China's Economic Transformation

Gregory Chow is Professor of Economics and Class of 1913 Professor of Political Economy, Emeritus, at Princeton University. Author of 16 books and over 250 journal articles, he is a Fellow of The Econometric Society and the American Statistical Association. He has advised top government officials in mainland China and Taiwan, and in May 2001 the Econometric Research Program at Princeton was named in his honor.

• Preface to the Third Edition xii Part I: Historical Background and General Survey 11 Economic Lessons from History 31.1 Introduction 31.2 Significant Events in Major Historical Dynasties 41.3 The Republic of China, 1911– 101.4 Summary of Historical Lessons 151.5 What History Can Reveal about the Chinese Economy 16References and Further Reading 17Questions 182 Experiments with Planning and Economic Disruptions 202.1 The Communist Party Rises to Power 202.2 Historical Review: 1949–78 222.3 A Model of the Chinese Planned Economy 252.4 The Behavior of Economic Units in a Planned Economy 292.5 Output Planning in Theory and Practice 322.6 Organization and Administration of Economic Planning 37References and Further Reading 40Questions 413 Economic Reform up to the Mid-1990s 433.1 Why Economic Reform Started in 1978 433.2 Agriculture 453.3 Reform of State-Owned Enterprises 463.4 Price Reform 483.5 The Banking System 493.6 Foreign Trade and Investment 503.7 The Nonstate Sectors 513.8 Institutional Infrastructure 523.9 Reform Policies Similar to Those of Taiwan 533.10 Reasons for the Success of China’s Economic Reform 563.11 Summary 60Appendix: China’s Geography 61References and Further Reading 63Questions 634 Further Reform up to the 2010s 654.1 Introduction 654.2 Enterprise Reform 664.3 Banking Reform 684.4 Foreign Trade and Investment during the Asian Financial Crisis 724.5 The Impact of WTO Membership 744.6 Reform in Agriculture 814.7 Rural Poverty 824.8 Prospects for Reform 85References and Further Reading 87Questions 88Part II: Analysis of the Macroeconomy 895 Economic Growth 915.1 The Neoclassical Model of Economic Growth 915.2 Data on Output, Capital, and Labor 935.3 A Review of Regression Analysis 985.4 Estimating Production Functions for China 995.5 Use of the Neoclassical Growth Model to Forecast GDP 1045.6 How Large Will the Chinese Economy Be in 2020? 1075.7 Lessons from Forecasting 108References and Further Reading 108Questions 1096 Economic Fluctuations 1106.1 The Multiplier–Accelerator Model of Economic Fluctuations 1106.2 Dynamic Properties of the Multiplier–Accelerator Model 1136.3 An Econometric Method for Estimating Parameters of Linear Stochastic Equations 1156.4 Estimating a Multiplier–Accelerator Model of the Chinese Economy 1166.5 A Vector Autoregression (VAR) System 1206.6 Econometric Models of the Chinese Economy 122References and Further Reading 122Questions 1237 Macroeconomic Policies 1257.1 Introduction 1257.2 Monetary Policy 1277.3 An Econometric Analysis of Inflation and of Monetary Policy in China 1347.4 Basic Facts about Government Revenue and Expenditure 1367.5 Fiscal Policy 139References and Further Reading 140Questions 1418 The Effects of Political Movements on the Macroeconomy 1428.1 Specification of a Dynamic Optimization Model of the Chinese Economy 1428.2 The Solution of the Dynamic Optimization Problem 1458.3 Statistical Estimation 1498.4 Measuring the Effects of Two Political Events 1508.5 Conclusions 156References and Further Reading 157Questions 157Part III: Topics in Economic Development 1599 Consumption 1619.1 Trends in Per Capita Consumption 1619.2 Household Expenditure Patterns 1659.3 Rural Per Capita Consumption Expenditures in 1998 by Province 1719.4 Consumption of Housing in Rural and Urban Areas 1739.5 Demand and Supply of Urban Housing 175References and Further Reading 176Questions 17610 Energy and Environmental Problems and Policies 17810.1 Introduction 17810.2 Environmental Problems in China 17910.3 Laws, Agencies, and Policies for Protecting the Environment 18110.4 Problems of Policy Implementation and Law Enforcement 18510.5 A Study of Industrial Pollution 18710.6 Regulation of China’s Industrial Air Pollution 18910.7 Conclusions 191References and Further Reading 192Questions 19311 Population 19411.1 The Role of Population and Human Capital in Economic Development 19411.2 The Chinese Population and Its Rate of Growth 19611.3 Population Policy 19911.4 Evaluation of China’s Population Policy 20311.5 Economic Explanation of the Birth Rate 20511.6 Why the Population Control Policy Should Be Terminated 207References and Further Reading 207Questions 20812 Human Capital 20912.1 The Importance of Human Capital and Its Measurement 20912.2 Labor Supply and Demand 21012.3 Investment in Human Capital 21612.4 Measuring the Rates of Return to Schooling in China 22212.5 Health Services 22412.6 The Social Welfare System 228References and Further Reading 229Questions 230Part IV: Analysis of Individual Sectors 23113 The Banking and Financial System 23313.1 Commercial Banks 23313.2 The People’s Bank 23513.3 Factors Affecting the Functioning of the Banking System 23713.4 Possible Weaknesses of the System 24013.5 Possible Directions of Reform 24113.6 Weakness of Commercial Banks and Related Problems 24313.7 Other Financial Institutions 24413.8 The Role of the Chinese Government in Reforming the Financial System 249References and Further Reading 251Questions 25114 Shanghai Stock Price Determination 25314.1 Introduction 25314.2 A Model of Stock Price Determination 25414.3 Empirical Findings from the Shanghai Stock Exchange 25714.4 Comparison with Findings for Hong Kong and New York Stocks 26214.5 Concluding Comments 262References and Further Reading 263Questions 26415 The Behavior of State Enterprises 26515.1 Organization of a State Enterprise under Central Planning 26515.2 Planning and Operations of a Large-Scale State Enterprise 26915.3 A Simple Model of a State Enterprise under Central Planning 27415.4 A Simple Model of a State Enterprise after Initial Reform 27715.5 State Enterprise Restructuring in the Late 1990s and Its Effects on Enterprise Behavior 28015.6 Current State of Chinese State Enterprises 283References and Further Reading 284Questions 28516 The Nonstate Sectors 28616.1 Relative Growth of Nonstate Sectors 28616.2 Private Enterprises Prior to 1949 28716.3 Economic Conditions for the Growth of Township and Village Enterprises 28816.4 Econometric Measurement of the Relative Efficiency of State Enterprises and TVEs 29116.5 Characteristics of a Free-Market Economy 29216.6 Characteristics of the Chinese Market Ecomomy 29516.7 Role of Entrepreneurs in China’s Economic Growth 297References and Further Reading 299Questions 29917 Foreign Trade 30117.1 Some Statistics of China’s Foreign Trade 30117.2 Explanation of Trading Patterns under Free Trade 30317.3 The Determination of Foreign Exchange Rates 30917.4 China’s Foreign Trade Policy 31417.5 Problems in Implementing Foreign Trade Policies in the Early 1980s 31817.6 Protectionism in the United States 322References and Further Reading 324Questions 32418 Foreign Investment 32618.1 The Role of Foreign Investment 32618.2 Historical Developments 32818.3 The State of Foreign Direct Investment (FDI) as of 2002 32918.4 Policies for the Regulation of Foreign Investment 33318.5 Opportunities and Problems for Foreign Investors 33418.6 How Attractive Is China for Foreign Investment? 33818.7 The Impact of WTO Membership on Foreign Investment 33918.8 China’s Investment and Economic Expansion Abroad 341References and Further Reading 343Questions 343Part V: Studies of Economic Institutions and Infrastructure 34519 Laws of Asset Management and Corruption 34719.1 Introduction 34719.2 Laws of Asset Management 34919.3 Managing One’s Own Person 35219.4 Managing Physical Assets 35319.5 Managing Assets under the Responsibility System 35519.6 The Misuse of Collectively Owned Land 35819.7 Corruption and Economic Reform 35919.8 Concluding Comments 363References and Further Reading 364Questions 36520 The Legal System and the Role of Government 36620.1 The Legal System prior to 1949 36620.2 The Legal System since 1949 36820.3 The Role of the Legal System in a Market Economy 37120.4 The Economic Role of Government 37220.5 The Role of Planning in China’s Market Economy 37620.6 The Government’s Decision Process 382References and Further Reading 384Questions 38421 The Education System and Policy 38521.1 The Education System prior to 1949 38521.2 The Education System after 1949 38721.3 Education Policy 38721.4 Economics Education 39021.5 Demand for Education 39821.6 Concluding Comments 403References and Further Reading 403Questions 40422 Lessons from Studying the Chinese Economy 40522.1 Lessons for Understanding the Subject of Economics 40522.2 Lessons from Understanding the Chinese Economy 40722.3 Lessons from Forecasting the Chinese Economy 418References and Further Reading 423Questions 424Index 425

Few economists know as much about China as Gregory Chow. This is an encyclopedic achievement, and the first edition has already become a standard reference." (Expofairs, 14 May 2015)