East Asian Institute Contemporary China Series – serie

This publication, comprising three EAI Background Briefs, presents events, comments and analyses related to China's recently concluded Fifteenth Party Congress. It should be of topical interest to readers who want to keep abreast of the latest developments in China.

Hong Kong's reunification with China on July 1, 1997 after 156 years of British rule was a historic event of worldwide significance. While the transition to Chinese sovereignty has so far been smoother than expected, there are lingering doubts concerning three interrelated issues: whether the Hong Kong dollar can continue to exist, whether the linked exchange rate can survive and whether Hong Kong can retain its role as an international financial centre. These issues are analyzed and discussed objectively in the first article of this book.The second article confines itself to the workings of the currency board. In addition, the future of the system after Hong Kong's historic reunification with China is briefly discussed.

The Asian financial crisis has grown and spread. But China is the one economy in the Asia-Pacific region that has remained apparently unaffected by the present financial turmoil. Will China's financial sector be the next domino to fall? These papers will address this question by examining various pros and cons together with their backgrounds.

Does modernization in Asia mean westernization? Can Asia achieve modernity without westernization? How can Asia maintain its own cultural traditions in an age of globalization? How can Asian cultures, especially Chinese culture, facilitate modernization? The two articles in this publication address these questions by examining various links between culture, modernity and development.

1997 saw a major reform in China which signaled the move away from its traditional economy, when Jiang Zemin called off the debate on public versus private ownership. However, none of the existing theories can fully explain the transformation of the property rights system during the post-Mao reforms. The first part of this volume will reconceptualize the property rights reform in post-Mao China to provide a political economy explanation of why the transformation of property rights in China appears piece-meal.The success of the post-Mao reforms can be attributed to China's ability to integrate the experience of a variety of transition models. The second part of the paper investigates two distinct transition models, in light of the lessons from current Vietnamese reform. It explores the dynamics of political actions and analyzes the political reasons for economic reform.

A surge in demand for oil due to rapid economic growth and stagnation in domestic oil output has turned China into a net oil importer since 1993. Faced with increasing reliance on imports to meet its domestic needs, China now places a high priority on securing long-term stability of its oil supply in the next century. Hence a new oil development strategy focuses on boosting the domestic oil industry and exploiting overseas resources.In this regard, China has pursued an active “oil diplomacy” by signing international oil deals with a diverse range of nations from Central Asia, the Middle East, Africa and Latin America, in particular a series of deals worth US$6 billion with Kazakhstan, Iraq and Venezuela in June 1997. While the overseas ventures will no doubt facilitate China's integration with the world economy, such internationalisation of China's oil industry will also carry significant geoeconomic and geopolitical implications for oil-consuming countries.

This paper investigates the impact of political interventions made by Beijing and Taipei in recent years on the development of cross-Straits economic relations. The study finds little evidence that either the missile firings carried out by Beijing in 1995 and 1996 or the mainland policy review conducted by Taipei since 1996 has slowed down the growth of trade and investment activities between mainland China and Taiwan. In fact, the trade dependence ratios for the two economies have continued to increase since 1995. Although the level of Taiwans committed investment in the mainland has dropped considerably in recent years, it has moved largely in line with the general trend of total FDI in China. The synchronism between Taiwan investment and other foreign investment suggests that the Taiwan investors, like other foreign investors, responded mainly to macroeconomic conditions and policies in the mainland, rather than to the directives from the Taiwan authorities, when they made their investment decisions. This is due to the fact that the economic logic of pursuing cross-Straits economic activities is so powerful that Taipei's restrictive policy toward investment in the mainland has often been ignored or diluted by the Taiwanese private business community.

Since the introduction of the Dengist reform in the late 1970s, the state bureaucracy in China has experienced four major restructurings, each of which entailed the redistribution of political power. According to the purpose and scale of reorganization, the restructuring of the State Council can be divided into two stages. At the first stage, covering the period 1982 to 1997, Deng Xiaoping and his Executives, Zhao Ziyang and Li Peng, restructured part of the government administration in order to integrate market forces into the central-planning system. The integration was not smooth because of the struggles between reformers and conservatives, so the restructuring met with a backlash. After the Ninth National People's Congress in March 1998, the restructuring has entered its second stage, characterized by a radical retrenchment of government organizations and employees both at the central and local levels. In carrying this out, Zhu Rongji intends to relinquish government links with enterprises, thus pushing the “socialist market economy” further ahead.

The development of market socialism in China has contributed to a remarkable spatial economic transformation in particular areas of the Chinese countryside. The conventional wisdom of existing theories of urban transition does not adequately explain the emergence of these open textured landscapes of mixed agricultural and non-agricultural activities. This paper examines some of the key processes and mechanisms of regional restructuring in one county level jurisdiction in the lower Yangzi delta. A case study of Kunshan situates the emergence of specific patterns of industrial production within a complex network of interactions and interrelationships embedded in overlapping administrative and institutional structures which are themselves largely tied to the circumstances of particular places. Two central findings are revealed. First, the patterns and underlying processes and mechanisms of regional development in the delta are fundamentally linked to intensely localized exigencies and opportunities within the wider space economy. Second, external economies, the dynamics of agglomeration, and the role of large cities and other exogenous forces, while significant, were less important in the delta than were endogenous forces. Highlighted are a number of issues which need to be accommodated in a new conceptual framework for understanding and explaining urbanization in China's lower Yangzi delta. The paper concludes by outlining a planning and management agenda which responds to the resulting conceptual and analytical shift in emphasis.

If modernisation means mass longevity, it raises hopes that everyone may enjoy a full span of years. It also brings the fear that many will not be able to take care of themselves and will rely upon society to provide special care. Modernisation in this sense also means the rise of the welfare state: let the government take care of the frail and the old.Mass aging has proven to be a financial crisis for welfare states in the advanced economies of the West; it also raises questions about the future of family-based care in the East while professionals and academicians in the advanced economies of the West continue to debate about whose responsibility it is to take care of the elders (the state or the individual?), governments in East Asia hold firmly to the position that it is the family that has the primary responsibility to take care of old members, and that the government's role is to assist families in discharging elder care responsibilities.This publication examines some of the often-raised questions identified in the research literature in the past 25 years — for example, the nature and scope of caregiving, the issue of care burden, and the claim that family-based care is really women care that is sex-biased. The author marshals evidence to show from studies conducted in China that care burden is a complex form of social relations that is shaped by the culture. Furthermore, the gender and type of relations may largely determine in what type of kin relations are the subjective feelings of burden the greatest and where objective indications of burden may remain constant. In conclusion, the author suggests that the best common resolution for both the East and the West is to establish a workable partnership between the state and the family in facing the forthcoming crisis of elder care in a fully aged society.

China's power sector has performed impressively during the past twenty years in support of economic growth. Faced with the need to expand its power capacity, China is investing heavily in the construction of new power plants and self-financing capability. While the country still depends mainly on domestic capital funds to develop its power industry, foreign capital is increasingly sought to import power equipment and advanced technology.To bring in more capital, China has made efforts to attract foreign financial involvement, mainly in the form of multilateral and bilateral loans. Equally significant in the development of China's power sector are the establishment of regional power grids and the implementation of electricity tariff reform to tackle the problems of inefficient power distribution and usage.

The reemergence of China as a political force has triggered sharp reassessments of its future role in the Asia-Pacific region. There has been much hyperbole about China's economic power, especially if it is linked with the entrepreneurial talents of the ubiquitous Chinese spread around the globe. Some countries have been encouraged to sound warning bells about China's future ambitions to dominate the region. All this is not surprising, even understandable. But the danger of exaggeration to the point where efforts to predict what China and the Chinese will do become merely alarmist, and the predictions become self-fulfilling, has to be guarded against.There is no easy remedy for deep-seated suspicion and hostility leading to persistent attempts to mislead and provoke. The recent financial crisis in East Asia has aggravated some worst-case scenarios and these may bring additional worries to the region's plans for ultimate recovery. The three essays in this volume focus on some areas where myths and prejudices have long survived. They offer different perspectives and suggest alternative ways to approach certain problems of understanding China's relations with Southeast Asia.

The focus of this volume is to describe and analyse the evolution of the South China Sea Workshops. The author is optimistic about the prospects of these workshops as confidence-building mechanisms.The South China Sea Workshops are important learning processes for all the participants to learn how to avoid conflicts as well as to promote trust, understanding and cooperation through exchange of views. This book increases our understanding of Taiwan's South China Sea policies in general and the processes of the South China Sea Workshops in particular. The objectives, strategies and constraints of Taiwan's South China Sea policies are discussed.

As the financial crisis swept the Asia-Pacific, China seemed to be the one economy in the region which had been left “largely unaffected” for various reasons, including its strong economic and financial fundamentals as well as its strong political will to defend the Renminbi, which had so far firmly stood the ground. However, China's economy ended 1998 with only 7.8% growth, slightly falling short of its officially pledged target of 8%. Though China in 1998 was still rated as the best-performing economy in the region, its economic growth momentum had visibly slowed down. The Asian contagion had finally caught up with China.It is not certain if the Chinese economy is entering a slower growth era though, in the short run, China can boost economic growth by expanding domestic demand. Slower economic growth for the country will have significant negative effects on its economic reform programmes and social stability.

With the passing of the old generation of revolutionaries, China's politics is entering a new era that belongs to the Jiang Zemin-centered third generation of leadership. Will the new leadership be able to cope with the growing pressure and demand for further economic and political reform and meet challenges within and without the regime? This essay shows the reader what strategies Jiang Zemin and Zhu Rongji have employed to build a more efficient government to rule a country that is becoming increasingly difficult to govern.

Until recently, generational studies of Communist countries have concentrated primarily on elite changes. Little attention has been paid to the changes within the general public. This study is designed to fill this gap. It reports on: (1) the socio-economic resources of different generations, especially their educational achievements; (2) the psychological resources for people in different generations to get involved in politics; (3) their political resources; and (4) their political participation. The text concludes with an appraisal of the changes among different generations that would help the reader to understand the changes in Chinese society.

This volume examines China's government budgetary condition, analyses the new expansionary fiscal policy, and discusses policy options. China's government budgetary revenue has declined dramatically since the start of economic reforms. Facing slower economic growth, China's new fiscal policy is to increase government expenditures by issuing bonds. With a large increase in government spending, it should not be difficult to achieve 7% growth in 1999. The government should conduct serious cost-benefit analyses of every public project in order to prevent scarce funds from being wasted. In the long run, the government should focus on merging the extra-budgetary and off-budgetary revenues into budgetary revenues, instead of allocating more resources to the government sector.

This book presents a unique array of insights into Hong Kong's transition to China since the 1 July 1997 handover, from several perspectives around the region. Scholars from China, Taiwan, Singapore, Indonesia, Malaysia, Thailand and New Zealand undertake an analysis and synthesis of particular regional viewpoints on the transfer of sovereignty. Each contribution is positioned in relation to the three interconnected themes of economic transformation, political and legal developments, and identity which run through the volume. The sometimes contradictory and provocative insights highlighted by the authors emphasize the inherent complexities of Hong Kong's transition and the range of alternative regional perspectives it engenders.

This volume looks at China's foreign policy from the perspective of learning theory, a relatively new approach to foreign policy analysis based on social psychology. It begins by attempting to conceptualize China's distinctive approach to policy learning, and then proceeds with a tentative periodization of China's learning experience from 1979 to 1999. It concludes that Chinese foreign policy learning has exhibited a certain continuity since the founding of the People's Republic, with learning and teaching structured to alternate with and complement each other.

Variation in market orientation in individual regions and the weakening of government intervention in regional income redistribution have been mainly responsible for the changes in China's regional economic disparities since 1978. This study suggests that China should accelerate economic growth of its backward interior regions by deepening market-oriented reforms on the one hand, and by strengthening fiscal transfers from richer to poorer regions on the other.

The Party and state leadership in Beijing was rudely awakened to the fact that the state bureaucracies in charge of public security had no idea of Falun Gong's leadership and its functions on April 25, 1999, when reportedly ten thousand followers in front of Zhongnanhai staged a peaceful and quiet sit-in. Since then the world media has reported events and probable causes for the government to outlaw what was determined to be a religious cult that could disturb peace and stability in China.In this paper, analyses are made of the background and political implications of the sect that had one time dominated the front page of all major newspapers in the world. The authors address themselves to questions such as: What is the nature of Falun Gong? Is it a religious sect, a cult, or a quasi-religious social movement with a hidden political agenda? Is it traditional qigong of a sort that packages well-established belief systems of Buddhism and Taoism? Is it a money-making scheme that satisfies the yearning for spiritual fulfillment for the elderly, the unemployed and the retired? Or is it all of those? Will the Falun Gong phenomenon repeat itself in the future? Was the government crackdown an over-reaction or was it expected? These issues are discussed by the authors in separate sections of this paper.

Since 1993, Chinese foreign investment laws (CFILs) have been moving towards the common principles of foreign investment laws in market economies.This volume summarises four features of the common principles and surveys four aspects of recent developments of CFILs towards these principles — namely, expanding the economic sectors for foreign direct investment (FDI), allowing multiple forms or types of FDI, granting national treatment of FDI step by step, and pursuing transparency of CFILs; and finally comments on the significance of recent developments of CFILs.The author points out that recent developments of CFILs towards a common approach have made great positive impacts on FDI to China, treatment of FDI in China and structural adjustment of CFILs.

Why does the Chinese government allow village elections? What implications do these grass-roots level popular elections have for the democratization of China? By tracing the history of village level governance reform, one of the premier authorities on electoral reforms in China tackles these fundamental questions in this volume. According to the author, there are two roots to the emergence of village elections in China: structural changes in the village economy and bureaucratic politics. The author also identifies old guard Peng Zhen, himself victimized by lawlessness during the Cultural Revolution, and officials in the Ministry of Civil Affairs — an otherwise powerless bureaucracy that has jurisdiction over rural governance issues — as the driving force behind the reform in the government.The author believes that village elections have enormous political implications for China: they represent yet another aspect of “creeping democratization” of the country. Resistance from the status quo interests will be stiff, but democracy has a chance in the alliance between the disgruntled population and reform-minded elites in the leadership.Does economic prosperity increase the likelihood of political democracy? Using 1993 national survey data, the author examines the relationships between the level of economic development and the rate of semi-competitive village elections. Data analysis suggests that economic prosperity is positively associated with the occurrence of semi-competitive elections only to a certain point, above which the association turns negative. In other words, both the least and the most developed villages are less likely to hold semi-competitive elections for the chair of the village committee, which is officially defined as “an organization of self-governance of villagers”. The author also argues that rapid economic development may delay the process of political development because incumbent leaders can use newly acquired economic resources to consolidate their power.

This volume discusses the changing role of the village level Chinese Communist Party secretaries in the countryside. Rural reforms since 1978, especially the dismantling of the rural commune in the early 1980s, have reshaped the social, economic and political landscapes of rural China. Economic reforms have led to gradual erosion of the power of the party secretaries, reduced their income advantages, and at the same time increased the complexity and difficulty of their tasks. The issue of incentive has emerged for talented people to remain party secretaries. The political implications, according to the author, are a gradual transformation of the nature of the CCP and its turning from a “vanguard party” to a “rearguard party” that manages things from the sidelines and in an ad hoc fashion.

This volume deals with the re-emergence of the drug problem in China in the reform era and the ways in which the authorities deal with it. Riding on a sweeping victory over the nationalists, the newly established communist government in the early 1950s was thorough and decisive in stamping out the drug problem that had plagued the country for centuries. What made the Chinese government's effort effective then were mass campaigns and China's almost total isolation from the outside world. In the reform era, however, with marketization and the country's increasing integration into the capitalist world economy, the effectiveness of the old methods has been called into question. Severe punishment of offenders has failed to curb the spread of drug trafficking, and mass campaigns have aroused scant interest from the populace. The much-reduced efficacy of the government's anti-drug efforts due to the changed macro-environment implies that the drug problem in China will persist if not worsen.

The Sino-US trade accord signed in November 1999 in Beijing set a milestone for China's protracted journey towards becoming a member of the World Trade Organization (WTO). China hailed it as a win-win deal. The trade accord showed the commitment of the Chinese government to further transform China into a market economy. The liberalisation measures set forth in the accord may bring about the rise of the private enterprises and further expansion of the services markets, from banking to professional services. However, the implementation of the reform represents a challenge to the Chinese government in managing the potential surge in urban and rural unemployment and the stability of the banking sector. This paper analyses the details of the Sino-US trade accord and its implications for the Chinese economy.

What the Jiang Zemin leadership faced in 1999 can be characterized by a century-old Chinese saying, neiyou waihuan (literally, “internal disturbance and external threat”). What with the worst growth record in a decade, the Falun Gong sect's siege of Zhongnanhai, Nato's bombing of the Chinese embassy in Yugoslavia, and Lee Teng-hui's new “two-state” theory, the Chinese leadership was under tremendous pressure throughout the year. Many have wondered if that leadership could still hold its own at the turn of the century.This volume provides the reader with an in-depth analysis of how the Chinese leadership coped with the crises during the year. Though there was fair success in managing those crises, serious crises lie ahead which could significantly impact the leadership. China's economic slowdown may be bottoming out, but increasing Party decay, a growing spiritual vacuum, and volatile cross-strait relations are likely to pose serious threats to the leadership.

With mounting discontent due to widespread unemployment, corruption and misgovernment, the Ninth National People's Congress in March 2000 was a letdown. Significant though was Premier Zhu Rongji's announcement at the Congress of the leadership's decision to go west. While Zhu explained the policy shift as the government's attempt to develop the country's inland regions, many are skeptical, dismissing it as a camouflage for the premier's failure in the reform programmes introduced when he came to power. On the international front, with the US ambivalence in regard to China's WTO accession and China's apparent loss of grip on cross-straits relations, the future of the Jiang leadership appears to be in the balance.Against this background of neiyou waihuan (internal disturbance and external threats), will the Jiang-Zhu coalition be able to rise to the occasion and push through its many reform programmes, let alone retain its hold on power? China After the 2000 National People's Congress, (I) and (II) address this and related questions, giving an in-depth analysis of recent developments and changes in the power relations among China's top leaders, especially the Jiang-Zhu coalition.

The greatest success of Chinese enterprise reform has been the creation of market competition. Competition has forced the state to retreat from non-strategic sectors and increased private ownership in the industry. This development has created ownership diversification in the Chinese industry, which is in line with the leadership's 2-R (”Retreat and Retain”) enterprise reform policy. The ownership diversification is a distinction of the reformed economy, called “a socialist economy with Chinese characteristics”. The backbone of the economy is the large state firms in strategic sectors, largely shielded from international competition, in which most of them have been coping well with the domestically competitive environment. After China's entry to the WTO, can these firms still maintain their market dominance once all forms of protection are dismantled? Are Chinese firms ready for direct competition with their foreign rivals in the manufacturing sector? Will FAW, China's No. 1 state-owned automotive corporation, be defeated on its home ground by its foreign rivals in a freely accessed market? The core of these questions is about the sustainability of diversified ownership in the economy after it is integrated with the world trading system. Who will dominate the Chinese industry after the WTO entry: foreign or private ownership? The question is addressed by applying the market structure and entry theory of industrial economics, since WTO accession will basically result in change in both the market type and the market structure of the industry. Based on this, the study developed the market share testing theory to assess the competitiveness of dominant incumbents according to the type of market. The overall finding is that most large state incumbents will survive but their survival strategy will be changed from single ownership control to mixed ownership control. Thus, it is expected that more joint ventures between foreign and large state-owned firms will emerge in the post-WTO-entry economy. But whether such firms will evolve into foreign-controlled state-owned firms is an interesting question which remains to be answered.