• No Available Pattern Applicable to China's Economic Development
  
• China's Multi-Party Cooperation and Political Consultation System
  
• Humanism Embodied in the Rule by Law
  
  
  
  

  No Available Pattern Applicable to China's Economic Development

  
  

  By Lin Yifu, head of the Peking University Chinese Economy Research Center

  
         A review of what happened in China over the past 25 years can help people predict its future development.
     
         First, I'd like to tell a personal experience of mine. In 1987, I returned to Beijing after receiving my PhD degree in the United States, and I was the first returned PhD graduate of social sciences. To encourage students studying abroad to return to the country, the government put forward a special policy, allowing each returned student to bring back a duty-free car. At that time, the tariff for a car was very high, about 215 percent. I brought a car back. When I had my car registered at the Beijing Transportation Management Bureau, I was told that mine was the second private car in Beijing. In 2002, however, the number of private cars in the city soared to 1.5 million.
   
         China has made remarkable achievements over the past 25 years. In the late 1970s, China set the goal of quadrupling the 1980 GDP by 2000, suggesting an average annual increase of 7 percent. Few people in the world believed that China could met the goal, for more than 80 percent of China's population were farmers and many of them were illiterates. People never saw before in human history that such a huge agricultural country with such a low development level could maintain such a high annual economic growth rate for over 20 years. During the 25 years between 1978-2002, the country's average annual economic growth rate hit 9.3 percent and the aggravate Chinese economy increased by 9.5 fold, with both growth rate and actual achievements far exceeding the goals set in 1978.
     
         One index for judging the opening level of a country is its foreign trade dependence rate. In 1978, China's trade dependence rate was only 9.5 percent. Over the past 25 years, however, the country's foreign trade soared by 31 times, with the foreign trade dependence rate hitting 50 percent in 2002. Such a big rate was never seen in large economic countries. Japan is a trade power, but its foreign trade dependence rate is only 17 percent and that of the United States is 22 percent. During the 25 years, the Chinese people's living standards improved considerably, and China made tremendous contributions to the economic development of its neighboring countries. For instance, China honored its commitment of not appreciating the Renminbi (RMB) during the 1997-98 Asian financial crisis, which helped East Asian economies quickly overcome the financial crisis and resume steady growth.
     
         In recent years, some overseas economists and media showed their doubts about China's high economic growth rate, claiming that the rate might be false. Such a viewpoint was first put forward by an American scholar engaged in the research on China's economy and was immediately played up by Western media. Soon afterwards, a senior scholar of the Massachusetts Institute of Technology wrote an article, saying that China's economic growth rate, particularly that after 1998, was not 7.8 percent but was to the maximum 2 percent. Some other people even held that China had registered a negative growth rate. Why was there such a big doubt about China's economic growth over the past years? A main reason is that since 1998 two new economic phenomena have appeared in China, with which developed countries had never encountered in their rapid economic growth periods.
   
         What are the two new economic phenomena? One is deflation accompanied with high economic growth, and the other is energy consumption decline during rapid economic development.
     
         Available Economic Growth Patterns Inapplicable
     
         After 1998, deflation appeared in China, a new economic phenomenon that had never occurred since the country introduced reform and opening-up.
     
         When deflation occurred in other countries, their economies showed a zero or negative growth. Only with the government's strong financial support, could the growth rate surpass zero. In China, however, although the commodity price has kept going down since 1998, the annal economic growth rate averaged 7.8 percent, the fastest in the world during this period. Why could China maintain such a high economic growth rate under deflation? China registered negative increases in energy consumption between 1997-99. Other countries saw negative growth during deflation and a high increase in energy consumption during rapid economic growth. The different situation in China caused overseas doubts about China's statistics. Some people even said that China's official statistics of an annual 7-8 percent economic growth were false.
     
         In my view, overseas doubts about China's statistical figures are due to their attempt to apply the existing theoretical patterns to China's economic development. In fact, many available overseas economic development patterns are inapplicable to China, as the country's economy is undergoing transformation--from a planned to a market economy.
   
         China does have experienced deflation over the past few years. But why did other countries have negative economic growth while China registered rapid economic development under deflation? In the United States, Japan and some other countries, real estate and stock market bubbles tend to appear during a period prior to the occurrence of deflation. During the bubble economy, people always invest their wealth in real estate and stock markets, and being aware of their wealth, they often seek high consumption. During the last bubble economy in Japan, 91 percent of its domestic production was geared to meet the needs of domestic consumption. This forced the country to increase investment in many fields to cater to such a high consumption demand. However, when the real estate and stock market bubbles were shattered, many people lost their properties and even became heavily in debt, as most of the house properties were on mortgage. Under this circumstance, consumption declined, and the productive capacity created by huge investments during the bubble economy became surplus. This has resulted in reduced investment and in the following zero or negative growth of the national economy.
     
         But the deflation developed in China after 1998 belongs to a different case, as the country has neither shattered stock market bubbles nor broken real estate market bubbles. How was China's deflation produced? I assume it was caused by continuous investment upsurges following the remarks made by former Chinese leader Deng Xiaoping during his inspection tours in the south in 1992. China saw a rapid increase in investment after 1978, with the annual growth rate hitting 19 percent between 1981-85, 7 percent between 1986-90 and 36 percent between 1991-95. During this period, China not only saw rapid growth of domestic investment in various fields, but also swift development of overseas investment. Before 1992, overseas investment made up a small proportion in China's total investment, never exceeding 5 percent. The rate, however, jumped to 12 percent in 1993, 15 percent in 1994 and 22 percent in 2002. Thanks to the rapid growth of domestic and overseas investment, China's productive capacity has developed swiftly in recent years. Take the base figure for the productive capacity of the state-owned economy (which recorded a relatively low growth rate) as 100 in 1990, it soared to 273 in 1995. During this period, the growth of non-public, private and foreign-funded enterprises was much faster than that of state-owned enterprises. During the four to five years after 1992, China's productive capacity increased by more than two fold. By 1996 and 1997, China all of a sudden saw a surplus of everything during the course of transforming from a planned economy and an economy of shortage to a market economy.
     
         How was this surplus of everything produced? In general, the growth of consumption is restrained by personal income increase. In the past few years, the annual increase in personal income averaged 7 percent, while that of productive capacity and consumption was 200 percent and 50 percent respectively. China's drastic change from an economy of shortage to an economy of surplus will not happen in any other countries, so they can't understand China's current rapid economic growth under deflation. Since China's deflation was caused by the drastic increase in productive capacity instead of changes in personal wealth, the annual growth of consumption has continued to stay at the previous level--between 4-8 percent. As the increase in productive capacity greatly exceeded that of consumption, the surplus productive capacity has resulted in deflation. Under the surplus productive capacity, commodity prices have come down, and the growth of investment has been affected too. Since 1998, investment from the private economy has remained weak. Under such circumstances, the government has adopted a proactive fiscal policy to ensure the sustained development of the national economy. Since 1998, the Chinese Government has issued 800 billion yuan of special long-term treasury bonds to add to investment in construction projects. Plus rapid increases in overseas investment, the annual growth rate of total investment has been kept at 10 percent. With the continuous increase of consumption and investment, the national economy has maintained an annual growth rate of around 8 percent. While the deflation of China came from unexpected decline in consumption, that of other countries from drastic increases in investment. Owing to the different mechanism, China's national economy can maintain the momentum of rapid growth in spite of price decline.
     
         Observation of Minute Changes Helps Understand China's Economy
   
         While the economy of China maintained rapid growth, its energy consumption reported a negative growth between 1997-99. Why?
   
         My elder brother has invested in a medium-sized cement works in Yangzhou with an annual output of 400,000 tons. Before he made the investment, there had been three small cement works in the locality, all using the traditional vertical kiln technology. With combined annual output of 180,000 tons, they shut down after the new cement works went into operation. With an annual output more than two fold that of the three old factories, the new cement works consumes only 70 percent of the energy they once used. Many similar cases could be found in China after 1996--while output multiplied, energy consumption showed a negative growth during the process of restructuring.
   
         Under the economy of shortage, the supply of many products fell short of demand. In the 1980s, rural township enterprises mushroomed--a special phenomenon in China's economy. With limited investment from farmers and a low technological level, most of these enterprises manufactured low-quality products. But these products still enjoyed a ready market owing to extensive shortage. Such enterprises became one of the main means to help farmers quickly embark on the road of prosperity at that time. In the mid- and late 1990s, however, following the rapid increase in investment, the country accumulated surplus productive capacity, with a considerable part of it being newly added productive forces, including foreign-funded and private enterprises which usually have a high technological level and manufacture high-quality products. Hence, the surplus productive capacity first forced township enterprises to shut down and withdraw from the market. This has resulted in changes in the structure of economic growth and the decline in energy consumption. While observing the Chinese economy, overseas scholars tend to overlook these minute but profound changes, so they can't explain why China has reported rapid economic growth under deflation while other countries show negative economic growth, and why China has registered decline in energy consumption during rapid economic growth while other countries see increases in energy consumption. All in all, it is because they don't have a clear understanding of China's economy--one that is undergoing transformation from a planned to a market economy, The rapid growth of China's economy over the past 25 years, particularly in the last five years, is true.
         
         Rapid Growth in the Coming 20 Years Is Possible
     
         People are more concerned of China's economic development in the coming one or two decades. I assume an 8-10 percent annual growth rate is likely to be maintained, although there may be some fluctuations.
   
         In the study of a country's long-term economic development, attention should be attached to three factors: First, the possibility of growth. Among various production factors, while land supply cannot be increased and the growth of labor force is restrained by controlled population growth, the most important one is the growth speed of capital accumulation. Second, the possibility of production growth through industrial restructuring. While various production factors remain unchanged, the economy will continue to increase, as the same amount of production factors are being shifted from the manufacturing of products with a relatively low added value to those with a relatively high added value. Third, technological level. An improved technological level will help increase production and boost economic development.
     
         Among the aforementioned three factors, technology is the most important.
     
         First, the possibility of capital increase is related to technological changes. Continuous capital increase without technological upgrading will result in continuous decline in investment returns and reduced desire of investment. So, a high desire of investment hinges on the speed of changes in economic technology.
     
         Second, the possibility of structural changes is equally restrained by technological changes. Without new technologies, it is impossible to develop new industrial sections with a higher added value. New sections with high added value will continuously come forth along with fast technological upgrading, and there will be more chances for economic growth stimulated by structural changes.
     
         Technological upgrading has two sources--self-invention and imports. The income gap between China and developed countries is, in fact, the technology gap.
     
         An important question to be asked is by what means should China, a developing country, seek technological improvement. The key lies in the cost. Relatively, it calls for low inputs and entails small risks to introduce overseas technologies. In fact, whether a developing country can use its technology gap to promote economic development lies in whether it can introduce advanced foreign technologies to accelerate its own technological innovation and narrow its gap with developed countries.
     
         In my study of East Asian economy, I found that the reason for Japan and some other East Asian countries to be able to catch up with developed countries and become the only group of new emerging industrial economies after World War II is that they could make use of their relative advantages in a certain period of development and successfully introduce new technologies to boost their economic development. In fact, among the new technologies invented prior to the 1980s, only a small proportion came from Japan.
     
         China featured a closed-door economy before 1978. Many technologies it needed were invented by its own instead of seeking imports. Though it successfully launched its own satellites and exploded its own atom bombs, the cost on technological renovation was extremely high. So, China had registered economic development with a slow speed and a poor quality before 1978. China began to open its economy and introduce new overseas technologies in 1978, which helped accelerate its economic development.
     
         Here, another important question is: China has already embarked on the correct path of relying on technological progress to boost economic development, how long will it stick to this road?
     
         Generally speaking, theory can only tell whether the impact of this road chosen by China is positive or negative. As for how big the impact is and how long the impact will last, we can find the answer only by referring to past experiences. Japan is a good example. China's current economy is similar to Japan's around the 1960s. Take some major indexes for example, such as life expectancy, heath conditions and Engel's coefficient. The life expectancy of Japanese males and females in 1960 was 68 years and 73 years respectively, while that of Chinese males and females in 2000 was 68 years and 72 years respectively. With regard to the infant mortality rate, which also involves health conditions, Japan registered 3.1 percent in 1960, while China reported the same rate in 2000. As for the proportion of agriculture in the national economy, Japan's agriculture accounted for 16.7 percent of the GDP in 1960, while China's agriculture made up 15.9 percent of the GDP in 2000. Another index is related to Engel's coefficient. In the 1960s, of every 100 yen earned by Japan's urban residents, 38.8 yen went to food. In 2000, the  sum spent by China's urban residents on food was 39.2 yuan. These indexes show that China's current economic level is roughly equivalent to Japan's economic level in the 1960s. Japan began to attain similar rapid economic growth like present China's in the 1960s, and the growth lasted nearly 30 years. In 1988, Japan eventually caught up with the United Sates in terms of per-capita income.
     
         Though I'm not sure whether China could catch up with the United States in terms of per-capita income by 2030, I believe, based on Japan's experience and changes in the value of the RMB, it is possible to raise China's per-capita income to half of America's by 2030. China's population, however, is five times that of America's. That suggests China's aggregate economy may be 2.5 times that of America's by 2030. In that case, China will become the largest market in the world favored by all investors.
     
  
  
  
  

  China's United Front and Multi-Party Cooperation and Political Consultation System

  
         At a recent press conference sponsored by the State Council Information Office, Chen Xiqing, head of the United Front Work Department of the CPC (the Communist Party of China) Central Committee, answered questions posed by Chinese and foreign reporters on China's united front and multi-party cooperation and political consultation system.
         
         Extensive Patriotic United Front
   
         Chen stated that the CPC has consistently attached importance to the establishment, consolidation and development of the most extensive united front during various historical periods of revolution, construction and reform. At present, the patriotic united front under the leadership of the CPC, with an unprecedented scale and the widest representation, has developed into an alliance with the most extensive scale of all socialist laborers, socialist builders, patriotic personnel who support socialism and patriots who support the reunification of the motherland. Thus, it has united all Communist Party members and non-party members, Marxists and non-Marxists, people of the Han nationality and members of various ethnic minorities, atheists and religious people, and mainland and overseas compatriots.
     
         According to Chen, the United Front Work Department (UFWD) of the CPC Central Committee is a functional department of the CPC Central Committee in charge of the united front work. The four-level Party committees (central, provincial, prefecture and county) have all established respective united front work departments, while the Party committees of some government institutions and enterprises bearing a heavy task related to the united front have also established united front sections under them. The basic responsibilities and functions of the UFWD are to "make clear the situation, have a good grasp of Party policies, coordinate relations and arrange personnel".
     
         Multi-Party Cooperation and Political Consultation
     
         When asked why China exercises a one-party system while most countries worldwide exercise two-party or multi-party systems, Chen said China exercises a multi-party cooperation and political consultation system under the leadership of the CPC instead of a one-party system. Apart from the CPC, there are eight democratic parties in China, including the Revolutionary Committee of the Chinese Kuomintang, China Democratic League, China Democratic National Construction Association, China Association for Promoting Democracy, Chinese Peasants and Workers Democratic Party, China Zhi Gong Dang, Jiusan Society and the Taiwan Democratic Self-Government. This political and political party system is characterized by multiparty cooperation under the leadership of the CPC, and the rule by the CPC with the participation of various democratic parties.
   
         Chen noted that the CPC, the party in power, is the core of leadership, while the eight democratic parties, who participate in government and political affairs, are not parties not in office, and still less opposition parties. The CPC and various democratic parties, working in unity and cooperation, conduct democratic consultations on major issues of the state to seek scientific decision-making and concentrate forces to handle major issues. In the practice of mutual supervision between the CPC and democratic parties, the focus is laid on the latter's supervision over the former. This political and political party system can, on the one hand, prevent various drawbacks created by one-party autocratic rule and a lack of supervision and, on the other, prevent political turbulences caused by multi-party competition and the practice of the two sides jostling against each other. This system, therefore, enjoys tremendous superiority and exuberant vitality, Chen stessed.
           
         Democratic Parties Play an Irreplaceable Role
     
         When asked whether the democratic parties can play their role in the country's political life, Chen said China's democratic parties, as parties participating in government and political affairs, mainly participate in consultations on major government principles and policies and the candidates for government leading posts, in the management of government affairs, and in the formulation and enforcement of government principles and policies, and the laws, regulations and rules of the state. At present, the various democratic parties and non-party personnel play a unique, irreplaceable role in the country's political and social life by effectively fulfilling their responsibilities of participating in government and political affairs and exercising democratic supervision. This is manifested as follows: More than 420,000 members of various democratic parties and non-party personnel now serve as deputies to people's congresses and members of people's political consultative conferences at various levels, and 806 of them are elected as deputies to the National People's Congress (NPC), with seven serving as vice-chairmen of the NPC Standing Committee, and 1,343 have become members of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), with 13 serving as vice-chairmen of the CPPCC.
     
         More than 8,000 members of various democratic parties and non-party personnel currently hold leading posts above the section level in government departments and judicial organs at various levels, with 12 serving as vice-ministers of various departments under the State Council and one as vice-president of the Supreme People's Court. There are democratic party members and non-party personnel serving as deputy governors, vice-mayors or vice-chairmen in all the 31 mainland provinces, municipalities directly under the central government and autonomous regions.
     
         Since the Fourth Plenary Session of the 13th CPC Central Committee, democratic party organizations at various levels have put forward more than 20,000 suggestions and criticisms, and many of them have been adopted. Last year, after the new leaders of the CPC Central Committee assumed office, they called nine consultative and discussion meetings with democratic party members and nonparty personnel, with five being presided over personally by President Hu Jintao. They consulted with democratic party members and non-party personnel and listened to their opinions on such major issues as the candidates of various government departments, the fight against SARS, the improvement of the socialist market economic system and the amendments to the Constitution.
     
         Chen noted that the CPC has adhered to the principle of "long-term coexistence, mutual supervision, sincere treatment with each other and the sharing of weal or woe" with various democratic parties. Over the past years, the governments and judicial organs at various levels have invited more than 5,000 democratic party members to serve as special supervisors, inspectors and education directors, which helps give further play to the democratic supervisory role of all democratic parties.
  
  
  
  
  

  Humanism Embodied in the Rule by Law

  
         

  --In the effort to intensify the rule by law, emphasis has been laid on eliminating the drawbacks of old systems and ensuring the legitimate rights and interests of all citizens.
   
         On March 17, 2003, Sun Zhigang, a 27-year-old graphic designer, was taken to a shelter and repatriation center in the city of Guangzhou by the local police as a "three no" person (no ID card, no temporary residence card and no work permit). There, the sick man was beaten to death by his eight roommates.
     
         Sun's case was handled by relevant authorities, quickly, seriously and impartially. On June 20, the State Council promulgated the Management Measures on Assisting the Homeless and Vagabonds in Cities. With the new measures going into effect on August 1, the old Measures for Internment and Deportation of Urban Vagrants and Beggars released by the State Council in 1982 was annulled.
   
         In deed, it is a bitter lesson paid for in life to abolish an irrational old system and put forward a new regulation that embodies humanism in the rule by law. Sun's case also shows that facing an incomplete legal system, the citizens, the whole society and the government have gone all out to reform the old system, instead of dodging the difficulties in overcoming its drawbacks. In addition, it demonstrates the great enthusiasm and determination of the general public and the government to build a country ruled by law and the tremendous strength of social progress. In 2003, beginning from Sun's case, China consistently put emphasis on eliminating the drawbacks of old systems and ensuring the legitimate rights of ordinary citizens in the endeavor to intensify the rule by law.
     
         With the acknowledgement that the rights and interests of citizens are weightier than Mount Tai, in 2003 the Ministry of Public Security advanced 30 measures to the convenience and interests of all citizens, with the majority concerning people's daily life, though they may be thought as trifling things. The new measures on household registration management stipulate that the household registration of those who have been sentenced into imprisonment or those who have been put under reeducation through labor will no longer be cancelled; and parents with separated household registration in different places can choose the permanent household registration of their newborns (either with the father or the mother). With regard to the new regulations on transportation management, the age for learning driving and acquiring a driving license is extended to 70 years; and the time limit for granting the license plate of an imported car is reduced to 48 hours. The new rules on entry and exist management permit residents in Beijing, Shanghai and other cities to apply for passports in accordance with their needs. These and many other new measures have granted citizens more freedom and abolished many restrictions on them, thereby ensuring they enjoy their legal rights and interests in a more extensive way.
   
         The citizens' rights and interests of criminal suspects in custody and convicts should not be neglected either. In 2003, the courts, procuratorates and public security departments separately pooled efforts to sort out cases of overdue detention, deciding to wind up all related cases by the end of the year. The efforts, aiming to correct the law-violating behavior of executors, have safeguarded the legitimate rights and interests of citizens and the dignity of law.
     
         In the year, "community correction" was first introduced to Beijing, Shanghai and some other cities. The practice, by actively utilizing various social resources, aims to help those who have committed minor crimes to better involve themselves in social life.
     
         Judicial departments also have attached importance to humanism in various seemingly minor issues. In March 2003, the First Intermediate Court of Beijing began to let defendants of criminal cases wear facial masks. In August, the same court stipulated that the court police should not press down the heads of defendants, grip their necks or push them, and that the defendants' handcuffs should be taken off during court trial. "As defendants of criminal cases are both criminal suspects and citizens, the court should respect their citizens' right and their right of the person," said Sun Wei, judge of the Jingan District Court in Shanghai.
     
         Although remarkable progress has been made in the endeavor to build a legal system, there is still much to be desired in this regard. Incidents that went against the spirit of role by law still frequently occur in some localities. This indicates that there is still a long way to go to establish a complete legal system and safeguard the authority of law. Nevertheless, the government has made determination to build a country ruled by law and ensure the legitimate rights and interests of all citizens.