How China's Economy Actually Works

Without understanding the institution left over from the Cultural Revolution, people would not understand China's economic reform because it all started from the institutions inherited from the Cultural Revolution, so the key here is really a regionally decentralized totalitarian system in the sense that all local governments, all The different levels of local governments have the resources and control what they are going to do. My name is Chen Gangshi. I am a professor of economics at Ckgsb, which is a private business school in China, when people claim that China's rights are the greatest. Event in recent economic history in the world the rating is as follows if we look at the issues from the point of view of total gdp, so within 30 years in terms of a growth rate of total gdp

china

has broken the record and then the Another issue is the other qualification is poverty alleviation, so within these 30 years the biggest poverty alleviation happened in China, so it is a very important issue and then the third aspect is economic development.

Relative, the so-called relative economic development is measured by the GDP per capita compared to the world border, for example, if we take the GDP per capita of the United States as the world border, then we compare it with the world border from the beginning of these 30 years until the end of these 30 years, so what is the level of change? So,

actually

, these three aspects are closely related. The number one issue is the population of China, so given that China is the most populous nation, given the profits, the size of the population, once you have rapid relative economic growth, the growth of relative economic development and then we have this total GDP increase, so they are closely related and another closely related issue is that at the beginning of the Chinese economic reform, China was one of the poorest nations, so this is

actually

a key point, so when the reform started, if we are talking about China's relative level of economic development was about 120th of the level of the United States, so it is significantly below the level of Africa's average GDP per capita that we are from. speaking, at such very low levels, so it is desperately poor, so from this very low level.

And then today, after 30 years, China's level of relative development is close to a quarter of the level of the United States, so it started from a twentieth to almost a quarter, in that sense it is a change huge, so if we only look at these factors, then Yes, this is the biggest event in economic history, but some other claims are unqualified and may be exaggerations, so when people talk about China as a superpower, for For example, if we look at the level of GDP per capita, it is less than a quarter of the level of the United States, so if you compare China to the Soviet Union at its peak, the Soviet Union was significantly more than a third of the level of GDP. per capita of the US, so China is still below that level, so we have to take that into account in our understanding and also when we talk about this growth rate, the key point is that the starting point was very, very low, which is actually terribly important, without understanding that talking about China's rights can be misleading, because at the beginning China was very weak, very poor, in general, the whole country.

The

economy

is at a poverty level, so when we talk about this growth achievement in China in the last four decades, we always associate it with economic reform. So why reform? This is the key question, actually, at the beginning of the establishment of the people's government. Republic of China, the level of China's GDP per capita relative to the level of the United States was one of the 20s when the reform began, the level is approximately the same, the relative development level is slightly higher, but they are so marginal that we could basically ignore it. In 1950 the level was 5 of the US level.

In 1980 it was 6 of the US level. so basically there were no substantial changes in the first 30 years of the people's republic of

china

so why the reform is so important it is so clear that before the reform uh basically there is no recovery and we also know that what happened before The economic reform was so there were two disastrous movements, one is the great profound breakthrough movement, the other is the cultural revolution, so the reform means that there is no great breakthrough, there is no cultural revolution and everything needs to be changed. way of organizing the

economy

, so there is a kind of misleading explanation about China, which says that China was a centrally planned economy and then it changes to a market economy.

This is not entirely accurate, the so-called centrally planned economy, usually described in this way implies that the Soviet model China won since 1950 when China established this PRC established this system, they implemented or completely copied the sovereignty model, but Since 1958 China has changed the institution, so it is no longer a suicidal type of centrally planned economy. The institution has changed, centralized planning is abundant, so it becomes a planned economy administratively applied but not centrally planned, so I characterize that type of system as a regionally decentralized totalitarian system because in political economy the Soviet system is described as a totalitarian system.

China changed. that a little bit in terms of administration, so although the entire economy, society in general is governed in a totalitarian way, but in terms of administration, in terms of resource allocation, it is regionally decentralized in the sense that local governments control a substantial amount of resources and manage their local economies rely so much on this institution, so there are two waves of change from the Soviet system to this type of Chinese administratively planned economy that I call regionally decentralized totalitarian system based on this type of institution to the end of the century. cultural revolution economic reform began in the first decades of economic reforms the main strategy is regional competition, so this so-called regional competition is qualitatively different from market competition here the competition is not in the sense of maximizing profits, It is not in the sense of competition in the market, it is a kind of tournament in which local governments are ranked, so they compete for ranking, they compete to become number one, for example, within the city there are several, approximately the 10 counties and counties. within the city they wanted to be number one, they compete for the number one position and within a province you will have approximately 10 cities and in each city they are competing with each other, they want to be number one in the province and in the entire nation there is a just over 30 regions at the provincial level, where they also compete with each other and here the key question is what are the objectives of the competition, so in the early stages of the economic reform the objective of the competition is a supermarket of GDP and It turns out that this is a very effective approach in terms of promoting economic reform and growth, this is how reform is associated with growth or growth is associated with reform because to grow regional governments have to find a way to grow .

In reality, it is a great challenge how to grow, it is a great challenge, so at the beginning of the reform a lot of emphasis was placed on the reform of the state sectors, but it turns out that it is not working well, it did not work well and the first successful reform was in agriculture, it actually involves agrarian reform, it is a partial privatization, it is partial, it means that there is no fundamental change in ownership, but the use rights have been privatized, so with the use rights and also the exchange of use rights, these are privatized based on that.

There is a kind of industrial revolution in the sense of rural industrial development, so in the early stages of economic reform most of the growth occurred in this area, the so-called village municipal enterprises, starting from a very low base to In the mid-1990s, the largest sector is this sector in the entire Chinese economy and it is actually also the base for the private sector when the private sector was partially legalized in the 1990s, so throughout the entire the 1990s and early 21st century China had a The very rapid growth of the private sector from zero to today is that more than half of the GDP is produced by the private sector, so if we look at the Chinese constitution, both the state constitution as the party constitution, we find that by constitutions, party constitution and state.

The constitution of the private sector was not allowed until 2002, the change of the party constitution and 2004, the change of the state constitution, so until the beginning of the 21st century the private sector was not legal; However, until that moment the private sector already represented half of the GDP, so if we are talking about the so-called Chinese miracle, what is the miracle? This is the miracle.