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Lecture 7: Reform path of China

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1. Comprehensive reform (Shock therapy 休克疗法 , big bang reform 大爆炸改革 , radical reform 激进改革 ) Introduces western democracy and market

mechanism at the same time, represented by former Soviet Union after 1991.

The reform quickly led to economic slump and political crisis

Russia changed to be a “secondary” country for years.

Two general strategies of transition

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What are the characteristics of shock therapy reform? Systematic solution to systematic problems

Comprehensive and drastic changes happen at the same time

Future-oriented, promising to jump out of a vicious cycle （恶性循环） or stagnation

It highlights the commitment only viable for a new regime and its leaders

It is largely driven by (untested) theories

What are the potential problems?

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In 1993, Yeltsin used tanks and cannons to take over the legislature and imprisoned his political rivalries.

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2. Incremental reform （渐进改革， gradual reform, piecemeal reform ） Economic reforms under the old political

regime, represented by China Marketization was also a gradual process Represented by China’s post-1978 reform,

which, despite many critiques, led to its economic miracle and fast rise.

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The east side of Bund ( 外滩 ) in 1980s

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The east side of Bund in 2009

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Characteristics of incremental reform 1. Economic reform under old yet changing political regime 2. The reform has or has not a long-term goal, but promised to

keep the dynamic process of piecemeal adjustment. The reform is a continuous process of problem identification and

solution. 3. The reform starts from local and easier areas as experiments

before relatively comprehensive policies are made and implemented.

4. The reform features distribution （分配） rather than redistribution （再分配） .

5. Stability, affordable social cost, balanced interests, appropriate timing, etc., are emphasized.

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A general comparison between radical and gradual reform 1. Assumption: full or bounded rationality 2. Assumption of a concentrated decision making or a

dispersed decision making 3. Assumption of clear values, goals, plans…for

decision making? 4. One-shot/complete policy making or a

continuous/gradual process 5. Theory-based or fully practical 6. Change-oriented or status-quo-oriented

Discount short-term transitional cost or prioritize short term gain

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Radical reform vs. incremental reform (A comparison between western and eastern cultures)

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Understanding China’s incremental reform

1. The purpose is to enhance rather than vitiate the regime. Reform is the self-improvement of the regime rather than the

denial of it. CCP’s leadership is maintained and even strengthened. The

reform is to combine market economy and an open society with a socialist party.

Political order and social stability dominates other concerns. Authoritativeness of the Party is both a solution and a problem.

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2. Reform order: from rural to urban areas, from agriculture to industry, from peasants to workers, from local areas to the whole nation, from local policy area to general policy area Start from weak sectors in the old regime Select reform areas where resistance and risk were relatively low Gradually spread the reform experiences to wider areas Actively make innovations but carefully make laws

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3. The reform was implemented within traditional institutions and organizations Compliance and breakthrough were both necessary Marginal reforms were deemed as necessary toward a

relatively thorough solution Dual-track system is frequently used A basic assumption is that enough elasticity of the old

regime exists

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4. The reform emphasizes a positive-sum game and the avoidance of conflicting interests Reforms aimed at creating “new values” rather than

redistributing “existing values”. Incentives rather than coercion were preferred, for example the development of nonstate sectors.

Relying on a steady process that creates new constituencies and new knowledge.

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China’s incremental path of economic reform In 1982 the Twelfth Party Congress proposed “planned economy as the

main pillar and market economy as a supplementary element”. ( 计划经济为主，市场经济为辅） In 1987 the Thirteenth Party Congress proposed “combining planned and

market economies”. （计划与市场相结合） In 1992 the Fourteenth Party Congress made the economic reform goal as

establishing “a socialist market economy”. （建立社会主义市场经济） In 1999, the Second Plenary Session of the Ninth People’s Congress

passed a third constitutional amendment, which legitimated private economic activities and other forms of non-state ownership. （确定私有经济的合法地位）

Gradually, private entrepreneurs were allowed to join CCP. （允许私人企业家入党） In 2007, Property Rights Law was enacted and equalizes the protection of

private ownership to that of state and collective ownership. （物权法给予私人产权与公有产权同等地位）

Cases of incremental reforms

1. Household responsibility contracting system 2. Birth-control policy 3. State-owned enterprise reform

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Why could China achieve something by incremental reform?

The immatureness of the planned economy Existence of repressed non-state sector

A strong party capable of maintaining social stability Its choice of incremental reform Its autonomy in policy making

The learning from the radical reforms in the west Internal sensitivity to changes and willingness to adapt

The decentralized regime and the open society Cultural traditions

A society favoring informal rules, relations, examples, and rituals rather than laws

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Problems of incremental reform 1. Emphasis on stability, moderatism, and gradualism may miss the opportunity of reform.

Important reforms may be delayed. 2. Reform without a long term plan and legal guidelines is full of uncertainty. Credible

commitments needed. 3. The transitional interests may be institutionalized, creating barrier for future reforms.

State capture by interests groups. 4. It is very hard to keep balanced reform progress in different sectors and the result may be

destructive. Comprehensive reforms are increasingly needed!

5. Corruption serious.

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A Case analysis: toward due process of law

The Mafia case: Yong Liu case in 2003 In July 2000, Shengyang Police listed Yong Liu as wanted by

law and arrested him several days later when he tried to flee to Russia. He was then a manager of a company and a delegate in Shenyang People’s Congress.

On Apr 17, 2002, he was sentenced to death by the Middle Court of Tie Ling Municipality. His crimes included organizing and leading of mafia, purposeful injuries and others.

On August 15, 2003, the High Court of Liaoning Province changed the sentence to be death with 2 years’ probation. It declared that in the process of investigation and interrogation, violence was used.

On December 18, 2003, Supreme Court had a special arraignment of this case at Jinzhou Municipality, announced a death penalty, and administered it 5 hours later.

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Yong Liu and his god father: Suixin Mu, the mayor of Shenyang and vice governor of Liaoning province.

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Substantive justice vs. procedural justice 1. Mafia crimes were real and serious.

People hailed the first sentence. 2. Government corruption was a serious reason of the expansion of

mafia. Many officials were sentenced and some faced death penalty.

3. Inquisition by torture was used. The Miranda Warnings and its practice in China. Some criminologist hailed the second sentence.

4. People were offended and any retreat from the death penalty would be deemed as a result of corruption.

They hailed the last sentence. A fundamental dilemma was created for China to introduce such

principle of due process of law The inefficiency to identify evidence and to punish The fear of justice corruption