Economics And Business Of The Asia Pacific

1. Discuss the major economic reforms made by China since 1978 and assess

their effectiveness

The reforms undertaken in China so far have been instrumental to economic development; since the reform agenda was established China has experienced an average of almost 10% annual growth per year. However China has taken a gradualist approach to reform, introducing 'win-win' changes to combat problems in the economy. This approach has left some important areas still in need of major reform, areas where reform is likely to be much more difficult to implement and where so far attempted reforms have brought little progress. Successful reforms in these areas are pivotal, if they are not to become major obstacles to further economic development. As reforms have been key to economic development and future reforms will be important to continued development it is an important area to understand.

Marking Scheme

Students should discuss China's approach to reform, points may include:

- Gradualist, no explicit plan to become market economy, no model to follow, reforms to solve problems and speed up economic growth, no economic crisis, aim to make China more wealthy and powerful, partial reforms used to prepare ground for full reform, slowly moved from centrally planned economy towards full market economy

Students should be aware of the major reforms that have taken place and have understanding of the policies implemented. Better answers will recognise the reasons behind each reform and comment on its contribution to economic growth, as well as identifying any possible further reforms needed in each area:

1. Rural economy reforms

- De-collectivisation, ending commune system and implementing household responsibility system, freeing up of agricultural markets through dual price track system

- Gave financial incentive for increased production.

- Response to fact that food production was not sufficient to sustain population

- Led to unprecedented growth rate in production of crops and created support and credibility for further reforms

- Future reform - land ownership rights

2. Trade and investment reforms

- Removal of importing barriers, quickly led to trade deficit, reforms then introduced to aid exporting and allow foreign investment including Special Economic Zones being established with favourable terms for investors. Dual price track system introduced

- Addressed lack of knowledge and technological development from years of being closed economy, allowed economy to grow faster

- Opening up of market, large increase in investment, importing and exporting

- Future reform - complete elimination of all trade barriers

3. Service sector reforms

- Regulations regarding small-scale service activities abolished or relaxed

- Provision of jobs - response to growing labour force due to growing population and reduced need for labour in rural production

- Led to many new small scale service businesses setting up

- Large service sector still undergoing reform

4. Industry and State Owned Enterprises (SOE's)

- Dual price track implemented, competition allowed, Town Village Enterprises established, increased autonomy for SOE's

- Aim of making industry more efficient

- Led to increased productivity in both private and state sector

- SOE's only partially reformed, still embedded in old institutions, inefficient, further reform needed

5. World Trade Organisation membership reforms

- Committed to number of reforms to reduce barriers to trade

- China gained membership to the WTO in 2001

- Opened up key service sectors and exposed businesses to higher degree of competition thus encouraging efficiency gains. China became fully integrated member of global economy

- Not all WTO commitments satisfactorily fulfilled so far - current reforms - banking and intellectual property rights

Evaluation

Students should make some judgements about success of reform programme.

Points may include:

- Overall has been seen as successful - resulted in high annual growth for sustained period, rate of growth not seen in pre-reform period

- China now 4th largest economy and recognised as significant player in world economy

- Partial transition - still not full market economy

- Some reforms remain incomplete and other areas in need of reform, major reform must continue in order for continued growth

- Reforms have created some problems, e.g. inequality of wealth, worker exploitation, corruption, rural crisis

Better answers will be more analytical and may include discussion of:

- Reforms that have been most important/had most impact to opening up and

growth of economy

- Degree to which rate of economic growth attributed to China's advantageous starting point from low base and so just putting factors of production to work versus total factor productivity growth attributed to reforms through market forces and global competition bringing increased allocative efficiency and TFP

- Gradual approach taken - allowed legitimisation and support for reforms to

develop bringing stability and rapid growth, but has left some major, more