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How China's Economy Actually Works - YouTube
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without understanding the institution
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left over from the cultural revolution
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people would not understand china's
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economic reform
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because the whole thing started from
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the inherited institutions from the
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cultural revolution
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so here the key is really
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regionally decentralized totalitarian
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system
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in the sense that all the local
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governments
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all the different levels of local
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governments
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have the resources and uh control
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what they are going to do my name is
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chen gangshi
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i'm a professor of economics at ckgsb
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which is a private business school
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in china when people claim
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that the rights of china
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is the biggest event
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in the recent economic history in the
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world
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the qualification is the following
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if we look at the issues from the
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point of view of the total gdp so
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within 30 years in terms of a growth
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rate
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of total gdp china
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has break the record
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and then the other issue is the other
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qualification
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is poverty relief so within this
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30 years of time the largest
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poverty relief happened in china so
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that is a very important issue
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and then the third aspect is the
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relative economic development the
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so-called relative
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economic development is measured by
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the per capita gdp compared
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with the world frontier so for example
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if we take the united states per capita
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gdp as
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world frontier then comparing with
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the world frontier from the beginning of
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this 30 years
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to the end of this 30 years so what is
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the change level
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so actually these three aspects are
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closely related number one issue
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is the the population of china so
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given china is the most populous nation
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given the profit the size of population
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then once you have a fast
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relative economic growth
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the growth of relative economic
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development and then you have
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this total gdp
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increase so these are intimately
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related and another intimately related
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issue
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is that at the very beginning of the
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chinese economic reform
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china was one of the poorest nations
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so this is actually a key point so
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when the reform started if we are
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talking about
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relative relative economic development
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level
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china was about something like 120th
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of the u.s level so that's significantly
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below the level
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of the average africa per capita gdp
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we are talking about at such very very
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low levels so it's
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desperately desperately poor
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so starting from this very low level
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and then after 30 years nowadays
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the chinese relative development level
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is close to one quarter
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of the u.s level so started from one
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twentieth
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up to uh nearly one quarter
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so in that in that sense it's a huge
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change so if we only look at these
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factors then yes this is the biggest
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event in economic history but
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some other claims are without
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qualification can be exaggerations
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so when people talk china as a
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superpower for example
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if we look at the per capita gdp level
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it's less than one quarter of the us
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level
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so if we compare china with the soviet
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union
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at its peak time soviet union was
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more significantly more than one-third
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of the u.s per capita gdp level so china
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is
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still below that level so
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we have to keep in mind in our
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understanding
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and also when we talk about this growth
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rate
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the key point is that the starting point
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was
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very very low that's actually that's
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terribly important
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so without understanding that talking
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about
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the rights of china can be misleading
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so because at the beginning china was
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so weak so
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poor so in general the whole
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national economy is in at a poverty
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level
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so when we talk about this growth
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achievement
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in china in the recent four decades
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we always associate with this
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with the economic reform so why reform
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this is the key issue actually so at the
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beginning of the
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establishment of the people's republic
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of china
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the chinese per capita gdp level
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relative
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to the u.s level was uh
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one of the twenties when the reform
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started
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the level is about the same the relative
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development level
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is slightly higher but they're so
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marginal so
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basically we could ignore that so in
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1950 the level was 5
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of the u.s level in 1980
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it was 6 of the u.s level
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so basically there was no substantial
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change in the first 30 years of the
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people's republic of china
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so then why reform is so important
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it's so clear that before the reform
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uh basically there's no catch up and
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also we know that what happened
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before the economic reform so there were
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two
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disastrous movements one is the great
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deep forward movement
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the other is the cultural revolution so
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reform means no greatly forward movement
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no cultural revolution and the whole
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way of organizing the economy has to be
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changed
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so there is a sort of misleading
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explanation about china saying that
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china was a centrally planned economy
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and then
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changing to a market economy this is not
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quite accurate the so-called
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centrally planned economy usually
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by describing in this way implies
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the soviet model china
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won since 1950 when china
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established this people's republic of
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china
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established this system they fully
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implemented or copied the sovereignty
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model
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but since 1958 china has changed
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the institution so it's no longer
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a suicide type of centrally planned
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economy anymore
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so the institution has been changed
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centrally planned being abundant
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so it becomes a administratively
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applied planned but not centrally
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planned economy so i characterize
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that kind of system as a
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regionally decentralized totalitarian
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system
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because in the political economy the
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soviet system is
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described as a totalitarian system china
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changed that a little bit
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in terms of administration so
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although the whole economy the overall
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society is governed in a totalitarian
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way
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but in terms of administration in terms
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of
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resource allocation it's regionally
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decentralized
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in the sense that the local governments
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control substantial amount of resources
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and they manage their local economies
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so based upon this institution so there
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are two
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waves of changing from the soviet system
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into this kind of a chinese type
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of administratively planned
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economy which i call the regionally
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decentralized
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totalitarian system so based upon this
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kind of
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institution at the end of the cultural
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revolution
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the economic reform started then in the
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earlier
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decades of the economic reforms the
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major strategy
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is regional competition so this
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so-called regional competition is a
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qualitatively different
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from market competition here the
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competition
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is not in the sense of a profit
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maximization it's not
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in the sense of competition in the
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market
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instead these are a sort of a tournament
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competition
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that the local governments are ranked
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so they compete for ranking they compete
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to become number one so for example
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within the city you have
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several so about the 10 counties
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and the counties within the city
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they wanted to become number one they
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compete
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for the number one position and within
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a province you are going to have roughly
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about 10 cities and each city
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is they are competing each other they
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want to be
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the number one in the province and in
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the whole nation
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you have a little bit more than 30
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provincial level
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regions they compete each other as well
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and here the key issue is what are the
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targets
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of the competition so at the earlier
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stages
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of the economic reform the competition
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target
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is a gdp grocery and turns out
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this is a very effective approach
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in terms of promoting the economic
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reform
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and the growth so this is how the reform
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is associated with growth or growth
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is associated with reform because
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in order to grow the regional
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governments
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have to find their way so to
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grow actually is a big challenge
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how to grow this is a big challenge
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so at the very beginning of the reform
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there were lots lots of emphasis on the
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reform of the state sectors
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but turns out that is not working well
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that didn't work well and the first
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successful reform was in agriculture
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actually it involves the land reform
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it's a partial privatization it's
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partial means
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there's no fundamental change in
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ownership
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but the using rights have been
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privatized
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so with using rights and also
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the exchange of using rights these are
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privatized
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so based upon that there is a sort of
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industrial revolution in the sense of
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the rural industrial development
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so in at the very early stage of the
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economic reform
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most of the growth actually occurred
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in this area the so-called township
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village enterprises
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starting from a very low base
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up to the mid 1990s the largest
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sector is this sector in the whole
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chinese economy
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and that actually is also the base
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for the private sector when the private
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sector
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uh became uh partially legalized
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in the 1990s so then in the whole
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1990s and early 21st century
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china had a very
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rapid growth of the private sector
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from zero to nowadays is more than
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half of the gdp being produced by the
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private sector
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so if we look at the chinese
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constitution
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both the state constitution and the
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party's constitution
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then we find that by constitutions
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party constitution and state
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constitution
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private sector was not allowed until
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2002 the change of party's constitution
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and 2004 the change of the state
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constitution so
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until the early 21st century
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a private sector was not legal
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however up to that point
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the private sector was already half of
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the gdp
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so if we are talking about the so-called
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china miracle
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what is the miracle this is the miracle
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