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Rebirth
The Tiananmen debacle resulted in a brief spell of conservatism, but within a few years, Deng Xiaoping choreographed the rebirth of reform and openness with his historic “southern tour.” With Deng’s assurance that “to get rich is glorious,” entrepreneurial energy exploded again, concentrated now in the coastal cities. The leadership, guided by economic czar Zhu Rongji, enacted a far-reaching structural transformation of the economic sphere, anchored in privatization of state-owned enterprises. Ironically, China’s lack of full reform—especially in the financial sector and monetary policy—protected the Chinese economy from the vicissitudes of hot money and capital flight that ravaged its neighbors during the East Asian financial crisis. |
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China Alone Performed WellPeriod: Rebirth (1990s)
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Click to expand I think that, generally, we can say that China was lucky. But, simply using the word lucky doesn't explain the processes behind the growth. The core of it is that the 1997 Asian crisis had a huge impact on the region. But, at that time, on the one hand, China did not have a floating exchange rate regime, so the impact on China was not direct. In the first half of 1997, China started to adopt active fiscal policies, similar to what you'd call stimulus plans. From '98, it started to adopt active monetary policies. These macroeconomic policies had important effects. At the same time, China went through two major reforms, and these reforms helped, because China's fiscal and monetary policies directed investment towards manufacturing, the production of goods. But what about demand? Who is going to buy these products? In 1989, China started housing privatization. As you know, outside of the villages and countryside, most of the housing in the cities was distributed by the government, it was government owned, and living spaces were very small. So, from 1989, when they started the privatization of housing, on the one hand, the existing houses were privatized, and on the other, this stimulated demand for housing; people discovered that they could buy a house and the government would even provide them with subsidies. A huge impulse was domestic demand [due to housing privatization]. Another aspect was that in 1999, China began talks on the General Agreement on Tariff and Trade, and in 2000, formally joined the WTO. After that, China benefited hugely from being open to the world, Chinese products could now enter into the markets of various countries. This period of development occurred almost exactly when China had accumulated the productivity of the past 20 years of Reform, so China's economy, in recent years, has been very strong, especially in the past 10 years. Last year was the 30th anniversary of the Reform and Opening, but it was in the past 10 years, amid the many problems faced by the Asian region, that China, alone, performed well.
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