Table Of ContentTHE CHINESE ECONOMY
THE CHINESE ECONOMY
SECOND EDITION
Adaptation and Growth
Barry Naughton
The MIT Press
Cambridge, Mas sa chu setts
London, England
© 2018 Mas sa chu setts Institute of Technology
All rights reserved. No part of this book may be reproduced in any form by any electronic or mechani-
cal means (including photocopying, recording, or information storage and retrieval) without permis-
sion in writing from the publisher.
This book was set in Times Roman by Westchester Publishing Ser vices. Printed and bound in the United
States of Amer i ca.
Library of Congress Cataloging- in- Publication Data is available.
Names: Naughton, Barry, author.
Title: The Chinese economy : adaptation and growth / Barry Naughton.
Description: Second edition. | Cambridge, MA : MIT Press, [2017] | Includes bibliographical
references and index.
Identifiers: LCCN 2017021096 | ISBN 9780262534796 (pbk. : alk. paper)
Subjects: LCSH: China—Economic policy.
Classification: LCC HC427.95 .N38 2017 | DDC 338.951—dc23
LC record available at https://lccn.loc.gov/2017021096
10 9 8 7 6 5 4 3 2 1
Contents
Acknowl edgments vii
1 Introduction: The Chinese Economy in Context 1
I LEGACIES AND SETTING 21
2 The Geographic Setting 23
3 The Chinese Economy Before 1949 43
4 The Socialist Era, 1949–1978: Big Push Industrialization
and Policy Instability 65
5 Market Transition: Strategy and Pro cess 95
6 The Urban- Rural Divide and Chinese- style Urbanization 127
II PATTERNS OF GROWTH AND DEVELOPMENT 153
7 Growth and Structural Change 155
8 Population: Demographic Transition, the Demographic
Dividend, and the One- Child Policy 185
9 Labor and H uman Capital 209
10 Living Standards: Income, In equality, and Poverty 237
III THE RURAL ECONOMY 257
11 Rural Organ ization 259
12 Agriculture: Technology, Production, and Policy 279
13 Rural Industrialization: From Township and Village Enterprises
to Taobao Villages 307
vi Contents
IV THE URBAN ECONOMY 331
14 Industry: Owner ship and Corporate Governance 333
15 Technology and Industrial Policy 363
V CHINA AND THE WORLD ECONOMY 395
16 International Trade 397
17 Foreign Investment and the Capital Account 423
VI MACROECONOMICS AND FINANCE 451
18 Macroeconomic Policy: Instruments and Outcomes 453
19 The Financial System 479
20 The Fiscal System 513
VII CONCLUSION: CHINA’S FUTURE 541
21 Environmental Quality and the Sustainability of Growth 543
Index 571
Acknowle dgments
In preparing this revised edition of The Chinese Economy, I had invaluable assis-
tance from Henrique Barbosa, Li Xin, and Kieran Naughton. It was challenging, to
say the least, to try to update and expand a general work to encompass the enor-
mous changes that have occurred in China over the past de cade. I benefited greatly
from the close reading and generous comments I received from Ralph Huenemann,
Peter Lorentzen, and Louis Putterman. Three anonymous readers from MIT Press
helpfully showed me where more work was needed and shaped the final product. At
the Press, Emily Taber stepped ably into John Covell’s shoes and shepherded the w hole
pro cess to completion.
The students at the School of Global Policy and Strategy (GPS) at the University
of California, San Diego served as the test bed, lead market, and inspiration for the
work. In addition, as scholarly exchanges and interactions with China have multi-
plied, I have increasingly benefited from the comments and reactions of colleagues
at Chinese universities. Pre sen tat ions at Tsing hua University, Peking University, and
Fudan University in par tic u lar helped me to refine and modify arguments in this text.
The first edition of this book included two full pages acknowledging practical
and intellectual debts I had accrued over the years. Those still stand; although the
debts have been acknowledged, they have not been repaid.
1 Introduction: The Chinese Economy in Context
For the past 35 years, China has been the best- performing economy in the world.
China’s gross domestic product (GDP) has grown faster for longer than that of any
other economy in history. Furthermore, the Chinese economy is now huge, compa-
rable in size and global impact only to that of the United States. China is now a driver
of the world economy, in part because it has benefited enormously from the wave of
globalization that has washed over the world in the past three de cades.
How has China achieved this extraordinary economic success? China is not an
obvious candidate for prosperity, in the way that the United States and other “lucky
countries” are. China has faced development prob lems that today’s rich countries
never had to face. Bringing its massive population out of poverty required China to
overcome daunting geographic and resource limitations. China entered its rapid
growth period far behind technologically and without the institutional framework
and rule of law that rich countries had developed over centuries to support their
sophisticated market economies. Yet China dismantled the socialist “command”
system, created a dynamic market economy, and vaulted into the ranks of upper-
middle- income economies. China has forged its own development strategy in a way
that no country has ever done before, in de pen dent of the simplistic prescriptions of
some brands of orthodox economics. T oday, a fter more than three de cades of extraor-
dinary success, China must adapt its strategy to dramatically changed conditions
that point to significantly slower growth. A newly middle- class society demands new
goods and ser vices, a better environment, and more robust social policies. Can policy-
makers deliver? Do they have the will to overhaul their approach to development,
given the success it has brought them thus far? How big is the danger that hidden
vulnerabilities will bring China’s miraculous growth to a screeching halt? The
Chinese economy continues to display both unmatched dynamism and unrivaled
complexity.
It is useful to think of economic development as made up of two fundamental pro-
cesses: structural change and institutional transformation. Structural change refers
