WTO and China's Financial Services Sector

Financial services, particularly securities markets, insurance and commercial banking, have played a crucial role in China's post-1978 economic reforms. China has so far established a market structure and a legal framework, and has a growing understanding of how financial services operate in the modern world economy. We will review China's progress in financial services reforms over the last 22 years, describe the commitments China has made to gain WTO entrance, and then evaluate the potential benefits and costs to China's financial sector of WTO accession. We conclude that even with the substantial challenges presented by greatly increased post-WTO foreign competition, China will benefit from the WTO because of a number of factors including a growing pool of well-trained personnel, lessons learned from domestic and foreign development experiences, increasing Chinese economic strength, and continual advancement of China's financial infrastructure.     

The Privatization of Urban Housing in China and its Contribution to Financial System Development

The privatization of urban housing and the subsequent development of a mortgage market have played a major role in the development of China's financial system. This paper explores the history and development of China's urban housing market, its impact on the financial system, and the government's efforts to grapple with new issues that have surfaced alongside these reforms. This paper concludes that although housing privatization has helped strengthen the financial standing of state-owned enterprises, urban residents, and commercial banks alike, systematic weaknesses must be addressed in order to promote sustainable economic growth.     

Reform ideology,political commitment and resource transfor: An alternative model for the explanation of China's economic reform∗

One of the most intriguing ironies of our era is the result of recent changes in the former communist world. Whereas the “democratizing” Russia and Eastern European countries are caught in repeated political as well as economic crises, the “unrepentant” authoritarian China and Vietnam are seeing their economies booming and more market‐oriented. Such an irony poses many important questions. One of the questions is how China has managed to get where it is. This paper represents an attempt to address this question. Firstly, it will briefly outline where economic reforms have brought China so far. Secondly, it will discuss two popular models used to explain China's economic performance. And finally, it will develop an alternative model that combines politics and economy in accounting for China's reform experience.     

The Social and Political Implications of China's WTO Membership

China will join the WTO soon. This article does not question the rationale of China's decision to join the WTO; nor does it challenge the premise that, all in all, the potential benefits from WTO membership outweigh the potential costs, at least in the long term. Rather, it focuses on the social and political implications of China's WTO membership. It is assumed that even if WTO membership is potentially a productivity-enhancing move for China, the benefits and costs of such a change will not be evenly distributed. Unless there is a mechanism that can induce or force the winners to compensate the losers, distributive conflicts between the two groups will be inevitable. Such conflicts may weaken or even erode political support for globalization. Thus, to remain committed to globalization, the government of an open economy must play a role in redistributing gains and costs. The first section elaborates this analytical framework. The second section argues that Chinese reforms have changed from a win‐win game to a zero-sum game. As a result, China has turned itself from a relatively egalitarian society into one with huge and growing inequalities. The third section analyzes who will stand to win and lose when China joins the WTO. It predicts that precisely those social groups who have borne the costs of recent reforms will be hit hardest. More significantly, those losers happen to be the social groups that have long served as the political bases of the communist regime. WTO membership thus poses a challenge to the legitimacy of the Chinese government. The final section discusses the political implications of China's WTO membership.     

Rethinking the Chinese World Order: the imperial cycle and the rise of China

Looking to China's imperial history to understand how China as a great power will behave in the twenty-first century, some scholars have rediscovered the concept of the traditional Chinese world order coined by John K. Fairbank in the 1960s in the reconstruction of the benevolent governance and benign hierarchy of the Chinese Empire, and portrayed its collapse as a result of the clash of civilizations between the benevolent Chinese world order and the brutal European nation-state system. China was forced into the jungle of the social Darwinist world to struggle for its survival. As a result, China's search for power and wealth is to restore justice in an unjust world. China's rise would be peaceful. This article finds that while imperial China was not uniquely benevolent nor uniquely violent, the reconstruction of China's imperial past to advance the contemporary agenda of its peaceful rise has, ironically, set a nineteenth century agenda for China in the twenty-first century to restore the regional hierarchy and maximize China's security by expanding influence and control over its neighborhoods.     

Chinese Corporate Governance and Prospects for Reform

A critical element in China's current economic reform program is the creation of modern corporate governance structures in its corporations. Many of China's largest firms are caught between market incentives and political pressures, creating a situation ripe for managerial inefficiency. This article examines the financial and regulatory structures necessary for an efficient corporate governance system to function in China, and it assesses how these structures currently operate in the economy. The article identifies key failures in fostering modern corporate governance practices, which in turn jeopardize central elements of the government's reform program. The article includes a case study of the governance practices of PetroChina Company Ltd, the internationally listed subsidiary of China National Petroleum Corporation. The success or failure of the government's efforts to create proper governance mechanisms will carry important economic and political ramifications for China. Indeed, the successful implementation of corporate governance reforms may mark the final stages of China's evolution into a market economy.     

The development of corporate governance in China

Over the last decade there have been significant economic reforms in China. Foreign investment is encouraged and there are increasing numbers of joint ventures with foreign partners. The stock exchanges of Shanghai and Shenzen have developed quite rapidly, and the expansion of China's economy and the growing importance of foreign investment has implications for the development of corporate governance structures in China. The internationalization of institutional portfolios ensures that there is a cross‐border interest in corporate governance, and that China's steps in developing corporate governance will be watched with interest. In this paper, we will explore the existing cultural aspects of China, the structure of share ownership in China, recent developments that have taken place in China's capital markets, including the growing foreign influence, and their implications for corporate governance developments. We compare and contrast the influences on corporate governance in the West with those in China. We conclude that any model of corporate governance which develops in China is likely to embody the special role of the state and certain idiosyncratic cultural aspects of China, whilst taking on certain of the characteristics of an Anglo‐Saxon corporate governance model.     

Xiao‐kang: Deng Xiaoping's socio‐economic development target for China

Ever since xiao‐kang or XK, literally meaning a ‘relatively comfortable life’, was first slated by Deng Xiaoping in 1979 to be China's main development target, the concept has become a codeword for China's socio‐economic development. It was incorporated in several major Party documents and formally adopted as the key development target by three consecutive Five‐Year Plans. What is the real meaning of XK? This paper analyses China's first XK Index which was published in 1992, based on a cluster of economic and social indicators relating to income, food consumption, housing, and human resource development. It will be seen that XK is actually a normative concept, fuzzy and grossly imprecise, especially when applied to a transitional economy like China. What constitutes XK to Deng may well be perceived differently by the new generation of Chinese. Such is the continuing social challenge of China's economic development.     

China's urban housing market development: Problems and prospects

This study analyzes the predicaments and prospects of China's urban housing market development. To this end, it examines the pre‐reform housing system in China's urban sector, presents major reform efforts, and investigates most recent reform designs and price subsidy schemes. The author maintains that China's housing market can be expected to develop vigorously as both fundamental factors and policy directives favor such a development.     

The political economy of banking reforms in China, 1993–1997

The weakness of China's banking system poses a serious threat to the sustainability of the country's economic development. This article measures the extent of this weakness and analyzes its causes. It focuses especially on the structural changes in the banking sector, the economic crisis of 1992–1993, and the subsequent financial reforms implemented. The evidence gathered by the author shows that the banking reforms initiated since 1994 have produced mixed results. Although central bank autonomy and bank supervision have improved, political, economic, and institutional constraints have prevented the government from taking more decisive measures to re‐capitalize banks, restructure the debt of state‐owned enterprises, and increase competition in the banking sector quickly. Despite the apparent effectiveness of the short‐term measures taken to bolster public confidence in the banking system, China's banking reform will be a difficult and prolonged process.     

Shaping China's Energy Policy: actors and processes

This article develops an analytical framework for examining China's energy policy-making processes, and uses it to explain the recent shifts in the country's energy priorities. The authors analyze the decisive factors in China's energy sector reforms by looking at the different stages from agenda setting, through policy choices, to decision making and implementation. The article attempts to identify the actors behind, the drivers for, and the constraints to, the progress of energy sector reforms in China since 1993 and to follow the evolution of these drivers and constraints. This will allow a better understanding of the possible future trends of energy sector reform, the institutional limits to policy change and the constraints to implementation.     

Accession into the WTO: External pressure for internal reforms in China

WTO accession is a blessing to China in that it serves as an effective external pressure to overcome political resistance and to accelerate economic reforms. However, structural, behavioral and cultural constraints will work as an obstacle to China's systemic transmorphosis into a more transparent, fair, efficient, and rule-based economy. In order to overcome such constraints and to reach best possible evolutionary trajectories to a WTO-compatible system, post-accession China is required to focus on social, legal and political system reforms, departing from the previous emphasis on economic reform. Peer pressure from other member countries would also be of additional help. Without fully successful non-economic system reforms, it may go through a period of policy errors and socio-economic instability, contrary to the rosy expectations by casual observers, and the Chinese leadership would find itself trapped and betrayed by its idealized notions of joining WTO to push internal reforms.     

Commercialization of Banks in China: Institutional changes and effects on listed enterprises

To meet the continuing growth of the socialist market economy, the latest focus on China's banking reforms is to transform the 100% state-owned commercial banks into independent, market-oriented commercial banks. This paper will show that listed enterprises in China have generally perceived that institutional changes leading to improvement over the legal and business environment are important for the success of the bank commercialization process (BCP). The effects of BCP on them are positive. Recognizing how poorly managed banking systems in East Asia have suffered in the financial crisis, the Chinese government has quickened the pace of the banking reforms in China.     

China's reforms in Tibet: Issues and dilemmas∗

Since the visit of Hu Yaobang to Tibet in 1980, which precipitated a series of changes in China's policies toward Tibet, the following years have been marked by China's reforms in Tibet, considered by many highly controversial. In general terms, living standards rose, and economic reforms and political liberalization achieved what appeared to be a remarkable success. Yet, at the height of the period, in 1987, the reforms, instead of enhancing Tibetan loyalty to China, precipitated demonstrations in Lhasa on a scale never before seen by the outside world. The demonstrations indicated the general failure of the reforms.

Some scholars argue that the reforms are highly successful and that the demonstrations and the instability in their wake are the result of outside instigation rather than rooted in the reforms themselves. This paper argues that the failure of the reforms is due to a far more complex set of circumstances that are the result of the historical legacy, the nature of the reforms themselves, and the instability of political process in Beijing. This paper examines the reforms, their implementation, and their failure in the economic, political, and social arenas to gain a deeper understanding of the complexity of the environment in which China instituted the reforms in Tibet and to investigate the underlying reasons for the unrest. The paper argues that the problems in Tibet are far beyond the creation of outside “instigators” and far beyond the capacity of the reforms to solve.     

Implications of WTO Membership for China's State-owned Banks and the Management of Public Finances: Issues and strategies

WTO membership will dramatically change the environment within which China's financial institutions operate. It increases the urgency of many reforms, including the re-capitalization of state-owned commercial banks and the establishment of a healthy credit culture. The severe under-capitalization of state banks and many state enterprises is part of a growing domestic debt problem that cannot be solved through normal fiscal policy adjustments. It will require the sale or securitization of state assets on a much larger scale than has been undertaken so far. The approach that was taken by the government's four Asset Management Companies to non-performing loan clean-up in 1999 and 2000 was flawed and should not be repeated. State banks should play a larger role in absorbing their own accumulated losses. China should leverage its external financial strength for domestic financial clean up. If the balance of payments remains strong, a mild appreciation of the nominal exchange rate--when the risk of deflation has passed--may serve China's interest. A large and growing proportion of state assets is held in the form of non-tradable shares in partially privatized state companies. To protect state solvency, many of these shares will have to be made tradable and sold in the next 5-10 years. A further strengthening of the fiscal system, along with rapid development of domestic capital markets is essential. Breaking up some or all of the four large state-owned commercial banks into smaller units may facilitate their restructuring and eventual privatization.     

Challenges for WTO Implementation: Lessons from China's deep integration into an international trade regime

China's formal accession to the World Trade Organization begins a process of deep integration that will require the implementation, monitoring and enforcement of newly harmonized standards. This article identifies challenges in that deep integration process, drawing on data from China's ten-year struggle to implement, monitor and enforce international standards for the certification and marketing of organic agriculture products. The political economy of rural China is described as a fragmented entrepreneurial state in which officials use state authority to privilege market activity. This creates a set of structural barriers and elicits local state resistance to the implementation of international trade regimes. State entrepreneurs pursue alternative forms of compliance, disguise state participation in the market, and exploit their control over information, in an effort to resist monitoring and enforcement regimes.     

China after Deng: Some perspectives∗

Deng Xiaoping's succession arrangement is different from the typical practice of the supreme leader of a dictatorship. Instead of occupying the highest leadership position himself until his death, Deng has let his “successor” assume office as the supreme leader while he is still alive and influential. Such an arrangement will help avoid a succession crisis and political upheavals upon Deng's death. In addition, the current market‐oriented economic reforms are very unlikely to be reversed in post‐Deng's China because of four factors: (1) public support of the reforms; (2) the vested interest of the “prince party” in the reforms; (3) the new leadership's commitment to the reforms; and (4) the constitutionalization of the reforms. However, there are three major sources of social unrest, which may lead to some political turbulence in the post‐Deng period. These sources are the “June 4th Incident” of 1989, public demand for an end of corruption and for political liberalization, and some socio‐economic problems brought about by the on‐going economic reforms. Although there will be periodical events of socio‐political turbulence, they are unlikely to drag China into a long period of instability or lead to a split of the nation.     

Uneven Opening of China's Society,Economy, and Politics: pro-growth authoritarian governance and protests in China

This article evaluates China's model of development, especially its main component, i.e. its model of governance. It suggests that China's model of development is marked by an imbalance between fast opening of the economy and the society and sluggish opening of the political system. The Chinese society has become much more open, reflected in the Chinese growing awareness of their legal rights. The Chinese economy has become highly internationalized and open, but much of Chinese politics is closed. China's governance is marked by pro-growth authoritarianism. The Chinese state is effective in opening up the economy, promoting reform, and generating economic growth, but offers weak protection of people's rights and ineffectual mitigation of social grievances. These imbalances help produce social protests. Viable solutions are discussed.     

Society Must Be Defended: reform,openness, and social policy in China

This paper examines China's transformation from different perspectives, including economic, social and political, and discusses how these transformations are linked to the country's open-door policy. The paper argues that the most powerful driving force behind China's rapid transformation is its openness. At the domestic level, openness creates an institutional environment in which different existing factors reorganize themselves, thus providing new dynamics for change. At the international level, openness links China and the world together, and the interplay between China and the world produces an external dynamism for China's internal changes. Openness, however, has led to social injustice. Society often becomes the weakest link in the process of globalization and opening up; therefore, it must be defended by all means and in all major policy areas.     

Economic Reform and Social Welfare: The Chinese perspective portrayed through a social survey in Shanghai

This article starts with a brief comparative analysis of China and East Europe in terms of their stark differences in approaching economic reform and social welfare. Perhaps China has the benefit of learning, from the 1989 Tiananmen Incident, of the undesirable social costs incurred by economic reform. Henceforth, it has adopted a pragmatic and gradualist approach towards economic reform. This article reports the findings of an attitude survey in Shanghai, which by and large are compatible with the gradualist approach of the Chinese Government toward economic reform and social welfare. The survey finds that the Chinese in Shanghai positively rate economic reform in light of the benefits that it has brought about, but they are also aware of the large income disparities caused as a result. In the light of the evidence, the article suggests that China's economic reform has not transformed people's beliefs to be in line with the market system. The Chinese are still, in general, in favor of a large role for the state in welfare and they themselves are not willing to shoulder heavier welfare responsibility. In the concluding section, the article explains this mixed pattern of public perceptions and pinpoints the likely developmental trend of China's welfare system.