was respected and the Consitution was amended in 1992, in which stated the legalised business freedoms for all sectors, encouraging foreign direct investment and property protection. Especially, the openess in foreign policy and diversifying international relations helped Vietnam to break the isolation and integrate into international communities; symbolised by an ASEAN membership and normalisation with the United States in b. Stage 2 ( ): The reform was continued but had to cope with negative impacts from the Asian financial crisis in Two major measures had been rolled out in this period, firstly the macroeconomic structural adjustment, particularly the lifebuoy rescue for banking system (under the plans of IMF and IFC), secondly encouraging investment and household expenditures (demand stimulus. Moreover, the Enterprise Law 1999 (with effect from 2000), which allowed private company registration with lowest costs and conditions and applied worldwide best practices of corporate governance, was introduced in an effort to revive the business sector and to capitalise the country s internal potential resources. As the result, Vietnam can be said to successfully minimizing the crisis impacts. The average annual growth rate was still reached 6.0%, and the economy regained its momentum of high growth after 5 years of downturn. c. Stage 3: (2001- present): 15 years of Doimoi process is a long period enough for Vietnamese reformers to review and draw their experiences for the continued reform and upgrading the ideology to a new high Building the Socialist oriented market economy, intensifying the reform and integration process. If the 8 th Party Congress in 1996 only talked about goods economy and market 5

6 regulation mechanism, the 9 th Congress officially putforth the notions of Socialist oriented market economy. According to the 9 th Congress s Resolution, the Socialist oriented market economy in Vietnam is an economic model that works under market rules and is also based on and lead by principles and natures of the Socialism as well. It is reflected on three dimensions: possession rights, organizational management and distribution. It is a multi-sectoral economy, regulated by the market mechanism, and managed by the State for the vision of rich people in a strong nation, and a equal, democratic and civilized society. Under the leadership of the Party direction, several packages of policy have been implemented as follow: - (i) Making laws and improving the legal frame for economic activities: dozens of new laws and thousands of regulations were issued or amended to legitimize the socio-economic practices; and to promote the Rule of laws principles and compliance of international commitments. - (ii) Implementing resolutely multisectoral economic policy. Individuals and organizations of all economic sectors have rights to start business in legitimate fields, and to compete equally. - (iii) Encouraging foreign investment and protecting investor s possession rights of capitals, properties - (iv) Promoting private business sector: Reducing startup and registration costs; assisting SMEs; legitimising Best practices of corporate governance; applying international standards in quality management. - (v) Administrative reform: simplification of the administrative procedures; streamlining Government s organs; decentralization of the investment licensing to provinces. - (vi) Renovating the State s economic management functions and measures: The government should limit its functioned in creating the favourable business environment and direct the development of economic sectors; correcting and regulating negative dimensions of the markets; implementing programs of social welfare, hunger elimination and poverty reduction; and ensuring the Socialist orientation kept on track. Planning should be reformed and upgraded. The State intervention should be done by laws and economic incentives. - (vii) SOEs reform: Equitization, and separating the administrative management and state ownership rights and business management. 6

7 - (viii) Developing market factors and market segments: creating and improving the markets of services, finance, real estate, labour and science and technologies Developing securities and bonds markets to attract domestic and overseas capital sources. - (ix) Promoting exports; expanding and diversifying foreign trade markets. - (x) Actively joining WTO (November, 2006). Hamornizing domestic legal frame with integration commitments and roadmaps. d. The 10 th Party Congress: The goals and direction for the country s development in the five-year period from was set in the Resoultion of the 10th National Congress of Vietnam Communist Party, which was held in April, Accoring to that, the strategic direction of completing institutions for a Socialist oriented market economy would be continued, while the country industrialization and modernization process should be associated with the development of a knowledge economy. The Socialist orientation in market economy need to be understood as to achieve the goals of rich people in a strong nation, an an equal, democatic and civilized society ; dratically unchaining and developing production forces, and improving people s living standards. The economy should belong to diverse players of different possession forms, with a major role of the the state-owned sector. The strategies to achieve those goals are: (i) improving the State management functions and enforcibility; (ii) developing and managing the operation of fundamental types of market under a healthy competition mechanism; (iii) strongly encouraging the growth of all economic sectors, and business forms. A remarkably new point that can be seen in this 10 th Congress is the focus placed on the importance of science and technology. The knowledge economy is valued as a significant factor and chance to shorten the time for industrialization and modernization of the country. In addition, national resources should also be reserved and effectively used; and secondly the natural environment has to be improved; and thirdly the fights with natural disasters and urgencies would be more actively prepared. In an overall social and environmental approach, Vietnam commits to pursue the United Nations Millennium Development Goals. II. Some remarks on the economic reforms in China and Vietnam: 1. Similarities: - Firstly, the models of market economy the two countries reforms pursue are slightly different in perception; China for a Socialist market economy 7

8 with Chinese characteristics, whilst Vietnam for a Socialist- oriented market economy. However, they essentially share great similarities in terms of goals, contents, and methods. - Secondly, both reforms have been approached with step-by-step strategies; at first to make changes on the background of deep- rooted planning economies; and next to make an official transition to the market economies. The priorities placed on macroeconomic and political stabilities have played significant roles in creating favourable environments for investment and business activities. - Thirdly, both of the reforms in China and Vietnam have taken the following issues as the foremost and critical ones to address: (i) developing multi-sector economy; liberalizing production forces, and creating market factors and markets of all types; (ii) reforming SOEs; and encouraging private businesses; (iii) openning foreign policy; consistenly integrating into international communities; taking foreign trade and FDI attraction as spearhead for economic growth; (iv) paying attentions to agricultural issues, and hunger alleviation and poverty reduction tasks; (v) renovating the roles, functions and methodology of the State s socioeconomic management and intervention; administrative simplification. 2. Differences: - Firstly, the reform in China was started nearly ten years earlier than the one in Vietnam. It can be said that, China was the leading country among other Socialist countries in economic transition. Her reform could have provided a source of reference for and encouraged similar reforms, which took place later in the Soviet Union and East European countries in 1980 decade. At present, Chinese experiences have always been valuable lessons for us in the Doimoi process. - Secondly, due to differences in geographic scale, economic and historic features, China has been less affected by the world s political and economic changes than Vietnam. Even, it can be seen that China has in fact been an important factor in shaping international relations; while Vietnam has been intensively influenced by those relationships. Actually, Vietnam has not normalized its economic relation with the United State until And only after that event, our economy did step out to integrate rather comprehensively with the world economy. On the other 8

9 hand, the fact that Vietnam joined WTO five years after China also reveals that China has always proceed Vietnam in the reforms. - Thirdly, the division and decentralization of economic management to provinces have been done earlier and been more successful in China than in Vietnam. Special open economic zones were established in China from very early stages, creating hubs of economic development for the whole area around. This has been achieved in Vietnam. Some of our economic zones such as Dung Quat, Chu Lai, Phu Quoc have been built slowly, and not opened as expected. It may be explained by the differences in levels of centralization and geographic scales of the two countries. The higher centralization in China might allow the central Government to push forward a greater decentralization; in the meantime, the scales of those provinces, which established special economic zones, are also large enough for self-reliance and better dealing with issues of an open economic zone, such as the external affairs with overseas partners. - Fourthly, the issues of environment and social welfare have been emphasized in the 17 th Party Congress of China. Obviously, the strategy of economic reform has been redirected here, shifting from the focus in high growth to a balance between economic growth and development issues. In Vietnam, the 10 th Congress has also begun paying more attention to the knowledge economy, environmental protection and social securities. Yet, they have not been taken as specifically and clearly as in China. This might be derived from the fact that Chinese reform has undergone through a longer period with a growth rate of 10%, which can be seen as hot, and resulting in the requirements of a slow-down to focus into more urgent development issues. Meanwhile, Vietnam still needs high rates of growth, so might it say that development issues are not as hot as those in China. 3. On-going challenges to both countries in the economic reforms: - Unharmonized economic development: Rich and poor gap has been widened among populaton groups and geographic regions. In China, the growth picture has drawn a contrast between Eastern coastal provinces and inner ones to the West. While in Vietnam, the development has only performed in urban areas, leaving most of the countryside regions lagged behind in deeply poor situation. There comes three issues to be taken into account: firstly, we have usually said that the Socialist market economy is to combine the 9

10 resources allocation by market rules and the social redistribution of economic benefits by Socialist characteristics. However, the reality is not just much simple, because the allocation of resources and final economic benefits are not separate issues. For example, when we impose high taxes on corporate incomes or some product, immediately there would be sharp declines in business registration and investment into that production. Clearly, the issues of resources and economic benefits are organically related to each other. - Secondly, the equitization of SOEs has traditionally thought as a remedy for socializing public assets. Nevertheless, it has been practically proved that those stocks have never reached to or stayed on the hands of large population; on the contrary, it has poured into pockets of richer and richer ones. - Third is the urbanization issue. Rural modernization might ever be a impossible motto. In stead, both China and Vietnam have to confront with desperate problems of the countryside- cities immigration for a better living. Moreover, the down- trend in agricultural prices is an visible obstacle on the processes of hunger alleviation and poverty reduction in both countries. - The cost of high economic growth rates have been paid by degradation of natural resources and ecological environment, life quality and social securities. At the moment, both countries are dealing with series of problems, such as water and air pollution, food safety, mine and bridge collapses, traffic accidents, worker strikes, ect. - Energy security: China and Vietnam have both increasingly observed a dramatically shortage of energies. On the other hand, we are more and more dependent on changes of energy price in the world. Both of the economies have shown to be more vulnerable to outside crises. The current oil price fever is a typical example. - Corruption has long been one of the biggest disasters. And administrative reform is still a long path to overcome. - China and Vietnam have joined the WTO for six and one year respectively. Those challenges in integration processes are potential. Non-tariff barriers have been erected in name of quality standards, and anti-dumping cases have been haunting threats for exporters of the two countries. Conclusion: 10

11 It can be said that Chinese and Vietnamese reformers have gained significant achievements in the courses of building the Socialist and Socialist oriented market economy of their own. Both of the reforms were started in critical milestones in each country s history, but sharing lots of similarities. They have been implemented step-by-step, transiting from planning economies to opened and multi-sectoral market economies. The economies in China and Vietnam are recognized by the international communities as stable, but also most dynamic and vivid ones in Asia. However, both countries have to confont with potential challenges. Fast economic growth does not mean sustainable development. To successfully achieve our economic reforms, we should come up with break-throughs in thinkings; continuously renovating the roles, functions and methodology of the State management, under the leadership of the Parties; improving the legislation systems, administrative simplification; and especially paying more attention into sustainable development issues as environment, social securities and equalities./. Reference: 1. Documents of Vietnam Communist Party s 10 th National Congress, Economic development policies- Experience lessons of China, Vol 1-3, CIEM- UNDP/VIE 01/012, Institutional reforms, international experience and practice in Vietnam, CIEM,