Understanding and Interpreting Chinese Economic Reform
Jinglian Wu, Thomson South-Western, 2005, 464 pages, £19.99.

China is associated with mystery in many people’s minds. Professor Wu, one of the masterminds of China’s economic reform, is uniquely qualified to lift the veil of China’s economic development from the early Soviet model, through the gradualist reform process since 1987 to today. Understanding and Interpreting Chinese Economic Reform evolved from Wu’s university courses and resembles a textbook. But in its purpose it is a cry for help.

China has achieved tremendous success over the past twenty-five years of reform progress. However, Beijing has yet to cross the threshold of turning China into a real market-price economy rather than the communist economy with beauty spots it is now. Despite empty communist phraseology sometimes rearing its ugly head in Wu’s prose, in essence he is a ‘free marketer’. His book favours further coordinated economic, social and political reform to create a comprehensive market system. Wu believes that China should establish the rule of law and clear property rights if the economy is to avoid becoming “chaotic, corrupt and in-efficient”.

But control has always been crucial for the Communist regime. China’s leadership seems to be prepared to push market reforms only as long as they do not endanger their hold on power. They would tolerate a foreign-funded private sector which provides jobs, but they would not allow the state banking system, which provides the funds for policy-directed development, to become market-based. The current policy focus is on socially-conscious growth – reducing income inequality, investing in education and health care, the efficient use of energy and environmental protection. While these causes are laudable and progress should be encouraged, market-oriented reforms have been neglected, especially in the financial sector.

The overriding motive behind the policy turnaround is to preserve the Communist Party’s rule intact. Crony capitalism and corruption have also gathered strength, benefiting the Party. In the leadership’s current battle to preserve its rule without losing its capitalist riches, there is an increasing danger that private sector growth will be stifled. As Wu said in an interview during the National People’s Congress in March: “The visible boot is treading on the invisible hand”.

China’s economic progress is being threatened by a Communist Party which places its survival ahead of the further prosperity of the country it leads. In the clash between rigid politics and liberal economics already under way, Wu is on the side of the market.

Diana Choyleva
Lombard Street Research