INTRODUCTION
While Asian countries are currently struggling to free themselves from the world’s economic crisis, China stands stably dealing with such catastrophe. It is not surprising to acknowledge, according to Shenkar, that China is ‘the only Communist nation (admittedly with an increasing open economy) to achieve rapid economic growth over a sustainable period.’
[1] The ability of this former British colony to become ‘an engine of growth for the entire region and a complement if not a substitute to developed country market are not cynical and temporary but represent fundamental restructuring of the global business system and a repositioning of its key constituencies’.
[2]This research aims to justify those positive allegations put forward to China and together to reveal its hidden secrets in becoming a tremendous bargaining power in Asian region. It will also critically examine the five developmental stages underwent by the Chinese regime emerging as an influential economic stability among its neighbours. The five developmental stages can be identified as the following:
1) The Planned Economy of Policy of Self-Reliance (1948)
2) Cultural Revolution (October 1966)
3) Economic Reforms (1978)
4) Integration with the General Agreement on Tariffs and Trade (1948 – 2000)
5) China’s Accession to World Trade Organisation (December 2001).
The research will also highlight the decreasing of Communism ideology and the new modified ‘Chinese socialist system’ and how the latter conquered the former in the mid 1970s and onwards. It is hoped that, one will be critically understand these economic metaphors of China, its causes and reasons, as well as its impact on China’s economic standing ability.
THE PLANNED ECONOMY OF POLICY OF SELF-RELIANCE (1948)
This Mao Tse-Tung formulated policy can be defined as ‘a principle that calls for Chinese to rely on their own efforts to achieve their political and economic goals.’
[3] In a simpler word, Ross describes it as a mean of ‘regenerating China through its own effort,’ without holding any external source and influence onto its economic development. By asserting this to an illustration, the government (state)
[4] will hold an ‘overwhelming shares of its economic and state control of economic activities, leaving market operation to a bare minimum.’
[5]This includes that the private individuals holds no ownership of the assets and their contributions and earning will mainly directing to the state rather than personal individual. In return, on the state side, it will administer an equal and fair distribution of public goods and wealth back to the society.
One might argue that it is a form of collective responsibility governance due to the equal distribution despite of variance in contribution. However, since the government control is dominating and prevailing excessively in this practice, it is doubtful whether the practice meant to put the public as a central agenda. The policy is believed to exist, considering these four possible theories:
[6]1) Having known the pain of dependence in the period of the Manchu Dynasty encounter with the West, the Chinese are determined to be totally independent;
2) Self-reliance appears to be related to China’s long tradition of cultural self-containment;
3) A key tenet of Marxism to which history and culture pushed by Mao is that internal factors are always decisive in a country’s affair;
4) Objective facts of China’s great size and agriculture economy have made self-reliance in part the rationalisation of necessity.
Study has suggested that, out of four, the fourth theory seems to be more acceptable. This is because China was in a transitional period after the World War 2, particularly in restoring herself with economic stability and prosperity. Also at that time, agriculture is one of the surviving industries for the citizens post war. Beginning 1956, the policy of self-reliance has been loosening up because of a strong Soviet influence on the Chinese Communist Regime (CCR). Research believes that the Regime had lost much confidence in the Maoist principle and decided to affiliate the self-reliance policy with a policy of ‘leaning to one side’ i.e. the Soviet. The CCR adopted a replica of the Soviet Union model in terms of its technology, education and thinking.
[7]However, the latter policy seems to be a fiasco as Moscow withdrew its technical assistance to China. Admittedly, the Research has found no solid evidence to this withdrawal but during the in the mind 1950s, ‘strains in the Sino-Soviet alliance (SSA) gradually began to emerge over questions of ideology, security and economic development.’
[8] No doubt, the CCR leaders were unhappy about the U.S.S.R.’s Nikita Khrushcher’s approach ‘toward the Stalinisation peaceful coexistence with the West.’
[9] They perceived it as a betrayal to the SSA established by two countries. In addition, Beijing was disturbed due to the following:
[10]a) Insufficient degree of support given by Moscow, in recovering Taiwan;
b) The Soviet’s proposal for a join naval arrangement which leading to a secondary position of China;
c) The Soviet’s impartiality on 1959 tension on Sino-Indian border.
The research concluded the peak of this conflict exploded from 1966 – 1969, where China blatantly condemning the U.S.S.R. and reduced trade relation drastically between the two countries. In a nutshell, the policy of self-reliance is a ‘dependence of China’s own experiences and resources, emphasising revolutionary zeal over scientific management, reducing China’s indebtedness, encouraging indigenous technological innovation as a substitute for the import of foreign technology.’
[11]CULTURAL REVOLUTION (OCTOBER 1966)
As a result of a total frustration of the Sino-Soviet Relations, the CCR was re-invited to observe its policy of self-reliance. However, the reversal to its previous practice is considered as an exaggeration due to the government’s extremism in closing ‘the doors of international relations.’ The Revolution is defined as a battle of power in the CCR that observed into a broad range of social, political and economy violence and chaos, which involves the public at large and subsequently leading to Civil War.
It was launched by Mao Tse-Tung on May 16, 1966, officially as ‘an urge to free China from its “liberal bourgeoisie” elements and to resume revolutionary class struggle by mobilising the thoughts and ideas of China’s youngsters.’
[12] Cohn suggests that, the revolution became even more autarkic because Mao launched the “Great Leap Forward”, creating special communes (cultural nexus of power) i.e. utilising the country men’s human capital and mass mobilization. However, Mao fails to adequately provide a reasonable justification of his action which led the country to uproar.
Research has found that the Communist Party of China (CPC) leaders were only jumped to the conclusion that everything was the fault of capitalist-roaders.
[13] It is alleged that, however, the main target of the Revolution was to reform the culture and education at the society level and the organisation arrangement at the government level. Thus, the government managed to list down the purported objectives, justifying the rationale of implementing the revolution.
[14] The objectives were purported:
a) to change the mental outlook of the society;
b) to crush capitalist sympathisers within the ruling party;
c) to criticise and to repudiate the reactionary bourgeoisie academic authorities;
d) to facilitate the consolidation of development of the socialist system.
The effects of the Revolution can be felt both directly and indirectly to all Chinese citizen. It was a massive destruction to China because most (if not all) of the Chinese treasure were damaged and demolished. For instance, the Revolution had allocated the education system to a virtual halt where many intellectuals were discriminated and being expelled out of the city. It created the current generation of insufficient educated individuals.
The world regarded the destruction brought by the Revolution as ‘tarnishing China’s image in the West.’
[15] The consensus feedback reported that the Cultural Revolution was a strong approach of the government, resulting to unmitigated disaster and event to be avoided in time to come. These assertions are believed to be based on reasons of lack of democracy and dangers of extreme rigidity.
ECONOMIC REFORMS (1978)
In 1979, the CPC came to realise that the Soviet style system they were implementing since 1950s, was contributing little success in improving the standard of living in China. The economic revolution was also accused for its failure to minimise the economic gap between China and other developing countries.
According to Shenkar, several lessons were learnt by the Regime, allowing them to retreat from the failed revolution.
[16] The lessons, inter alia, taught the Chinese leaders that:
1) The combination of ideology and economy was explosive i.e. it is a risky take of the government to mirror economy with the concept of nation governance;
2) Technology could not be delivered more than routine. In fact, such transfer must be based on ongoing performance and focusing only on fundamental mental transformation;
3) The fortunes of the regime were intricately intertwined with those of the nation particularly economic prosperity. This reflects to the “Mandate of Heaven”
[17] principle encapsulated by the Confucius.
This reform of 1978 under the leadership of Den Xiaoping aimed to generate adequate surplus funding to support the modernisation of Chinese economy. This is because, China has been receiving pressures to liberalise its trade and made its economy open to all firms, be locally or abroad. Hence, the government had divided the reforms into three phases,
[18] which consist of:
a) The First Reform in the late 1970s and early 1980s.
It focused on opening the trade to other foreign countries, instituting the household responsibility system in agriculture
[19], and the establishment of Town and Village Enterprises (TVEs)
b) The Second Reform in the late 1980s and early 1990s.
It attempted to create a pricing system
[20] to decrease the role of the state in resource allocation.
c) The Third Reform in the late 1990s.
It struggled on closing unprofitable enterprises and dealing with insolvency in the banking system.
A lot of academics seem to suggest that the Chinese economy reform is not a form of capitalism but would be more to socialism with Chinese characteristics. This is because it was designed by highlighting the centralisation of its planning structure so that there were only winners and no losers. Second, the intention of this reform was to create a new system rather than revamping the old.
To conclude, Den’s economic reforms meets a considerably amount of success as it was proven to improvise the Chinese economic state, to restore the loss suffered by the citizens due to the failure of planned economy policy of self-reliance and cultural revolution.
INTEGRATION WITH GENERAL AGREEMENT ON TARIFFS AND TRADE GATT (1948 – 2000)
The research has not found solid, vivid evidence as to why China decided to join the General Agreement on Tariffs and Trade back in 1948. However, it is convinced that China’s decision to seek GATT membership indicated its seriousness to depart from the planned economy of self-reliance policy which has proven to be an unsuccessful.
[21] Hence, one of the ways in reforming Chinese economy is to allow more exposure and more movement of goods and capital in and out of China. All GATT’s members will then acknowledge China’s liberalisation measures and grant a green light to have access to their exports and imports market. In fact, China’s involvement in GATT has witnessed an increase of its ratio of trade to GDP rose from less than 10% in 1978 to 30% in 1996.
[22]On the other hand, the GATT is alleged to carry many weaknesses, and to certain extent, frustrated its contracting party.
[23] One of the accepted theories by experts is because GATT’s informality has opened to many of its weaknesses.
[24] First, some of the trade sectors such as agriculture and textiles were excluded from GATT regulation, while these are the main economic booster for China’s achievement. By putting its hands-off from governing these two areas, many countries especially China seem not to benefit from the scenario.
Second, because of its informality nature, the agreement was seen as a toothless-tiger in binding the countries. For example, some states ignored the GATT ban on import quota through voluntary exports restraints, at the same time urging others to voluntarily decrease their imports.
Third, GATT’s seriousness in procedures settlements are often be argued and questioned. This has lead to the final weakness of it when it has failed to realise the emergence and the importance of regulating trade in services, intellectual property and investment. These four weaknesses have allegedly to affect China’s determination to stand globally as a world exporter for agriculture and textiles.
To contradict, some analysts had argued that GATT’s informality had made it more effective in assisting its member countries’ (MC) needs. Its informality has better served the countries in need because, as according to Cohn, its informality has proven to promote flexibility and in implementing adaptability.
[25]CHINA’S ACSESSION TO WORLD TRADE ORGANISATION
WTO (DECEMBER 2001)
China assumed its ‘willingness to make substantial concessions to join WTO reflected a recognition that it needs to continue (even intensify) its economic transition to protect the national security.’
[26] The burden lies onto the Chinese government to secure its domestic market, when competing with foreign markets. The government must also ensure that its “internationalised” transformation will not put its domestic economy at stake.
[27]Hence, this part of the discussion will examine whether this trend of internationalising China’s economy has tremendously stimulate its domestic achievement, competing with alien firms. First, it is also worth to highlight, the lengthy period of negotiation in regards to China’s accession to WTO. There are several issues (considering China was never re-admitted to GATT post 1950) centralising its delay to the accession.
First, although China has stated its intention to liberalise its economy, such intention was lacking of transparency. Scott argued that, the Chinese economic liberalisation has not been materialised transparently because the ‘U.S. trade deficit with China increased from $17.8 billion in 1989 to $90.2 billion in 2001.’
[28]Second, there was a clash of interest, regarding China’s status in the WTO, which later would have major significance on its membership. China requested special treatment in the WTO that was ‘accorded to developing countries (DC) at similar stages of economic development.’
[29] Many WTO members claimed that China should be granted the same conditions as DC considering its size and status as a world exporter. China, on the other hand, view its imbalance in market access was a serious concern and due to this, it fails to achieve the DC status.
Third, because of China’s poor record on enforcing agreements, the MC have lost their faith to China. For instance, its failures to enforce the 1992 U.S.-China agreement of intellectual property, has caused a rapid growth of piracy of computer programs and music recordings in Southern China and those were largely distributed to another MC.
[30] China argued it has improved the monitoring to certain extent, but study has suggested such illegality was still rampant in Chinese big cities.
[31]Those were the impediments to China’s accession because the WTO will only operate with ‘mutual respect, equal opportunity, sharing advantages and open trade’ to all countries. Resulting from series of negotiation, China has agreed to undertake some important commitments to WTO members.
a) Non-discrimination.
China will carry-out non-discrimination treatment to all WTO members. All foreign individuals and enterprises, including non-China registered company, will be treated no less favourable than the one accorded in China. Everyone shares the same capacity in regards to right to trade. However, China will still maintain its exclusive rights of state trading for goods such as cereals, tobacco, fuels and minerals. Those restrictions are believed has been uplifted or considerably eased after a three year phase-out period.
b) Preferential treatments.
China will ban dual prices practices as well as different treatment accorded to products to be sold in China in comparison for exports. In other words, price controls will not be applicable for purposes of protecting the domestic industries and services. This is to provide an equal and fair competition to all.
c) Tariffs reduction.
China will lower their import tariffs on goods for other MC as agreed in the accession. Within three years of accession. All enterprise will have the right to import and export all goods and trade with very less restrictions.
As a result of this implementation, a report by WTO confirms that China’s bound tariff level decreases to 15% for agricultural product.
[32] The industrial goods average bound tariff reducing down to 8.9% with a range of 0-47%.
[33] Clearly this is not an excellent standard achieved through its implementation, but forecast has mostly agreed that more reductions are expected to take place in the near future.
China textile market will no longer enjoy a fixed quota as it was come to an end on 31st December 2004 as agreed during the Agreement on textile and Clothing. Similarly, agriculture’s subsidies have been limited to 8.5% of the value of farm output.
[34] The farmers and land enterprises are expected to generate the income and boost the internal and external market free from government assistance.
Lastly, relating to services sector, there were a huge concerns from the domestic industries as to the survival of domestic enterprises in the world market. The CCR indeed had negotiated for a longer protection (according to other developing countries). However, WTO only permits a “shorter grace periods” for China after weighting all evidences and its prosperity records. For example, the Banking Sector will be completely open in 2006, rather than 8 to 10 years for others developing countries. For telecommunication services, foreign investments are expected to have no restriction after 5 years of the accession.
No doubt, the Chinese enterprises suffered greatest shock due to this drastic commitment of the Chinese government. They were forced to compete internationally without preparing themselves to do so.
CONCLUSION
The study on China’s economy liberalisation seems to be limitless as there are many hidden facts which yet to be revealed in this project. However the research manages to identify the reasons behind the transformation from the Communist style to the new Chinese Socialist System which believed to be an eye-opener to series of international integration between China and other MC. The research suggests that should be an empirical study on the impacts of Chinese economy after 7 years joining the WTO.
(2992 WORDS EXCLUDING TEXTBOXES, FOOTNOTES AND BIBILIOGRAPHY)
BIBLIOGRAPHY
[1] Shenkar O,The Chinese Century: The Rising Chinese Economy and Its Impact on the Global Economy, The Balance of Power, And Your Job, Wharton School Publishing, 2005. p.43
[2] The Chinese Century, 2005 p. 2
[3] Terrill R, China and the World: Self-Reliance or Interdependence?, Foreign affairs;
http://www.foreignaffairs.org/19770101faesay%2098/10/ross-terrill/ viewed on October 28th 2008
[4] The Chinese Communist Party is the governing ruler in China after they ousted the Nationalist Party to Taiwan.
[5] Linong Z, China business: Environment, Momentum, Strategies and Prospects, Pearson Prentice Hall Education South Asia Pte Ltd, Singapore, 2006. p.89
[6] Terrill R, China and the World: Self-Reliance or Interdependence: Foreign Affairs. 1977 Jan; 55 (2) pp. 295 – 305.
[7] Shenkar O,The Chinese Century: The Rising Chinese Economy and Its Impact on the Global Economy, The Balance of Power, And Your Job, Wharton School Publishing, 2005. p. 33
[8] U.S. Library of Congress;
http://www.countrystudies.us/china/128.htm viewed on October 28th 2008.
[9] U.S. Library of Congress
[10] U.S Library of Congress
[11] Terrill R, China and the World: Self-Reliance or Interdependence, Foreign Affairs,
http://www.foreignaffairs.org.com/[12] Cultural Revolution – Wikipedia http://en.wikipedia.org/wiki/Cultural_Revolution
[13] Discovering China: The Cultural Revolution
http://library.thinkquest.org/26469/cultural-revolution/beginning.html viewed on October 6th, 2008
[14] On August 8th, 1966, the Central Committee of the CPC passed its “Decision Concerning the Great Proletarian Cultural Revolution”. (Also known as the 16th points)
[15] Tucker, Nancy Bernkopf [2001] (2001) China Confidential: American Diplomats and Sino – American Relations, 1945 – 1996. Columbia University Press. ISBN 021106300.
[16] Shenkar O,The Chinese Century: The Rising Chinese Economy and Its Impact on the Global Economy, The Balance of Power, And Your Job, Wharton School Publishing, 2005. p. 33
[17] It means if the emperor failed to deliver prosperity, the citizen had not only the right, but also a duty to unseat him.
[18] Economy Reform in the People’s Republic of China:
http://en.wikipedia.org/wiki/China%27s_economic-Reforms. Viewed on October 6th, 2008.
[19] Farmers were able to retain surplus over individual plots of land rather than firming for the collective: Yang, Dali, Calamity and Reform in China: State, Rural Society and Institutional Change since the Great Leap Famine. Stanford University Press, 1996.
[20] Some goods and services were allocated at state controlled prices, while others were allocated at market price:
http://en.wikipedia.org/wiki/China%27s_economic_reforms[21] Cohn T, Global Trade Relations (Chapter 8); Global Political Economy Theory and Practice (4th ed); Pearson International Edition, 2008; p. 221
[22] Hiddo H, “China’s Economy Reforms and Intergration into the World Trading System, “Journal of World Trade 33, no 3 (June 1999), pp. 4-5.
[23] One of the major weaknesses of GATT is because it was designed to be a provisional treaty, countries joining it were “contracting parties” rather than formal members of Agreement: Cohn T, Global Trade Relations (Chapter 8); Global Political Economy Theory and Practice (4th ed); Pearson International Edition, 2008; p. 221
[24] Barry Eichengreen and Peter b. Kenen, “Managing the World Economy Under the Bretton Woods System; An Overview,” Peter B. Kenen, ed., Managing the World Economu: Fifty Years after Bretton Woods (Washington, D.C.: Institute for International Economics, September 1994), p. 7
[25] “Many observers would now conclude that the GATT was the more effective arrangement. The strength of a formal arrangement such as the IMF is its rigidity; that of an informal, ideas-based institution such as the GATT is its adaptability. The greater success of the GATT thus illustrates the importance for postwar economic performance of an adaptable institutional framework.” Cohn T, Global Trade Relations (Chapter 8); Global Political Economy Theory and Practice (4th ed); Pearson International Edition, 2008; p. 235
[26] Moore T, China and the World Market: Chinese Industry and International Sources of Reform in the Post-Mao Era, Cambridge University Press, United Kingdom,2002. p. 311
[27] The idea was strengthened during the 14th National Congress of CCP on October 1992, encapsulating the refinery of China’s industry policy into a socialist market economy.
[28] Robert E. Scott, “WTO Accession: China Can Wait,” Working USA (September/October 1999), p.82: James C. Hsiung, “The Aftermath of China Accession to the WTO, “Independent Review 8, no.1 (Summer 2003), p. 95; and “The Storm after the Storm: China’s WTO Accession and the US-China Trade Relationship; Stanley Foundation Policy Bulletin (October 26-28), 2000, p.2
[29] Li, “Resumption of China’s GATT Membership,” p.10; and “China and World Markets: The Debate over Trade Status,” Congressional Digest 79 (June-July 2000)
[30] For instance Eastern Europe, Canada, and etc.
[31] Greg Mastel, “China and the WTO: Moving Forwards without Sliding Back, “Law and Policy in International Business 31, no 3 (Spring 2000), pp. 988-991. Sumner J. La Croix and Denise Eby Konan, “Intellectual Property Rights in China: The Changing Political Economy of Chinese-American Interests,” World Econ 25, no. 6 (June 2002), pp. 759-788
[32] WTO successfully concludes negotiations on China’s entry; World Trade Organisation;
http://www.wto.org/english/news_e/pres01_e/pr243_e.htm[33] World Trade Organisation (2008)
[34] World Trade Organisation (2008)
