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Final Exam Essay

China Economy

Prof. Susan Mays

Ruihe Zhang

(S1586128)

July 25, 2015

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1. Describe 3 key areas of institutional reform during China’s reform era,

noting progress and challenges (institutional could be law, finance,

education, hukou, etc.)

The three key areas that will be analyzed below are respectively education,

hukou, and healthcare system.

From 1949 to now, China has achieved a lot during the reform of education. For

instance, Chinese government increased the overall adult literacy from 20% to

90%. In 1985, Chinese educational department began to loosen the central

authority to advance educational resources’ mobility (class lecture, July 14.) In

1986, 9-year compulsory education strategy was announced to improve national

education level and this policy was implemented comprehensively until 2006

(class lecture, July 14.)

Apart from its accomplishment, there are still obstacles in the way of China’s

education development. Firstly, there is a strong will to seek a new entrance

examinations because Gaokao, which can even decide one’s fate and future

career, has placed a particularly heavy pressure on each Chinese student.

(Education and change in China today.) Secondly, although 61% of educational

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fund is from government nowadys, China’s education GDP is far lower than world

average level (4% compared to 4.9%). Thirdly, there is financial inequality

existing between rural and urban compulsory education, shown as that the input

in urban area is 1.8 times higher than that of rural area (class lecture, July 14.)

As for hukou system, first, it controlled the population mobility in the 1950s and

efficiently restricted over urbanization (class lecture, July 9.) Secondly, with the

relatively low economic development in the mid 50s, this system could effectively

distribute supplement such as grains and cloths towards urban and rural regions

(class lecture, July 9.) Furthermore, after the three-year famine, hukou system

was used to implement the “iron control” in both cities and countryside (class

lecture, July 9.)

However, hukou system nowadays is deteriorating the inequality between rural

and urban area. Firstly, due to different kinds of hukou, social welfare of urban

residents is far better than that in countryside, including many aspects:

healthcare, education and retirement insurance, etc. (class lecture, July 9.)

Secondly, it also leads the unequal treatment towards the rural migrants. Their

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welfare cannot be ensured in cities duo to their rural hukou. For example, even if

the rural migrants have enough money to buy real estates in cities like Beijing

and Shanghai, they are not allowed without city hukou.

The healthcare system is continuously growing up. Under the control of CCP,

China’s healthcare level doubled in the past twenty years. In 2009, to improve the

healthcare system, Chinese government reformed the public hospitals and local

clinics, and clarified the working burden of intern doctors. And recently, the

statistics show that 70% of citizen is covered by healthcare insurance in China

(class lecture, July 17.) In future, the 12th five-year plan will also lay emphasis on

biomedical industry progress (Health care in China: Entering ‘uncharted waters’.)

Nevertheless, the low healthcare GDP is still the number one problem in the

whole system. Shown by data in 2012, China’s healthcare GDP is far less than the

average level of the world (5.1% vs. 9.4%)[1]. Secondly, doctor corruption still

occurs frequently in public hospitals because doctors can be benefited from the

sale of expensive drugs, which can reach 10 thousand RMB per month [2]. Finally,

the cover of healthcare is relatively low. Generally, 60%-70% cost of healthcare is

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still paid by patents (class lecture, July 17.)

Reference List

1. Tianya BBS, “世卫组织《世界卫生统计 2012》费用相关数据点评”， http://bbs.tianya.cn, then search “世卫组织《世界卫生统计 2012》费用相关数据点评”, accessed 2015.

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2. Tencent News, “揭秘医疗腐败：医生一个月靠药品回扣赚一万多”,

http://cq.qq.com, then search “医疗腐败”, accessed 2015.

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Final Exam Essay

China Economy

Prof. Susan Mays

Ruihe Zhang

(S1586128)

July 25, 2015

4. Describe 3 economic development paths, tactics, or strategies that are

unique to China or are shared by China and other developing nations.

The three economic developments discussed below are Land Reform, The

Reform and Open Policy, and Four Modernizations.

Since China is an agricultural country from ancient times, successful land reform

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can be an essential foundation for future development. As a result, from 1949 to

present, China had published a series of land reform regulations, largely

accelerating China’s agricultural progress. For example, China began to

implement the first land reform strategy in June 1950: return land to the vast

number of peasants from landlords. [1] In 1982, accompanied with the “open

door” policy, Household Responsibility System was put into practice, which

farmers could set a contract with government about a plot of land. Using their

ownership of the land, farmers are encouraged to participate in many side-line

activities in order to increase the agricultural development in rural area (class

lecture, July 9.) In 1987, the state council agreed the compensated transfer of

land so that land auction could begin in China. [2] With the successful land rights

reform, the poverty-reduction was achieved in a large scale. Commodity economy

in China was largely stimulated and it successfully laid a foundation for China’s

future industrial development [3] [4].

The second policy was Reform and Open Policy firstly stated by Deng in 1978.

With the goal of rapidly developing China’s economy and industry, this policy

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reformed centrally planned economy and encouraged foreign trade. At the

meanwhile, four special economic zones were established in the 1980s to attract

foreign direct investment and technologies (class lecture, July 6.) In addition,

taking Taiwan’s modernization as an example, China began its export-led

development to stimulate domestic economy and manufacture (class lecture, July

9.) And government largely evolved SOE’s structure and working procedure to

stabilize SOE’s importance in China’s state-own economy. (An Analysis of State

owned Enterprises and State Capitalism in China) The achievement is also

tremendous: 5 trillion dollar GDP growth from 1985 to 2015, increasing share of

foreign trade in total GDP (45% in 2013), emergence of “mega” cities such as

Beijing and Shanghai, dramatically increasing of foreign direct investment, and

continuous technological progress. Overall, this open and reform policy

succeeded in activating China economy development.

The third policy was Four Modernization stated by Zhou Enlai in 1975 but

implemented by Deng Xiaoping in 1979. This policy aimed to strengthen China’s

agriculture, industry, defense and S&T (class lecture, July 7.) For agriculture,

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China planned to mechanize 85% farming tasks and increased total production

4-5% per year. At the same time “household responsibility system” was

implemented. For industry, capital construction and heavy industries are focused

on and 120 projects such as iron complexes and oil fields were listed to further

improve in future. For defense, military was withdrawn from politics in 1975 and

was mainly responsible for improving national defense and military training. In

addition, the military was required to updated to be a global competitor. [5] For

science and technology, educational institutions were rebuilt and the

intellectuals were valued. They were seemed as responsible and productive

social members again during this modernization period. [6] The achievement is

significant as well. The farmer’s income rose from one hundred yuan per year in

1971 to nine thousand yuan per year in 1986. The steel production grew from 21

million tones in 1976 to 50 million tones in 1986. On the other hand, 10% of GDP

was spent on the development of military and weapon technologies. [7] The

post-secondary enrollment also increases stably from 300 thousand in 1990 to

12 billion in 2014 (class lecture, July 14.) Overall, Four Modernization directs

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China towards the path of economic prosperity and prepares a solid foundation

for China’s future development.

Reference List

1. Chinese Posters, “Land Reform and Collectivization”, see

http://chineseposters.net/index.php, then search “Land Reform and

Collectivization”, accessed 2015.

2. Zhao Fushuai, “农村土地改革试点破题”, see

http://www.21ccom.net/index.html, then search “农村土地改革试点破题”,

accessed 2015.

3. EGAT (no author listed), “China: Lessons from a successful land rights

reform”, Journal, October 2009.

4. Du Runsheng, “新区土地改革的回忆”, see http://www.aisixiang.com, then

search”新区土地改革的回忆”, accessed 2015.

5. HLHistory 2011-2012, “The Four Modernizations”, see http://hlhistory2011-

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2012.wikispaces.com/home, then search “Four Modernizations”, accessed

2015.

6. A Visual Sourcebook of Chinese Civilization, “Four Modernizations Era”, see

http://depts.washington.edu/chinaciv/index.htm, then click “site map”, and

then click “Four Modernization Era”, accessed 2015.

7. Stefan Joseph, “To what extent were Deng Xiaopings Four Modernizations

successful?”, see http://www.markedbyteachers.com, “Deng Xiaopings Four

Modernizations”, accessed 2015.

Final Exam Essay

China Economy

Ruihe Zhang 13

Prof. Susan Mays

Ruihe Zhang

(S1586128)

July 25, 2015

8. Discuss the evolution and key issues of China’s private sector.

China’s private sectors’ first evolution is indicated as the growth of their

company scales and increasing formality. From 1978 to 1992, most of

entrepreneurs who founded private companies had little experience on business.

[1] Most of them started in side-in agricultural activities, encouraged by

government to grow countryside economy (class lecture, July 21.) With the

courage of exploration and the motive power provide by open policy, some places

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like Xiaogang Village quickly achieved success in their business. Based on this

successful experiment, China government in the 1980s supported fifteen million

township enterprises and they brought nearly 330 billion gross value of

production back by the end of 1908s. [1] Moreover, in 1990s, the reform of

stockholding system gave a greater opportunity to enlarge their scale. [1] On the

other hand, the reform of SOEs forced many state owned enterprise to adjusted

strategies and market plan. Particularly, some of them became private

enterprises or the CEO left their original companies and set up their own

companies. These factors undoubtedly strength the scale of private sectors, to a

large extent. As a result, the network, team and financial power of private sectors

have all grown significantly by 2000s, compared to the 1980s [1].

Another progress of private sector is their increasing sense of innovation. Unlike

SOEs, which had strong financial background supported by government, private

sectors are incapable to afford loss or market crisis (An Analysis of the

Motivations for Foreign Affiliate Formation.) In today’s competitive market,

especially in technological and biomedical fields, the only path for private sectors

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to survive and succeed is innovation. As a result, private enterprises started

requiring higher educational level employees and investing in oversea companies

to compete with the growing state-owned enterprises (class lecture, July 9.)

Based on this developing strategy, private companies began to invent their new

products and enlarge the existing market (class lecture, July 21.) For example,

Lenovo has successfully reformed itself to adapt the rapid development of

China’s economy. Originally, Lenovo’s mainly income was from its household PC

production. However, in 2009, Lenovo decisively merged with IBM to pursue

further development. Now it has involved in fields like household appliances,

laptops and cell phones, achieving the total 46 billion turnovers per year and 60

thousand employees (Thriving in a ‘PC-plus’ world: An interview with Lenovo CEO

Yang Yuanqing). Therefore, China’s private companies have done greatly in self-

innovation and sometimes their achievement can also force the whole market’s

total reform.

Even if the evolution is magnificent, the challenges also exist. Firstly, private

companies’ oversea investment is questioned and doubted by the world. China’s

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private sectors sometimes are treated as a threat in global market (class lecture,

July 21.) How to change the global image becomes an urgent question for those

private companies. Secondly, the younger employees sometimes are hard to

manage in private enterprise, although they are creative and brave (guest speak,

July 10.) In addition, their labor capital is gradually increasing with the economy

development [3]. The human resource problem finally can result in the

separation and even collapse of whole company. Thirdly, the familial enterprises

can be hard to operate for next generation since the younger generation may not

have enough experience to cope with market competition as their parents. This

will result in a relative short life cycle for private sectors [4].

Overall, China’s private sectors have achieved a great progress with the rapid

development of China’s economy. However, there are still challenges and

drawbacks existing in today’s private sectors. Therefore, reform and adjustment

are necessary to lead private sectors to be maturer.

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Reference List

1. Luo Xin, “中国民营企业发展历程考察”, Journal, May 2015.

2. Suning, “发展历程”, http://www.suning.cn/snsite/index/index.html, then

click “关于苏宁”, and then click “发展历程”, accessed 2015.

3. Souhu News, “2012 年中国民营企业面临的八大机遇与挑战”,

http://www.sohu.com, then search “2012 年中国民营企业面临的八大机遇与挑战”, accessed 2015.

4. Baidu Wenku, “民营企业存在的问题”, http://wenku.baidu.com/?fr=logo,

then search “民营企业存在的问题”, accessed 2015.