Understanding the Global Economy

I. Read attach article on the Japan and China respectively by Thomas D. Lairson and David Skidmore, International Political Economy: The Struggle for Power and Wealth

II. Construct essay outlines

Criteria “most important”	HRS	TVE	SEZ/JV/Foreign Trade	SOE
Significant National Growth	Command to capitalist ensued that growth increased as people sold for profit Increase in farmer’s income Between 1978 and 1984, agricultural GDP increased by 7.1 percent per year. Provided the incentive for rural industries to turn to lucrative pursuits Between 1980 and 1984, grain production increased by 16.2 kilograms per person each year, up from an annual average increase of 1.3 kilograms per person between 1955 and 1980	Creation of enterprises Responsible for 2/3 of the growth in China’s GDP In the rural sector, the township and village enterprises accounted for 2/3 of rural industrial output and more than ¼ of national total in the 1990s. The gross value of the TVE’s output in China from 1978 to 1992 rose to 1768.5 billion yuan accounting for 66.4% of gross value of rural economy and 33% of gross value of industrial output In 1990,TVEs earned US$13 billion in foreign currency, representing 23.8% of China’s total foreign currency earning of that year Industrial output increased from 49.5 billion to 3154.1 billion Yuan in 1993 In 1999, China had more than 20.71 million TVEs, generating 2,500 billion yuan in added value, which made up more than 60 percent of the social added value of the rural areas	The Shenzhen SEZ was cultivated into a new- and high-tech industry, became one with best prospects The output value of products reached 81.98 billion Yuan ($ 65.6 million) making up 40.5 per cent of the city's total industrial output in 1999. In Guangzhou in 1985, its exports totalled $970 million, an impressive record given the negligible amounts prior to the setup of the SEZs. The amount grew to $32.9 billion in 1998 Generated 60% of China’s industrial output Increase export growth by 45.4% in 1992 (from 14 billion to 183 billion), thereby achieving a trade surplus Joint ventures, such as that by Volkswagen in 1984, resulted in more potential growth of the economy as well, as the foreign companies paid money to import capital goods to aid China’s development, keeping China’s government’s funds thus allows the government to invest more funds in development as well. In February 1978, a long-term private trade agreement led to an arrangement by which trade between Japan and the PRC increased to a level of US$20 billion in 1985, through exports from Japan of plants and equipment, technology, construction materials, and machine parts in return for coal and crude oil. The PRC and the U.S. resumed trade relations in 1972 and 1973. The US had heavily engaged in trade with China since then, being in constant and widening trade deficit with the nation since the early 1980s and have contributed greatly to China’s trade surplus.	In 1978, 78% of national industrial output came from State-owned enterprises, but inefficiently produced Increase competitiveness and productivity through “Privatization” In theory, it was supposed to increase efficiency by giving firms more autonomy in business decisions
Provision of Employment		Expansion of employment, from 30million to 123.5million from 1980-1993 Was able to absorb surplus labor in rural areas	Provision of employment especially around the coastal regions such as Shenzhen and Guangzhou.	Employment but inefficient Large SOEs employ over 75 million people
Investments from foreigners			Strong attraction of foreign investors and growth as it became more conducive to do business (tax concessions, duty free imports etc) The amount of utilized FDI grew steadily from $636 million in 1983 to $3.5 billion in 1990 and $41 billion in 2000. In Shenzhen in 1985 , the actual foreign investment in the city grew from $15 million to $180 million, with over 60 percent of the total from the SEZ
Problems caused by these policies	In practice it: Generated great differences in income among farmers and the nonfarm rural population. After the Mid 1980s, agriculture grew only 1/3 pace of industry and less than ½ of pace of services Led to reduced agricultural production ( grain production fell 407 million tons in 1985) Led to massive price fluctuations Decollectivization led to essential services like schools, hospitals etc being neglected thereby leading to social problems Rural families face higher opportunity costs associated with educating children, due to the household responsibility system in the agricultural sector, handicapping possible growth There was also the deterioration of public irrigation facilities, poor coordination between upper and lower reaches, insufficient water delivery, and low irrigation water use efficiency.	Increased inequity between provinces Increased environmental hazards, particularly air pollution that is creating a problem as more of the work force fall prey to lung diseases with each passing year. Increase inflation (food price increased by 37% in 1985) TVEs compete with large enterprises in the urban areas for capital, raw material and energy. Some of these important resources flow to TVEs operating in lower efficiency. As a result, resources may be wasted. - Since government is unable to regulate them fully, environmental pollution, poor working conditions etc have emerged.	Led to the state sector lagging behind the private firms which caused resulted in people doubting the state ideology Income disparities between cities now differ massively as provinces such as Shenzhen itself produced huge percentages worth of China’s GDP while states still stuck in rural production such as Lanzhou do not produce much and remain greatly underdeveloped.	Persistent problems: Iron-Rise bowls Theoretically increases output, however SOE contribution to the economic reduced from 78% to 50% in 1996. Produced lower quality goods and wasted much resources as they were inefficient The government wastes massive amounts of fund to prop up these SOE, which are generally unable to operate without subsidies. The economic performance of the majority of SOEs remained at a very low level. For example, in Zhucheng city, Shandong province, 103 of the 150 SOEs were running at a loss at the end of 1992, with total losses amounting to 147 million yuan

ü “The agricultural reforms of Deng Xiao Ping were the most important reason for the economic rise of China in the years 1979 – 2000.” Discuss. (VJC, 2008)

ü China’s economic growth was due to the effective policies of Deng Xiaoping. How far do you agree? (IJC, 2009)

Intro:

· Interpretation of Question:

§ Indeed, China’s turning point came about with the rise in power of Deng from the early 1970s till 1978 in which he introduced the Chinese way and implemented 4 modernization of agriculture, industry, technology and military.

§ Thus, he could be said to be instrumental in altering the planned economic system left behind by his predecessor to one that focuses on more capitalist features that were met with domestic as well as international changes that aims to attract foreign investments.

· Questioning the Assumption:

§ However, it would be too presumptuous to the effective policies of Deng alone for China’s economic growth.

§ There was already growth despite the erratic economic policies pursued pre 1978.

§ Moreover, this economic process was largely one of trial and error and piecemeal and gradual process rather than it being of a grand design.

§ Besides, some policies of Deng did not lead to growth but caused hindrance instead.

· Thesis:

§ Therefore, there will be a need to examine to what extent it was due to Deng and his policies that resulted in China’s economic growth.

Body:

I Support: China’s economic growth was due to the effective policies of Deng

GA1: Deng was the one who spearheaded the transition from a command economy to one that embrace features of a capitalism system

EL/EX1: This change took about when Deng gain prominence as First Vice Premier in 1976 and became the paramount leader in 1980s.

EV1: The introduction of the 4 modernization of agriculture, industry, technology and military which changed the key element of the pre-1978 economic programme; mainly collectivization, centralized control and restriction on foreign participation.

EVAL1: China prior to the leadership of Deng, was tightly rules by a relatively small number of top power-holders at the Party center, leaving no room for public debate of economic policies. Also, the pre-1978 economic programme ensured that it was state directed and planned which was mostly channeled to industrialization and severely limited the entry of foreign capital to supplement China’s economic growth. However, with Deng’s new policies, growth was much faster then pre-reform period in China, so much as that real GDP grew at an average annual rate of 9.5% from 1978-1992. This was also due to Deng’s ability to apply socialism to the Chinese context by reinterpretation of their ideology that justified the necessity to open up their economy before arriving at the eventual communist utopia.

GA2: Deng’s encouragement of private ownership of firms and lands stimulated economic growth for China

EL/EX2: Farmers would now be release from state control either through village communities or by individual entrepreneurs

EV2: The Town Village Enterprise (TVE) focused mainly on rural development; 1.4million TVEs with 30 million rural labour force but by 1993, there were 25.5 million TVEs with 123.5 million rural labour force. It also contributed to the agricultural output.

EVAL2: Deng reformed pre-existing TVE to be more free from state control such that they are managed by managers rather than political cadres which meant they will make business decisions that focuses on profit maximization and not so much on what the party would like—this meant they could hire and fire. Also, they are self financing and sensitive to the market demands. These changes are credited to Deng as he modernized an old structure to fit with the contemporary times that produced concrete growth for the society.

GA3: The export oriented economy that Deng had envisioned and tried to build was crucial for China’s growth.

EL/EX3: With export industry, much foreign currency can be absorbed and also that countries would be accumulating RMB which could strengthed China’s currency and establish its position in the international community.

EV3: The ‘Open Door’ policy. The formation of the SEZs.

EVAL3: SEZ allowed duty free import privileges to foreign investors and gave out generous tax concessions. This opened up areas of China specifically for the development of the export market. This opening up of foreign investment meant that China benefited directly—It included nearly 30% of the China’s population and generated over 60% of the country’s industrial output. There was also a surge in FDIs from US$636 million in 1983 to US$45.3 billion in 1997 making China the second largest destination of FDI in the world. Thus, the opening up to foreign trade was a landmark to the economic growth of China, unlike the reforming of TVE, SEZ was pioneered by Deng and had bear fruits based on the phenomenal rise in the figures of the rate of growth for capital as well as in employment.

II Challenge: China’s economic growth was NOT due to the effective policies of Deng

GA4: The reformation of China’s industrial sector actually hinder growth.

EL/EX4: Industrial sector had been the focal point of China’s development and it had largely been state run.

EV4: Pre-1978 structure of the SOE; iron-rice bowl mentality thus no motivation to do well. Changes implemented include privatization of the SOEs

EVAL4: With the breaking of the iron rice bowl mentality, it made it such that mangers had more freedom to hire and fire as well as greater autonomy in replacing equipment and playing bonuses which meant that the state has decreased in its control of the SOE while the individuals have greater incentive to maximize profit and innovate so they get earn more rather than rely on the previously fixed salary scheme and only receiving directions from the CCP. However, all these were in theory. In practice, this policy did not bring about immediate result in the growth for the country, as many of the SOEs could not cope with the sudden liberalization and indeed ended their business. In 1981, total industrial output was 78% but fell to 53% in 1991 as they would not manage the sudden change that the state would not bill them out in times of inefficiency.

CA: Nonetheless, the general climate was that firms became more competitive and this aided in changing China to meet the international challenges of free trade. Moreover, the decrease in industrial output here was compensated by the increase bought about by TVE and SEZs.

GA5: Changes introduced by Deng to the agricultural sector bought about harm to the society.

EL/EX5: Peasants were the major in China and thus agricultural development was crucial for the growth of China.

EV5: The HRS.

EVAL5: While HRS did allow farmers to dispose of any surplus produced on the open Markey, it is not fully capitalist as farmers still have to pay for the use of the land and most of the crops they plan are set by the state. The rapid sweep of decollectivisation such that by 1983, 98% was converted, bought about negative repercussions on the society. Grain output increased drastically such that the price being offered is low and so that made grain production less attractive. Moreover, it created social tensions as household now could not agree on who has the right to use the land and water as well as the provision of social welfare like schools and irrigations. There were also environmental problems due to deforestation to maximize profit.

CA: Nonetheless, HRS did bring about positive aspects such as the increase in farmers’ income and some of the farmers would also diversify into food-processing enterprises. Thus, Deng still played a key role, the detriments created were an unintended consequence that was necessary for China to be more developed.

Conclusion:

· Reiterate main arguments:

n Deng was indeed a very key factor for China’s economic growth

n Though, his policies did not always bring about positive changes

· Stand.

n China’s economic growth was brought about by Deng.