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«Inaugural-Dissertation zur Erlangung des Doktorgrades des Fachbereichs Wirtschaftswissenschaften der Johann-Wolfgang Goethe-Universität Frankfurt am ...»

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year plan. China has also recently launched major new policy initiatives aiming to develop a low-carbon economy and expand adoption of climate-friendly technologies‖.769 Current state of economic development To this day, it remains difficult to obtain accurate Chinese data. To one part, the reason for this lies in the deeply fragmentized nature of the Chinese state with local actors having their own agenda and not always being inclined to reveal the true nature, for example, of tax income (please refer also to chapter 7 and 8 on that specific subject). However, there are also other reasons that contribute to the difficulties of obtaining data. The Cultural Revolution completely destroyed the Chinese system of data collection. In 1976 only 46 people worked at the National Bureau of Statistics (NBS) and still in 1986, 90 percent of the data was handled manually.770 Additionally, in 1998, the NBS switched to a new system of data collection. In general, the data of the NBS is far from being transparent, and the database is particularly dire for microeconomic processes such as concrete policies, institutions and behavior of economic agents.771 Of course, officially still being considered a developing country, the fact that GDP and other data might be flawed is not an anomaly as such; it is also the pace of the change that attributes to the magnitude of possible errors.772 Apart from general concerns of taking GDP and GDP per capita data as measures for welfare, in the Chinese case there are additional concerns. More precisely, whereas during the 1980s GDP growth was accompanied by equally fast household income growth, household surveys show that the latter diverged from GDP growth during the 1990s. Also indicators on health and education degraded during the 1990s. Illiteracy rose and social tensions increased. In the Chinese case, adults over 15 that have not the ability to recognize 1500 Chinese characters are defined as illiterate. Usually, Chinese children reach that level in the 3rd or 4th grade in the age of 7 to 9. According to official data, the number of illiterates increased by 30 million between 2000 and 2005 (from 85.07 million to 113.9 million, or 6.72 percent and 11.04 percent, respectively, of the adult population), mostly in rural areas, from a previous steep decline (180 million in 1990 or 15.9 percent of the adult population), which is an increase of 64.3 percent. Illiteracy declined until 2000, from then it increased again. The reason for this can partly be attributed to the fact that those reaching United Nations Development Programme (UNDP), 2010, p. 105.

Huang, 2008, p. xf.

Huang, 2008, p. 24.

Naughton, 2007, p. 141.

the age of 15 during that time were born between 1985 and 1990, thus in a time when rural education standards decreased rapidly, along with increasing costs for education (government spending in 1998 was only 2.2 percent of GDP, but rural households had to pay an estimated 14.9 percent of their income for education in 2003).773 Interestingly, a World Bank report found that enrolment and education data show that China fulfills the goals of nine-year compulsory basic education. Indeed, official data shows a near to 100 percent enrolment rate. However, local governments often automatically register school-age children as enrolled. In practice, having drop-out ratios of around 70 percent is not rare. This is just one example of many, where details matter and official data is not what it seems on a first glance.774 From 2004, this problem, as many others, has been addressed by the Hu Jintao - Wen Jiabao government, for example in waiving tuition. A similar example could be made with health care expenditures.775 As has been stated before, China‘s economic growth has been very fast since the beginning of reforms, since 1970 it increased twenty-one-fold. Its per capita income, however, is only a fifth of the average in developed countries.776 The development has been more rapid in the coastal provinces than in the Western ones, but overall it has been 9.1 percent in 2009 and is estimated to increase to 10.2 in 2010. Only Afghanistan, Qatar and Azerbaijan had higher economic growth in 2009.777 Its GDP on PPP per capita is approximately $6,600 which makes China number 130 in country rankings (to compare, Germany is number 35 with GDP on PPP per capita of $ 34,200, Liechtenstein as number one has a GDP on PPP per capita of $122,100, Qatar as number two has $ 121,000).778 Export growth recovered remarkably after the crisis in 2008, but it is expected to decline over the next years due to an uncertain global economic environment.779 The fast rebound of GDP growth can be attributed to the stimulus package of the central government. However, Huang, 2008, p. 25, 27, 42f, 244f., 246f. Usual concerns about GDP data includes that is leaves out resource costs, environmental pollution among other factors. On a critique on GDP as measure of welfare see Noman, 2005, Attaran, 2005, Baldacci; Clements; Gupta and Cui, 2004. A critique on GDP per capita and hence, the Gini: Reddy and Pogge, 2009, Stevenson and Wolfers, 2008.

Huang, 2008, p. 243f.

Huang, 2008, p. 249f. During the 1990, mortality rates for boys under the age of five declined by 2.3 percent a year on average, whereas it rose for girls by 0.5 percent a year. This is not only due to the health system as such, but also to the consequences of the one-child-policy and the Chinese custom to view girls as less valuable than boys and thus due to sex-selective abortions (in 2004 119 boys were born for every 100 girls;

the ‗natural‘ ratio is 103-107 for every 100). Klasen and Wink, 2003.

United Nations Development Programme (UNDP), 2010, p. 42.

Economist Intelligence Unit, 2010a, p. 7f., Central Intelligence Agency, 2010. All statistical data can also be found in the State Statistical Bureau, 2009.

Central Intelligence Agency, 2010. Also the PPP theorem is highly contested. However, this dissertation will refrain from a discussion of its (dis)advantages. Please refer to the papers listed in fn 765.

Economist Intelligence Unit, 2011, p. 3 when the stimulus spending program will be finished, growth is expected to decline to 8.8 percent in 2011 and 8.7 in 2012.780 China‘s labor force is 813.5 million (2009 est.), the world largest labor force. India, number two in the ranking, has ‗merely‘ 467,000,000 (2009 est.) and the EU as a total 225,500,000. By occupation, the labor force works in agriculture with 39.5 percent, in industry with 27.2 percent and in services with 33.2 percent (2008 est.).781 The GDP is derived from 10.6 percent of the agricultural sector, 46.8 percent coming from the industrial sector and 42.6 percent from services (2009 est.). In September 2009 the unemployment rate was estimated to be 4.3 percent (it is probably much higher, due to the high percentage of unregistered migrant workers that were laid off during the crisis. The data also only includes urban areas, it is estimated that including migrants would increase the rate to 9 percent. An even higher unemployment can be found in rural areas).782 The Gini index of 2007 was 41.5 (coming from 40 in 2001), which makes China number 54 in the world.783 This causes rising social tensions and social unrests (rapid increase in demonstrations and strikes, mostly recently in June 2010 in the aftermath of the suicides of workers of Foxconn) in the Chinese society. In a period when China‘s GDP growth was 10 percent on average, the income of the poorest 10 percent of the population declined by 2.4 percent between 2001 and 2003. Thus, in contrast to a widely conceived truth that living standards in China were constantly rising during reforms, they were actually declining for around 130 million people. The World Bank has similar findings: wage income, and household income in general, has declined as a share of GDP from 53 percent in 1998 to 41.4 percent in 2005.784 China‘s budget deficit was equivalent to 2.2 percent of GDP in 2009 and 2.3. in 2010, slightly improving over the next years as the stimulus spending will come to an end. However, China‘s official data on this is far from being transparent. Thus, the Chinese fiscal situation might not be as healthy as these numbers suggest. However, expenditure on education, healthcare and pensions are expected to increase over the next years to meet the government goal of a ‗harmonious society‘.785 Economist Intelligence Unit, 2011, p. 8.

Central Intelligence Agency, 2010.

Central Intelligence Agency, 2010 Central Intelligence Agency, 2010. Other sources find a Gini of 44.7 in 2001 and 49.6 in 2006. Khan and Riskin, 2005 and a report of the Chinese Academy of Social Sciences (CASS), quoted in Huang, 2008, p.


He and Kuijs, 2007, p.11, Ten Brink, 2010, p.13, Huang, 2008, p. 259f.

Economist Intelligence Unit, 2011, p. 6, Huang, 2008, p. 241. The concept of a ‗harmonious society‘ (héxié shèhuì, and the ―harmonious world‖ internationally) has been introduced by Hu Jintao on 19 February

2005. It has been used in the media the first time on 14 March 2005: „[A] socialist society that is democratic Consumer price inflation will stay in the relatively modest height of 4 percent on average over the next 5 years, although it peaked to 5.1 percent in November 2010 which is the highest rate since July 2008, most likely caused by rising food prices due to unusual weather conditions. However, rising food prices could also cause a higher inflation over the next years and thus at the same time could lead to discontent in the population, as might the rise of asset prices.786 The Economist intelligence unit regards the likelihood of significant political reforms till 2015 as very small. Not least, because the CCP is primarily concerned about maintaining stability, not only in the economy, but even more so in the transition towards a younger generation of political leaders.787 5.1.5. Reform without a theory

–  –  –

From the beginning of reforms in 1978, China adopted a transformation strategy that aimed at economic growth as sole objective, without changing the political system in large scale. It also rejected the policy advice from international agencies, objecting to the ‗conand law-based, fair and just, trustworthy and friendly, full of vigor and vitality, secure and orderly, and in which man and nature are in harmony―. It is part of a series of political innovations that seek to meet the discontent of people in justifying the inequities of the Chinese modernization process. It is meant to express that the CCP and the government cares for their people who – rather than economic growth – should be the end of development, instead of merely its means. To achieve this, the central government claims to strive fostering social equity, a welfare system, protection of the environment as well as good governance and transparency. The notion of ‗harmony‘ is based on Confucian philosophy that includes the two core elements of ‗benevolence‘ and ‗harmony‘ (see also chapter 4.4.3. and 6.3.). ‗Benevolence‘ is more used within interpersonal relations, whereas ‗harmony‘ is a more social and political concept. Confucian writings state that these two elements entitle people to ‗eternal peace under the sky‘. Its rationale is the belief that harmony has to be employed on the micro-level to achieve harmony between regions and different social groups on a macro level. A significant aspect of this concept is the acknowledgement of social tensions and divergent interests within society that are supposed to be harmonized. However, the central government seeks to reach that goal not only by ‗harmonious‘ measures, but also with repressions, monitoring and censoring, for example of the internet. Discontent is often aimed at the local governments, whereas the central government still has a lot of reputational credit with the Chinese population and thus now aims at building on that reputation of a benevolent, paternalistic state. Schucher, 2007. A similar concept is that of the ―scientific development concept‖ (kēxué fāzhǎn guān). It is also a people-centered approach that aims to correct the over-emphasis on GDP growth that often encouraged dubious construction projects and false statistical figures on a local level that neglected social welfare especially in the Western, less developed provinces. Its aim is the creation of the ‗harmonious society‘. It is a reversal of policies of the predecessor in office of Hu Jintao, Jiang Zemin who emphasized the importance of economic growth. Fewsmith, 2004, Hansen, 2007.

Economist Intelligence Unit, 2011, p. 8f.

Economist Intelligence Unit, 2011, p. 3.

Quote from Beijing Review: Persistently emancipating the mind, 15 June 1998, p. 11 as cited in Zhu, 2007, p. 1509.

ventional wisdom‘ how to correctly transform a country. Hence, reforms officially did not include liberalization or privatization. The driver of economic growth was rural production, not FDI or exports.789 As outlined above, the Chinese economic development was the result of a mixture of top-down and bottom-up measures that induced institutional change while ―while largely ignoring the advice of economists affiliated with the International Monetary fund and World Bank‖.790 Deng Xiaoping is often called the architect of the Chinese reforms, but actually he had not an explicit reform strategy in mind.791 Two famous phrases, coined by Deng Xiaoping, stand for his approach: ―crossing the river by feeling the stones‖ (mozhe shitou guo he, 摸着石头过河) and ―white or black, it is a good cat as long as it catches mice‖.792 In practice this meant adapting a capitalistic economic system without changing the political environment. As the term Capitalism was deeply encumbered by ideological concerns, the CCP exchanged the term ―capitalistic economy‖ by ―market economy‖ that was combined with totalitarian politics. This contradiction was on the one hand euphemized by the party, but on the other hand it is a striking example for the Chinese pragmatic mindscape. It can also be regarded as a marketization of power that made economic development and hence profit seeking the main goal of political, economic and intellectual elites. One reason can be seen in the fact that after Mao‘s death the party as well as the economy itself was in a deep crisis. Being used to call their country and its economic system the best in the world, political leaders now lacked scheme and vision.

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