AAS Annual Meeting

China and Inner Asia Session 512

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Session 512: China's Changing Institutional System

Chinese Gradualism as Darwinian Evolution: The Dual-Track Price Reform
Shu-yun Ma, Chinese University of Hong Kong, Hong Kong

As China's reform continues to produce higher economic growth than that of most former Soviet bloc countries, the once heated Western debate about "shock therapy" and "gradualism" has in general been concluded in favor of the latter. But in what sense is China’s reform gradual? It would be problematic to distinguish between shock therapy and gradualism with a slow-fast-schma. Instead, this paper will define Chinese gradualism by associating it with evolutionism, and will discuss China’s dual-track price reform from such perspective. It will examine to what extent is the dual-track system a deliberate "design", what role did this "design" play in China’s price reform, and how has this "design" been evolving. These issues are important, as they will help us understand the Darwinian-evolutionary nature of Chinese gradualism.

The Political Economy of China's Response to the Global Financial Crisis
Jeremy Wallace, Ohio State University, USA

The past decade ended with a bang in the form of a global financial crisis. Yet the Chinese Communist Party and the Chinese economy seem to have sailed through the swells with little apparent damage. Why has the downturn not generated the political instability that many predicted? China's policy response is well-established: in November 2008, the government announced a massive stimulus program. However, I argue that a second critical factor behind China's success in weathering the storm is a long-time feature of the regime: its management of urbanization and migration. The continuation of collective ownership of land in the countryside and the household registration (hukou or huji) system facilitated social and economic stability by providing channels for those negatively affected to disperse. With those hurt by the crisis dispersed into the countryside and then quickly employed in stimulus-related projects, grievances did not coalesce into substantial protests. Combining interview data from Chinese government officials and academic advisors with budget and local government bond statistics, the analysis finds strong evidence that the regime targeted its response and the stimulus package to employ workers in the interior despite the fact that the coastal areas were more directly hurt by the crisis.

The Political Logic of China's Center-Local Fiscal Transfers: The China-North Korea Relationship
Jihyeon Jeong, Ewha Womans University, South Korea

Authoritarian governments are widely assumed to lack incentives to distribute to groups without political power. Yet in China, we observe high levels of fiscal handouts to minorities on the border. I argue government provision of transfers to such areas is a strategic move by a single-party regime to deal with the international effects of transborder ethnic groups. Political instability in neighboring countries such as North Korea (DPRK) poses a particularly grave threat when co-ethnics exist on either side of the border because such groups are more likely to transmit instability. Thus the domestic effect of foreign factors forces an authoritarian government to redistribute to groups otherwise outside their original winning coalition of supporters. Using rare panel data on center-local fiscal transfers in China from 1995 to 2003, I present statistical evidence to support my theory. I draw from research and fieldwork in China to provide both quantitative and qualitative evidence of my thesis as applied to the China-North Korea border area.

China’s Institutional Fabric and Its Future Development Trajectory- Institutional Complementarities and Innovative Capacity in China -
Patrick Juenemann, University of St. Gallen, Singapore

This paper is co-authored together with Prof. Dr. Joachim Ahrens, PFH Göttingen, Germany, ahrens@pfh.de --------------------------------------------------------- The paper discusses institutional change and institution building in China as integral parts of the country’s economic development and focuses on the country’s efforts to set up an effective innovation regime. China’s adventurous experimentation through its recent age of transformation, where authorities followed a gradual, pragmatic approach to reform, decentralize, and transform the economy, has yielded both new and highly successful results: notable examples of non-orthodox policy measures, which worked effectively in China, include the so-called dual-track approach to industrial restructuring, or the priority given to create competitive structures while postponing large-scale privatization of state owned enterprises. Although China may have taken in certain institutional components from the outside world, the resulting institutional fabric as a whole is by no means a copy of other models. As China moves forward, it is likely to continue to selectively adopt, and adapt to its existing institutional fabric, new practices from other business systems. We argue that the long-run result will be a distinct, Chinese variety of capitalism, not a convergence on any existing variety. We argue that while China has shown plenty of adaptability, innovation and efficiency are likely to be the key challenges for its future development trajectory. We apply a New Institutional Economics perspective and link that to Hall and Soskice’s Varieties-of-Capitalism approach to analyze the innovation potential of the Chinese economy and policy regime.

The Making of a Bidding System in China’s Government Procurement: Prospects and Problems
Na Zhou, City University of Hong Kong, Hong Kong

Since the 1990s, China has taken steps to establish a bidding system in government procurement for the purpose of reducing purchasing costs while encouraging market competition. However, implemented for more than a decade, the bidding system does not show significant effects as expected. Instead of spending less, the Chinese government has continued to purchase goods, services, and works for its own use at prices much higher than the market level. Thus, the question is why the bidding system, with competition being its core mechanism, cannot effectively reduce purchasing costs? In order to address this question, this study extends the theory of regulatory states to analyze how competition is regulated in China’s government procurement. It employs a case study based on the empirical data collected from a Chinese city to illustrate how under-regulated competition causes the malfunctioning of China’s bidding system, which then contributes to high purchasing costs in government procurement. The findings of this study suggest that competition in China’s bidding system has been manipulated to some extent and suppressed to a low level by officials or government departments which cannot be rectified by the existing regulatory institutions.