The Chinese Economy: Transitions And Growth

Since the early 1980s, China has consistently been the most rapidly growing economy on the planet, sustaining an average annual growth rate of 10% from 1978 to 2005. Haughton provides excellent insight into that growth, especially the transition after 1978. This is especially valuable, given the disastrous floundering that took place in Russia's efforts. Haughton tells us that China's progress is more easily understood if one realizes it is still completing a transition from bureaucratic socialism to a market economy, as well as in the middle of an industrialization process. The transitions have led to improved living standards, but also increased economic uncertainty and risk - unemployment, deteriorating income distribution, health insurance with gaping holes, inadequate infrastructure, and education. Geographical Background: China's land area is about 2% greater than that of the U.S., with about 4X the population. Dividing the nation in half, roughly SW - NE, leaves only 6% of the population in its dry, mountainous West; within the Tibetan Plateau lies 25% of the land and 1% of the population. The Yellow River (about 2,900 miles) is one of the great rivers of the world, but runs dry in many years due to withdrawals. The Yangtze has 20X the water of the Yellow, and the Pearl River 6X. Allowing farmers to work for themselves on newly assigned plots (charged rent and taxes) carved out of the collective farms brought a one-third increase in grain production between 1978-1984, while reducing the hours worked. (The excess largely went into township and village enterprises.) A similar approach in manufacturing brought those enterprises to face "market prices on the margin." The protected industrial system was opened up to new entrants in 1979 - many were collectively owned with the state. Special Economic Zones were set up to encourage more innovation, while minimizing risk to the entire economy. The gradualism involved in this approach encouraged state-run entities to stay in business while attempting to improve and change their focus to profits rather than volume. Price stability, in turn, encouraged personal savings. The government also tried to steer the economy towards labor-intensive sectors, though how this was done was not made clear in the book. These shifts in development strategy (away from ever-increasing quotas to the freedom to dispose of surpluses) vented off inflationary pressures as supplies grew; it also avoided the economic collapse Russia experienced when state enterprises were suddenly cut off from financial support. Inflation, corruption, and rising expectations led to Tiananmen Square and the deaths of hundreds, followed by the replacement of a number of Party leaders. Deng's pragmatism was key: "It doesn't matter if policies are labeled socialist or capitalist, so long as they foster development." After 1990, a 17% VAT was implemented, with sharing among local governments. It appears that this is the only taxation in Ch

Barry Naughton's "The Chinese Economy: Transitions and Growth" provides a very extensive, in-depth examination of the transition process in the Chinese economy as well as an excellent historical base from which the recent reform process was launched. Naughton has a proven record of scholarly, informative research on China, as evident in the discussion of a broad range of topics related to China's performance, including of course demographic, environmental, and trade challenges; however, there is a rather lean treatment of the currency valuation issue and other sources of tension in the Sino-American trade relationship. It might be noted too that performance is somewhat ambiguously viewed by alternating between PPP-adjusted and unadjusted GDP. The speed of the transition in China's economy can leave the statistical support a bit dated, so the reader has to be cautious before quoting the numbers. Overall, though, Naughton's work is a reliable text for understanding China and China's phenomenal growth record.

China's economic development since 1978 has baffled and surprised the world. Other developing economies may regard China with envy but if they are contemplating copying China's model of development, help is at hand. They just need to read Naughton's book. China's three decade of economic development has been called many things, such as groping stones while crossing the river, three steps forward and two back, bird cage economics, transition from command to market, amazing, miraculous and more. The author has organized the historical date in a way easy to comprehend and coupled with explanations that are lucid and easy to follow. Textbook conjures up the image of a big snore, but not this one. This one will become essential reference book dogeared by frequent use.

An excellent book which is rare for being highly readable, insightful, and well supported. Those who know China will find specific information and analysis which explains why the country operates in the way that it does. Those who don't know China will learn about the country without the confusion that results from the writings of casual observers. The only specific weakness in the book is Dr. Naughton's assessment of modern industrial policy, which is incomplete and off-track. That aspect is simply an omission and does little to detract from the overall value of his work.

Barry Naughton has written a masterful book. It is comprehensive, accessible and rigorous. Researchers, upper-level undergraduate and graduate students, who want to understand the key economic issues faced by China, will all appreciate this volumn. I am using it in my Master courses! Jiin-ming Fahn, National Sun Yat-sen University, Taiwan