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Cracking the China ConundrumWhy Conventional Economic Wisdom is Often Wrong$

Yukon Huang

Print publication date: 2017

Print ISBN-13: 9780190630034

Published to Oxford Scholarship Online: July 2017

DOI: 10.1093/oso/9780190630034.001.0001

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(p.201) Appendix A Elaboration of China’s Development Experience

(p.201) Appendix A Elaboration of China’s Development Experience

Cracking the China Conundrum

Yukon Huang

Oxford University Press

There are a plethora of studies on China’s growth experience in the Deng era up to the GFC.1 This appendix provides a fuller discussion of aspects related to themes in this book. The general consensus is that China success was due to reforms that were

  • Implemented pragmatically and gradually and based on discovering what worked from experimentation.

  • Sequenced in line with institutional capabilities and evolving conditions.

  • Geared to access foreign expertise and exploit advantages of backwardness.

  • Motivated by the desire to maintain stability both economically and politically.

  • Designed to avoid major economic downturns which would have weakened commitment to reforms.

  • Influenced by aversion to global financial risks and unforeseen events.

  • Seen as part of a long-term transition spanning decades rather than years.


China’s growth performance was the result of a series of pragmatic reforms which made use of the country’s natural advantages and were sequenced to reflect evolving institutional capabilities and market opportunities. What was different was the process that China used to reform its economy rather than the policies themselves, since the reforms broadly adhered to mainstream prescriptions including liberalizing markets, diversifying ownership, and maintaining stable macroeconomic conditions. By pursuing reforms in a gradual, experimental (p.202) way and providing incentives for local governments, the authorities were able to discover workable transitional institutions at each stage of development. China also grew rapidly because it was able to sustain its reforms over long periods of time and was not diverted by swings in either economic or political cycles. Part of its success has been its ability to develop the domestic capacity to design home-grown reforms suited to local conditions over three phases in China’s transformation.

First, China reallocated labor from low-productivity agriculture to higher-productivity services and industry. The sector shift in the labor force went hand in hand with rapid urbanization, which is remarkable in light of the household registration system that discouraged rural residents moving to the city. Second, China rapidly opened up its closed economy, moving to one with 70 percent of GDP in trade on the eve of the GFC, which is exceptionally high for a country of its size. Third, China’s economy transformed from one dominated by SOEs and collective farms to more diversified entities (private, diversified shareholding companies; TVEs; and foreign-invested firms).

China’s planning system was not eliminated in one go. Instead, the economy was allowed to “grow out of the plan.” This preserved the level of existing production while giving strong incentives to households and enterprises to grow outside the system. While this approach preserved some of the inherent inefficiencies, it was politically acceptable and introduced gains from market-induced competition throughout the economy.

Pragmatic Approach under Special Initial Conditions

China’s success compared with other transitional economies was made possible by differing initial conditions and a gradual approach. It did not have to deal with the complications of a political disintegration that totally distracted the former Soviet Union Republics and was thus able to focus on its economic transformation. By taking a trial-and-error approach, it was able to avoid the political dissensions that could have stalled the process. This allowed the leadership to find practical alternatives unencumbered by whether it was ideologically correct or theoretically optimal.

The dual-track system for growing out of the planned economy was a major feature of the transition process.2 It allowed continuation of the administered system, which avoided the collapse of production that would likely have occurred if resources had been allocated based solely on market-driven mechanisms. By the time of the abolition of most material planning in the mid-1990s, administered and market-based prices had been largely aligned.

(p.203) This gradual reform process worked only because commitment to reform was so strong. The signals began with Deng Xiaoping’s early statements on the reform process and the administrative system followed through with actions. Incentives were reinforced with the rewards that officials received for delivering on reform goals: growth, attracting FDI, generating employment, and maintaining social stability. Experience in the regions also counted heavily for promotions, which provided the most talented with the incentives to demonstrate their capacity to spur growth.3

China’s vast size and regional differences meant that decentralization was an effective means for local governments to experiment and champion specific reforms within the parameters established by central authorities. This allowed the transformation of the structure of agriculture- and enterprise-based production to fit the needs of a socialist market economy while the centrally guided institutional basis for managing the economy—involving the fiscal and financial systems and the trade and exchange-rate regimes—were still being shaped.

At various stages, issuance of key policy reform statements such as those protecting property rights and opening up Party membership for private entrepreneurs solidified the position of the private economy. But the decentralized, experimental reforms did not always work and worked better for some purposes than for others. As discussed later, economy-wide reforms such as those affecting intergovernmental fiscal relations and the functioning of the exchange-rate regime have proven to be more difficult to handle as macro-management became more complicated for a government that preferred stability. This has arguably led in some instances to prolonging systems that had outlived their usefulness.

Reviving Growth and Emerging Production Structures

The result is that China was able to avoid the economic setbacks that hampered the reform process in other countries. Not only has economic growth averaged nearly 10 percent annually for decades, but it has been remarkably stable.

Agrarian reforms drove the initial surge in production. Growth increased sharply in the first half of the 1980s with the new household responsibility system. Land leases also emerged, which shifted user rights from collectives to households. By simply allowing farmers to sell their surplus on the market, increasing procurement prices, and reducing state-mandated quotas, rural per-capita incomes tripled during the 1978–1984 period. This contributed to a surge in the GDP growth rate to 14 percent by the mid-1980s. Continued agrarian reforms, notably the overhaul of China’s food-grain marketing system in the mid-1990s, led to another surge in rural incomes. These reforms paved the way for rapid changes in technology and crop diversification, which over the subsequent (p.204) decades brought yields in line with other high-performing countries.Together these reforms helped push GDP growth rates well into the double digits during the first half of the 1990s. Further liberalization of the agrarian economy was inspired by the 2001 WTO trade-related reforms, which eliminated any remaining pricing biases against agriculture and encouraged a shift in the cropping mix in favor of crops more in line with China’s comparative advantages. This has been reinforced in recent years with a wholesale reduction in agriculture taxes and fees which uplifted agrarian incomes and helped moderate regional disparities.

By the late 1980s, when the momentum from the initial agrarian reforms was petering out, growth was given a new impetus from the emergence of rural-based TVEs. TVEs were an enterprise form that operated outside the plan but drew on the support of local governments in collaboration with emerging private interests across rural China. These enterprises were highly successful in expanding production and creating employment, even though their ownership form did not fit the norm. But they served a useful purpose in expanding industrial activities where private property was still frowned upon.4 As market processes deepened, TVEs started to falter, and eventually most of them were overtaken by private and foreign-invested companies as the main source of growth and job creation.

TVEs were part of the process of industrial agglomeration that influenced the nature of China’s transition from a planned to a market economy. The transition was supported initially by a dual-track reform agenda and an open-door policy that strengthened the investment climate along the coastal provinces before becoming national. The open-door policy began with the establishment of the first SEZs in 1980. These SEZs led to a general improvement in China’s investment climate and laid the foundations for ratcheting up investment rates.

Fiscal System and Decentralization

The fiscal system was instrumental in aligning subnational government incentives with those of the center. Fiscal reforms introduced in 1980 represented a de facto tax-contracting system with high revenue retention rates for local governments to provide incentives to pursue growth and promote a market economy. Subnational governments had large discretionary powers to grant tax privileges and strong incentives to retain revenues to allow localities to support its enterprises in competing with those in other regions. These actions selectively provided coastal provinces with revenue incentives to experiment with reforms and thereby improve their investment climate.

The fiscal capacity of local governments reflected closely their resource availabilities. To keep resources within their control, local governments avoided (p.205) sharing their revenues with the central government. Central government revenues as a share of total government revenues declined from 55 percent in 1980 to 31 percent in 1989 and to 22 percent in 1993. Fiscal devolution, on the one hand, contributed to rapid economic growth by effectively enhancing incentives of local governments. On the other hand, it limited the central government’s ability to use tax and expenditure policy instruments to narrow regional fiscal disparities and support delivery of basic public services in poor localities.

The tax-contracting system also provided strong incentives for local governments to generate extra-budgetary funds largely outside the control of the central government. Extra-budgetary funds became as large as budgetary funds (and over the past decade have been augmented with land sales and property development, which have contributed to the current property bubble). Although formal budget deficits remained small, quasi-fiscal operations through the banking system were substantial (mirroring the situation even today). Relying on the banking system for policy purposes created a growing amount of nonperforming loans in the banking system.

The poor performance of many state enterprises during the early years resulted in a structural decline in the ratio of total government revenue to GDP and in central government revenues relative to total government revenues. The ratio of total government revenues to GDP declined from 26 percent in 1980, to 16 percent in 1989, and to 12 percent in 1995. The system also encouraged fiscal disparities to widen between the relatively better-off coastal provinces and the poorer inland areas.

With the major tax reform of 1994, this discretion-based revenue-sharing system was replaced with a more rule-based fiscal assignment system allowing the central authorities to use fiscal policy more actively for redistribution.5 The reform package brought China’s intergovernmental fiscal system much closer to international practice and paved the way for a surge in the ratio of government revenues to GDP in the second half of the 1990s. Before the reforms, the share of central government expenditures was commensurate with its share of revenues. After the reform, the share of central government revenues to total government revenues more than doubled from 22 percent in 1993 to 56 percent in 1994, and has hovered around 50 percent in recent years. Over the same period the share of central government expenditures to total government expenditures remained at about 30 percent.

The centralization of the fiscal system strengthened the central government’s capacity to redistribute in favor of poorer inland provinces. After a decade of decline under the fiscal contracting system, the share of total fixed-asset investment that went to the inland region versus coastal region increased gradually from the mid-1990s onward. Nevertheless, its redistributive impact in providing more equitable access to public services is still modest because of the way expenditure (p.206) assignments are pushed down to local levels without providing commensurate funding and in part because of the structure of revenue sharing. These consequences are more significant in the poorer inland provinces and partially explain why urban-to-rural disparities are greater there relative to the coastal areas.

Trade and Investment Policies

China reformed its trade and investment policies in its characteristic gradual manner, over time as well as across geographical space. At the outset, China was a closed economy, with very limited trade and financial interaction with the rest of the world, and with self-sufficiency as the proclaimed policy goal. With the open-door policy, China has become one of the most trade-oriented countries in the world. It has also been very successful in attracting FDI, accounting for about 10 percent of global totals. The reforms that achieved this consisted of: (1) a gradual liberalization of the trade system, (2) reforms in the exchange and payments system, and (3) opening up to foreign investment.

Over the past thirty years, foreign trade management was freed up from being the exclusive responsibility of a dozen foreign trade companies and then a concession for SEZs to being virtually available to all trading companies upon application. Tariff reductions were less significant in trade liberalization during the first decade and a half; average tariffs had been cut from 56 percent in the early 1980s to 43 percent by 1992. But the run-up to WTO accession in December 2001 saw a major reduction in tariffs as well as other barriers, with average rates falling from over 40 to 15 percent, and subsequently to 10 percent by the middle of the last decade. Along with tax rebates and unification of the exchange rate in 1994, China became more firmly integrated into the global trade networks. In addition to tariff reductions, financial and trade liberalization as well as better IPR protection have been moving forward gradually over the past decade.

The second leg of China’s opening-up was the gradual reforms in the exchange-rate regime, which today remains the most contentious issue regarding China’s perceived impact on global trade imbalances. Initially, the Bank of China was the only bank that was allowed to conduct foreign currency business. By 1986, all domestic banks were allowed to do so. Initially, domestic firms had to surrender all their foreign exchange but over time retention quotas were established which allowed them to import products with prior approval. The share of foreign exchange retention quota was gradually increased and then abolished by the end of 1993.

A dual exchange-rate system was also used to motivate firms to generate foreign exchange earnings. The various rates were unified and fixed at 8.27 in 1997, remaining fixed until the country moved to a managed float from 2005 to (p.207) 2008 and again in 2010, which together have resulted in a real appreciation of nearly 50 percent. The government’s general preference to maintain exchange-rate stability has been an important consideration in maintaining incentives for exporters. But this posture has been seen as contributing to macroeconomic imbalances as China’s export performance accelerated following WTO entry in 2001, and the US trade deficit surged in line with its increasing fiscal deficits.

The SEZs made up the third pillar of China’s opening-up policy. Enterprises in those zones enjoyed tax exemptions and reductions as well as better infrastructure and often better government services. In 1980, the first SEZs were established in four coastal cities and then in the provinces of Guangdong and Fujian. These zones were allowed to offer special advantages to attract foreign investors. Within four years (1981–1984), the trade volume of Shenzhen SEZ, for example, increased by sixtyfold. To capitalize on the success of these zones, Beijing extended them to 14 coastal cities, the major deltas, another 140 coastal cities and counties, and then nationwide. Meanwhile, foreign-invested enterprises outside SEZs enjoyed more advantages over domestic enterprises, including concessional income tax rates and lower prices for land granted by local governments eager to attract FDI. Thus much of China’s success in exports is due to foreign-invested firms, whose share in exports rose from 1 percent in 1985 to more than 50 percent by 2015.6

State-Enterprise Reforms

Until 1993, state-enterprise reforms focused on increasing efficiency within the existing system of state ownership. Thus, reforms became a matter of expanding “enterprise rights” beginning with giving firms more autonomy in production and personnel appointments and the right to retain and use some of their profits through various forms of contracting and linkage of the wage bill to profitability. Although the reforms to increase enterprise autonomy showed some success, inefficiencies in the enterprise system continued, and losses increased. Thus, the reforms launched in 1993 shifted emphasis to institutional innovation and developing a “modern enterprise system” with clearly established property rights, well-defined powers and responsibilities, and separation of the enterprise from the government. But the outcome was altogether disappointing, as most involved enterprises merely turned themselves into shareholding companies with the same owners and made little change to management practices.

It was only in 1999 that a broader program of reforms began, and it included diversification of shareholders’ ownership, selloffs, management buyouts of smaller firms, and the breakup of monopolies. Supporting reforms in the banking system allowed for debt-equity conversion, whereas social obligations (p.208) were gradually shifted off the books. Finally, the State Assets Supervision and Administration Commission was established to enhance and regulate the role of the state as the owner.

In the decade up to the GFC, profitability of SOEs rose sharply. But interference from the state remains an issue for the larger SOEs, notably in the managerial appointments. Many SOEs remain active in competitive industries, and they continue to be major creditors of bank loans, even though their share in production has shrunk considerably. Returns on assets for SOEs fell precipitously after the GFC, raising new concerns about what is needed to turn them around and to promote a larger role for the private sector.

Financial-Sector Reforms

China’s financial-sector reforms came relatively late in the reform process. Before reforms, China’s financial system was typical of other Soviet-style economies. China’s central bank—Peoples’ Bank of China (PBOC)—was the only bank in the planned system. The bulk of fixed-asset investment was paid for by the budget, whereas the banking system predominantly provided working capital “loans.” China’s reforms initially focused on the breakup of the mono-bank system and creation of four specialized commercial banks: (1) the Agricultural Bank of China; (2) the People’s Construction Bank of China, specializing in investment financing; (3) the Bank of China, handling international transactions; and (4v) the Industrial and Commercial Bank of China, dealing with working capital financing.

The big four SOCBs remain the pillar of the banking system, but their market share has gradually declined from around 70 percent in the mid-1980s to around 40 percent today. This resulted from the entry of private and foreign banks, the growth of rural cooperatives and city banks, and the creation of state-owned policy banks (Agricultural Development Bank of China, China Development Bank, and Export-Import Bank), which, in principle, served to relieve the commercial banks from their policy function.

In the early stages of reforms, the credit plan remained the dominant policy instrument. The plan allocated individual credit according to centrally determined priorities, at controlled interest rates that varied per sector, leaving little discretion to the banks. The credit plan gradually was relaxed. After reforms in the mid-1990s, banks were in principle free to lend to whomever they wanted. China’s reforms allowed for a gradual increase in the type and number of banks combined with a relaxation, and then abolition, of most restrictions on lending. In practice, however, local government influence (p.209) on banks remained significant. As a result, banks continued to build up nonperforming loans.

It was not until the AFC that the authorities realized the importance of reforming the financial sector. Reforms were made easier by the progress in state-enterprise reforms which reduced the necessity to keep lending going to ensure social stability. Newly created policy banks also could take over more of the directed lending from the commercial banks. By 1998, major financial-sector reforms started to take shape: state-owned banks embarked on financial and operational restructuring, shutting down branches, centralizing lending authority, and shifting bad assets to newly created asset management companies. Weak nonbank financial institutions were closed and resolved. Banks recapitalized on several occasions, in part by making use of China’s bulging international reserves, and in part by issuing state bonds to the asset management companies.

In contrast to the situation in the mid-1990s, by the year 2000, China had the budget resources to absorb the costs of financial-sector reforms. Interest-rate liberalization allowed for a return to profitability of the banks. In addition, competitive pressures from the WTO accession helped accelerate banking restructuring. The most notable aspects included the IPOs for the major banks which brought in strategic partners and the creation of the China Banking Regulatory Commission, which has strengthened supervision and risk management.

In the aftermath of the GFC and the surge in lending coming from the stimulus program, concerns have risen anew about the potential quality of the outstanding loans, even though official numbers for nonperforming loans are still less than 2 percent. Recent reforms have largely eliminated the ceiling on lending and allowed some flexibility in setting deposit rates. As a result, the share of lending to the private sector has surged, with some estimates suggesting that as much as a quarter or half of recent loans have gone to households and private commercial borrowers.

Macroeconomic Management

Macroeconomic policy management has become more complex with the changing global and domestic environment. Strong fluctuations in economic growth and inflation have occurred during the past three decades with the aftermath of the AFC and GFC adding to vulnerabilities, even though China has been partially protected by its strict controls on capital movements. With each cycle, the system has introduced countercyclical policies—expansionary credit and fiscal policies followed by tightening—with varying degrees of success in achieving a “soft landing.” The creation of a government bond market allowed (p.210) the government to pursue a more active fiscal policy and seek noninflationary means of financing the deficit. This proved useful in mobilizing a fiscal stimulus in the aftermath of the Asian crisis, but the mega-stimulus of 2008–2009 drew more on financial rather than fiscal channels for supporting expenditures.

Monetary policy has gained in importance through the gradual liberalization of interest rates beginning in the mid-1990s, and their levels are gradually being freed up to market forces. Even so, interest-rate movements probably still play less of a role in influencing economic activity than in most emerging market economies given the tendency of state-owned banks to respond to the needs of SOEs and local authorities.

Despite progress in establishing market-based instruments for managing the economy, China still relies in part on administrative measures to manage demand. Recent experience suggests that the discretionary tools that were relatively effective a decade ago are becoming less effective over time as activities become increasingly driven by private agents and the emergence of shadow banking. Also, the government’s capacity to rein in credit expansion and influence public expenditures at the local levels appears to be much weaker because of the role played by LGFVs.

Lending through more diversified and informal channels facilitated by interest-rate ceilings may have distorted intentions and created unknown risks. China’s capacity to manage these issues has been hindered by its tight management of exchange-rate policy. The consequence is that monetary policy is partly determined by the balance-of-payments fluctuations. Rising domestic liquidity has fed into an investment boom and fostered a potential bubble in property prices. Until recently, successive increases in reserve requirements and interest rates have been used to absorb liquidity and curb demand given inflation concerns. But with recent deflationary pressures, the reverse is now happening.

Agglomeration, Urbanization, and Labor Migration

China’s success in building a more competitive economy came from transforming its industrial sector through investments, which ratcheted up productivity by securing the benefits of agglomeration—economies of scale and specialization. Economic reforms allowed market signals and globalization to play a more important role in encouraging industries with an export orientation to locate along the coast.7 As reforms deepened, a process of rapid urbanization and industrial specialization evolved.

Several factors supported this process. First, integrated national markets provided labor and capital mobility, while cross-provincial commodity exchanges encouraged industrial development in line with locational advantages. Second, (p.211) external market integration as part of globalization encouraged concentration of more dynamic activities in the coastal region. As the coastal cities became linked to the global economy, the benefits became obvious, exemplified by rapid employment creation, pressures on enterprises to restructure to compete, and a much-improved domestic and external financial position. This provided the basis for broad-based political support for WTO membership and trade liberalization more generally. And it promoted more flexible wage markets, which began to reflect quality differences with the consequence that labor skill premiums rose sharply.

All this was facilitated by major improvements in transportation and communication networks. This allowed competitive forces to reshape interprovincial industrial structures and link domestic and global markets. Internal transport and logistics costs have fallen significantly, and interprovincial output prices—which varied widely in the past—have converged. The progress that China has made over the past few decades is impressive. According to the rankings based on the World Bank’s Logistics Performance Index, China ranks first among middle-income countries.

China’s urbanization and labor migration pressures accelerated when the introduction of TVEs drew workers out of farm production and facilitated migration. China is now officially 56 percent urban, although this ratio needs to be discounted by the number of urban migrant workers who lack formal residency rights and thus are unable to access the usual range of social services and employment benefits. The large migrant labor population now totals over 250 million and is heavily concentrated in the major commercial centers along the coast.

For many migrants, economic security is typically linked to their rural hukou or residency rights in their home province. Functioning land markets would permit existing land owners to sell or lease use rights to others and migrate to the city if they found employment. As addressed in many studies, perhaps the most effective instrument to deal with rural-urban disparities would be to reform the hukou system to give migrant workers better access to social services and equal employment rights. The Third Plenum reforms include actions to liberalize residency rights and to make it easier for rural household to migrate, although the actions fall short of needs.

Income Disparities

Regional income disparities now show up in two ways: widening income differentials between the coastal and inland provinces and between urban and rural areas. Some would call these disparities “good disparities,” since they are not the result of stagnant growth in certain segments of society or regions but rather the (p.212) consequence of unusually high and sustained growth in urban areas and along the coast. The Gini coefficient has increased by about 50 percent, from around .30 to over .45 over the past twenty-five years. Currently, the ratio of urban-to rural per-capita income is over 3, and per-capita GDP in the coastal region is more than twice that in the western region, registering among the highest spatial disparities in the world.

The shifts in the urban-to-rural income ratio as well as the Gini coefficient are largely explained by performance in the rural economy. Rural incomes have been increasing by 4–5 percent over the past twenty-five years—which is remarkable by international standards—but this is only about half of the rate of growth in urban incomes. As a result, the trend lines for disparity indicators either level off or reverse during periods of sharply rising rural incomes.

Studies vary in attributing inequalities to either regional differences or intra provincial factors, but the key point is that urban-to-rural disparities tend to be much greater in the poorer provinces than along the richer coastal areas.8 Thus a large part of the inequality between regions is in fact associated with the differences between their respective rural areas and is related to the uneven degree of urbanization across provinces. Inequality within provinces, rural areas, and especially urban areas has accounted for a larger share of total inequality over time. Regional factors also matter, however, since the larger urban-rural differences in the western provinces are structural. Ecological conditions militate against higher agriculture productivity in the western region and its lower level of urbanization and isolated communities raises the cost of providing public services.

How much of the recent convergence in regional growth rates is due to the government’s regional development initiatives, notably the “Go West” program launched in 1999, the “Revive the Northeast” strategy in 2003, and the more recent “Center Rising” themes is unclear. But the shift in investment priorities toward the interior has led to visible improvements in its infrastructure services in the period up to the GFC and arguably has probably been even excessive given the costs involved. Since 2008, investment as a share of provincial GDP has ratcheted up sharply in the western region but stayed relatively constant along the coast. This is related to the mega-stimulus taken in response to the financial crisis that promoted infrastructure projects in the interior.

Some of the convergence may also be due to the trade and agriculture-related reforms that removed distortions affecting agriculture and disseminated the benefits of an improved incentive regime more evenly across regions. More recent efforts to reduce rural-urban disparities by trying to increase agriculture productivity to levels that are actually higher than in the developed economies may prove to be wasteful and also environmentally damaging.

China’s performance as measured by non-income or social indicators has been favorable, with achievements exceeding what would be predicted (p.213) in relation to income levels. Its Human Development Index ranking, as measured by the UN, has risen continuously over the past quarter-century. However, disparities in social indicators between regions and rural and urban areas are substantial. The proportion in rural areas with no education is about three times that in urban areas. Child and maternal mortality indicators are much worse in rural areas than in the cities. Moreover, non-income disparities between urban and rural areas appear to be greater in the poorer provinces, particularly in the west. With the increased attention to regional differences, inter-regional differences at the primary educational levels have narrowed. However, urban-rural disparities in health indicators have widened since the late-1990s due to unrelenting income inequalities and slow development of rural health-care insurance systems.

The persistence of such disparities in welfare indicators illustrates how much further fiscal policies need to go to moderate trends. While the equalization grant—established in 1995 to ease the widening regional disparities—has increased, it is still relatively modest. Operating funds per primary school student in urban districts are 50 percent higher than in rural counties. Less-developed provinces do not systematically receive more total central transfers in per-capita terms. Solutions lie not only in deepening the distributional impact of centralized transfers but also reforming how social expenditures are assigned to local levels. (p.214)


(1.) This section draws extensively on several background papers authored respectively by Bert Hofman and Jingliang Wu, “Explaining China’s Development and Reforms,” for the World Bank’s Growth Commission and Yukon Huang, “Background Note: China’s Policy Reforms—Why They Worked,” for the joint World Bank and Chinese Government, China 2030 report and the World Bank, China 2020: Development Challenges in the New Century (Washington, DC: World Bank, 1997). The key sources for much of the historical analysis in those papers were Yifu Lin, Fang Cai, and Zhou Li, The China Miracle: Development Strategy and Economic Reform (Hong Kong: The China University Press, 2003); Barry Naughton, Growing out of the Plan: Chinese Economic Reforms 1978–1993 (Cambridge: Cambridge University Press, 1995); Barry Naughton, The Chinese Economy: Transitions and Growth (Cambridge, MA: MIT Press, 2006); Jingliang Wu, Understanding and Interpreting Chinese Economic Reforms (Singapore: Texere Press, Thomson-South Western, 2005); Dwight Perkins, “Reforming China’s Economic System,” Journal of Economic Literature 26 (June 1988): 601–45; Yingyi Qian and Jingliang Wu, “China’s Transition to a Market Economy: How Far (p.244) Across the River,” in How Far Across the River: Chinese Policy Reform at the Millennium, eds. Nicholas Hope, Dennis Tao Yang, and Mu Yang Li (Stanford, CA: Stanford University Press, 2003).

(2.) Barry Naughton, Growing Out of the Plan: Chinese Economic Reforms 1978–1993.

(4.) Qian and Wu elaborate on how this system aligned the interests of the state and firms.

(5.) Jiwei Lou and Shulin Wang, eds., Public Finance in China: Reform and Growth for a Harmonious Society (Washington, DC: World Bank, 2008).

(6.) Nicholas Lardy, China’s Unfinished Economic Revolution (Washington, DC: Brookings Institution, 2003).

(7.) Yukon Huang and Xubei Luo, “Reshaping Economic Geography in China,” in Reshaping Economic Geography in East Asia, ed. Yukon Huang and Alessandro Magnoli Bocchi (Washington, DC: World Bank, 2009).

(8.) Martin Ravallion and Shaohua Chen, “China’s Uneven Progress in Poverty Alleviation,” Policy Research Working Paper WPS 4107, World Bank, 2004.