Changing China's Market Framework

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Structural Transformation of the Economic Sphere
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Because reform is an accelerating process, as soon as it starts, it will move faster and faster.

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<p>Personally, after 1989, I really didn't imagine that China would still have the kind of the development that it had later on. I think that one of the most important events of the period was what was then called Deng Xiaoping's &quot;Southern Tour&quot; and the famous speech he made. He renewed the reform in 1992. I think that it was an extremely important historical event because he directed the ship of reform back onto its original track, and reform continued even faster than before. At the time, Deng Xiaoping raised an important perspective: &quot;It doesn't matter whether you follow socialism or capitalism.&quot; He restated the black cat/white cat philosophy. The standard by which he would evaluate [an ideology] was whether or not the economy could develop. He thought that economic development would really solve the problem of legitimacy. After that, China was on the reform track again, and I feel that reform happened faster than before. Because reform is an accelerating process, as soon as it starts, it will move faster and faster. So, I think the restarting of reform in 1992 was very important. After the revival of the reform in 1992, China made a few things explicit. What were these things? In the 1980s, it was Reform and Opening. In 1992, after the revival of the reform, China several things explicit. First of all, the reform would come in the form of market economy. This was important because this economic model was used by Western nations, and it came with the comprehensive experience accumulated over hundreds of years. It was unlike the reform of the 80s, which was mainly about opening, contracting, and experimenting with various models. But, all along, it was &quot;open, open, decentralize.&quot; They thought about that part the most. However, with regard to creating a new system, if you want to give up the past and you are ready to propose something with an unclear vision, the prospects will be unclear. They only explicitly proposed a vision in October of 1992, and that vision was to have a market economy. So, the West attentively said, &quot;Don't you mean a socialist market economy? You need to add 'socialist' at the beginning.&quot; But, don't forget, the word socialism was already in use, but it was the first time that the concept of market economy was proposed and employed by the central government. The market economy, in itself, has its own definitions and explanations; this is really mainstream economics, it has a complete set of definitions and rules. What is a market economy actually? What sort of laws of operation does it have? It has a complete experience and summary. But we continue to see it develop. But, they adopted this, so it's entirely different. Secondly, they decided to build a framework for the market economy. At the end of 1993, the Communist Party held the Third Plenary Session of the 14th Central Committee and this meeting was held to set up the framework for market economy. What does this framework include? Let us recount. In the 80s, much of the reform was expressed in bottom-up efforts. For example, all industries had contracts and privately-run enterprises started to appear, this was bottom-up. Also, state owned enterprises, through contracting, or through the policy of separating politics from enterprise management, and various other methods, reformed. Also, there was what we then called &quot;untying the enterprises,&quot; rural township and village enterprises, the establishment of joint enterprises, and so forth. After '92, these bottom-up reform efforts continued, but, at the same time, they established a framework for market economy -- this signifies the public financial system, taxation system, and the financial and banking system. The financial system reform was major, it included the separation of the commercial banks and the policy banks and, at the same time, there was a clear-cut goal to, step by step, make the central bank independent in the future. Although, even now, the central bank isn't independent, its effectiveness has definitely become increasingly striking. These reforms were top-down, they were only possible with government action. Otherwise, they could not have been done and there would not have been a framework change. This happened at the end of 1993. After [framework reform] was realized, it propelled the reform process forwards, but this was more obvious in '92, or the end of '93.</p>
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Hu Shuli describes how after Deng Xiaoping's "Southern Tour," the Chinese government moved from encouraging bottom-up reform to taking a top-down approach to reforming the economy, changing the country's market framework.