THE ECONOMIC DEVELOPMENT OF CHINA

THE ECONOMIC DEVELOPMENT OF CHINA

The Economic Development of China A Comparison with the Japanese Experience Ryoshin Minami Professor of Economics Institute of Economics Research Hitotsubashi University, Tokyo Translated by Wenran Jiang and Tanya Jiang with assistance from David Merriman Palgrave Macmillan

ISBN 978-1-349-23174-4 ISBN 978-1-349-23172-0 (ebook) DOI 10.1007/978-1-349-23172-0 Ryoshin Minami 1994 Softcover reprint of the hardcover 1st edition 1994 All rights reserved. For information, write: Scholarly and Reference Division, St. Martin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010 First published in the United States of America in 1994 ISBN 978-0-312-10021-6 Library of Congress Cataloging-in-Publication Data Minami, Ryoshin, 1933- [Chiigoku no keizai batten. English] The economic development of China : a comparison with the Japanese experience I Ryoshin Minami ; translated by Wenran Jiang and Tanya Jiang with assistance from David Merriman. p. em. Includes bibliographical references and index. ISBN 978-0-312-10021-6 I. China-Economic conditions-1976-2. Japan-Economic conditions-1868- I. Title. HC427.92.M57913 1994 338.951-dc20 93-15600 CIP

Contents Preface and Acknowledgements Notes from the Author ix Introduction 1 1 Economic Development and Achievement: An Overview 5 1 Development: An Overview 5 2 Achievements 11 3 The Japanese Experience 15 2 Economic Systems and the Government 19 2.1 Central Planning Versus Market Mechanisms 19 2.2 The Role of Government 23 2.3 Financial Institutions 29 2.4 Foreign Trade Institutions 32 2.5 Industrial Organisation 34 2.6 The Ownership and Organisation of Enterprises and the Employees' Welfare System 39 3 The Foundation Stones of Economic Growth 44 3.1 Human Resources 44 3.2 Energy 52 3.3 Infrastructure 58 4 Agriculture 64 4.1 The Growth of Agriculture and its Role 64 4.2 The Main Factors behind Agricultural Development 72 Vll v

Vl Contents 5 Industrialisation and Technological Progress 85 5.1 The Growth, Role and Structure of Manufacturing 85 5.2 Factors in the Growth of Manufacturing 100 5.3 Analysis of Productivity Differences 103 5.4 Factors Affecting Technological Progress 109 5.5 Industrialisation Policy 123 6 The Chinese Economy and Internationalism 129 6.1 The Scale of Foreign Trade 129 6.2 The Structure of Foreign Trade 135 6.3 Foreign Economic Relations: Significance and Policies 147 7 Compulsory Capital Accumulation and Inflation 154 7.1 The Role of Investment 154 7.2 The Composition and Distribution of Investment 159 7.3 Sources of Investment and Capital Circulation 164 7.4 The Pressure of Inflation 179 8 Population, Labour Force and Living Standards 191 8.1 The Population Problem and Population Policies 191 8.2 Demand and Supply of the Labour Force and the Labour Market 204 8.3 Living Standards and Social Welfare 212 9 The Chinese Economy: Present and Future 225 9.1 Examination of Chinese Economic Problems Using the Japanese Experience 225 9.2 The Future of the Chinese Economy and Related Policies 230 Notes and References 238 Index 253

Preface and Acknowledgements For much of 1989 we held our breath and fixed our eyes on our television sets to watch live coverage of the momentous events occurring in China and Eastern Europe. We were watching history in the making. Although both developments were triggered by a strong desire for reform and democratisation, the Beijing government used bullets and tanks to end all talk of democracy whereas the Soviet and East European authorities eventually complied with the demands of the population. There are many possible causes for these different outcomes but surely the different economic situations played an important role. The economies of the Soviet Union and Eastern Europe were on the verge of collapse and people suffered greatly in their daily life. In contrast the Chinese economy had grown rapidly after the implementation of reforms in the late 1970s and living standards had improved accordingly. Therefore it is understandable that the Chinese people vehemently complained about inflation and the widening gap between rich and poor while making less stringent demands for dramatic change in the political system. However serious problems do exist in the Chinese economy. One is the high inflation rate. Consumer prices jumped 18.5 per cent in 1988 alone and resentment over this undoubtedly contributed to the events leading up to the Tiananmen Square massacre. Two factors were responsible for the sharp increase in Chinese inflation. The first was decreasing productivity. Coordination and division of labour among industrial organisations was inadequate. State-run enterprises were heavily subsidised and lacked the ability to compete. Antiquated technology and management systems were in use and there was a shortage of electricity and raw materials. All of this caused a decline in the operating capacity of industry. The second factor contributing to inflation was increasing consumer demand. The increased autonomy of enterprises resulted in a weakening of state control, more investment and much larger expenditures on wages and bonuses. The government attempted to counter this trend by introducing the same sort of macro-control measures used in Western economies - investment activities were regulated by adjusting vii

viii Preface and Acknowledgements interest rates. This was ineffective since state-owned enterprises felt little pressure to reduce costs and paid little attention to the burdens created by increased interest rates. This incident highlights some of the systemic weaknesses in the Chinese economy. This book provides information about several important aspects of the Chinese economy. It identifies the problems that China must face to develop its economy and attempts to elucidate the structural deficiencies which lay behind these problems. The characteristics of the Chinese economy are depicted and it is compared with other economies in the world. The book also analyses China's present economic situation and, where possible, provides prescriptions for solving its problems by using the Japanese development experience since the Meiji Period (1868). The book is not intended to be a complicated technical work for professionals. Rather it is designed to present simple explanations through plain expressions. The comparisons with Japan are intended to enhance the understanding of those who are knowledgeable of, and concerned with this country. Ultimately, I hope that this work will be read widely as an introduction by, not only researchers, but also ordinary readers and students who want to acquire some general knowledge about the Chinese economy. The present book is an English translation of its Japanese version published by Toyo Keizai Shinposha in 1990. I gratefully thank Mr Wenran Jiang and Ms Tanya Jiang for their efforts devoted in this difficult translation work and Professor David Merriman for editing the translation. The Dai-ichi Mutual Life Insurance and the Credit Suisse kindly provided the financial backing for this translation as well as the Chinese translation which was published in 1991. I sincerely appreciate the strong support extended by these two companies for this project. RYOSHIN MINAMI

Notes from the Author Unless stated otherwise, all quotes in this book are from Ryoshin Minami, The Economic Development of Japan: A Quantitative Study (London: Macmillan, 1986). Japanese names are written in the Western order of given name followed by family name. This is not the case with Chinese names. All growth rates take the previous year as the base. The growth rate of each period is the simple average of the growth rate of the years which make up the period. Totals in the tables may not add up to 100 due to rounding off. R. M. ix