By Francis Hualupmomi
In this article, I draw some interesting lessons from China’s Economic Reform. I hope it provides some insights to drive Vision 2050. Today, China boasts the second largest world economy superseding Japan in 2010. China’s remarkable economic success was driven by its post-Mao economic reform. The question is: What factors stimulate its economic success? Is there a lesson for PNG?
China’s Economic Reform and Its Characteristics
Reform
Sacks and Woo (2003) accentuate that China is now in the midst of three historic economic transformations and transition from a planned economy to a market economy, economic development from a largely subsistence peasant economy to an industrialized economy with a modern service sector, and economic globalization from autarky to an important node within the global production network. The economic reform of China begins in 1979 under Deng Xiaoping. Deng pursued an “Open Door Policy” from Mao’s “Isolation Policy” employing a hybrid model of socialist free market. The reform focuses on international trade and privatization of all state-owned enterprises.
In 1990, six special economic zones were established including Shanghai Pudong zone specifically designed for attracting foreign capital. The government supported agriculture through creation of contract responsibilities. In this special arrangement, farmers could sell their commodities abroad with an aim to finance China’s modernization agenda.
Between late 1980s and early 1990s, the focus was on creating a pricing system using dual tracking system and increasing the role of state in resource allocation. The government diversified the market economy of private enterprises and foreign capital by reducing state monopoly. The market economy was left to invisible hands to influence economic pattern in driving the economy.
By late 1990s, the government focuses on reforming unprofitable state enterprises and banking system insolvency. State-owned enterprises and banks underwent a rapid transformation promoting effectiveness and efficiency. In the beginning of 21st century under Hu Jintao, focus was on domestic economic development to ensure a harmonious society.
Types of Business Enterprises Reform
There are four main types of enterprise reform that stimulated China’s economic success. The first is the privatization of state-owned enterprise managed by the Bureau of Managing Council. In this new arrangement, workers do not own shares but only receive salary based on performance. The Bureau employs mostly Chinese western-graduate nationals and homegrown nationals to manage the enterprises with an objective to give confidence to their own nationals.
Second, the stock companies were converted from state control to private control. In this arrangement, enterprises earn some shares whilst the rest go to state. Managers are also legally allowed to hold some shares.
Third, the government promoted a market-oriented private business protected by the government. All Banks provide low interest loans to variety of business to facilitate economic modernization. Final and last is the conversion of foreign fund enterprises (joint ventures and wholly foreign-owned enterprise).
Special Chinese Characteristics of the Economic Reform
The Chinese economic reform constitutes some distinct characteristics which play an important role in driving the economy.
• State-led policies
• Decentralization of state powers to different individuals, groups, and business in decision making and management of the market economy
• A socialist free market
• Development of special economic zones
• Diversification of state banks to meet private business needs at a low interest rates
• Employ highly educated nationals
• Combination of chinese characteristics and modern management skills
• Encourage modern management and technological innovation
• Chinese are great learners and hardworking – Work to live philosophy
• Non-state led enterprise reform
• International trade focusing on agricultural areas as the economic base
• Convert state-owned entities into private business or enterprises
Success of the Economic Reform
The reform was successful for over 3 decades. The outcome from three processes of economic transformation was astounding proving a sustainable average annual GDP growth rate of 8% from 1979–2011. Industrialization, open organization and internationalization extremely drive the shift towards market economy.
Since the reform in 1979 the economy has grown rapidly. In 2004, China was ranked 6th in world economy. The GDP per capita was about US$ 1267. In the same year, the IMF reported an increase in GDP by 9.5% up to US$ 1.647 trillion. In 2011, China’s economy is expected to grow by 8% despite slow recovery in 2008 economic crises (Mussa, 2010).
The reform overwhelmingly attracted foreign investment, for instance, in 2004, 45% export was produced by foreign funds and enterprises. China was ranked as the third biggest trading country after US and EU. More than 20% of foreign trade came from china as reported by IMF.
Interestingly, free market under invisible hand had played an important role in the economy. In 2001, the central command was replaced by market and economic forces with entry of China in WTO. Decisions were decentralized. Chinese management of business was also successful with a combination of Chinese culture and modern management skills. Chinese were more eager to learn by experience and apply management innovation and technological innovation.
What are the Lessons for PNG?
Drawing from significant lessons in China’s economic reform, PNG can drive Vision 2050 by:
1. Diversifying the market economy into special economic zones:
• Agriculture as the backbone of international trade in some highlands and coastal regions
• Encourage more banking system through the country, more ICT Business, competition in state-owned enterprises and stock markets
1. State playing an important role in creating a conducive environment for economic take-off through sound economic policies
2. Combine indigenous knowledge with modern innovative management skills and technological skills
3. People being eager to learn and hardworking – PNG must strive to ‘work to live’ rather than ‘live to work’
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