China as a Developmental State

Question 1

what is a developmental state

Answer 1

A type of government characterized by strong state intervention, extensive regulation, and planning in order to promote economic development.

Question 2

What are the origins

Answer 2

Politics was in control and not economics. In 1976 China’s objectives changed. This was due to loss of political legitimacy, the rise of the West and the chaos of the cultural revolution.

Question 3

What were the 3 main objectives to progress in China and how did they do it

Answer 3

1. Weak leadership.
2. Bureaucratic inertia.
3. Vested interests.

Gradual approach: Rural reforms, new institutions emerged, policy makers could learn from experiments and learn how to overcome vested interests.

Question 4

What were the 3 main incentives of the developmental state

Answer 4

1. State appointments - Central government created incentives for officials at all levels of government to pursue their own economic objectives, overcoming the principal agent problem.
2. Decentralisation of fiscal power and responsibility. Allows government to retain revenue, helping to boost growth.
3. Power of patronage.

Question 5

What were the successes

Answer 5

1. 10% growth a year.
2. Increased capital accumulation and investment.
3. Structural reforms such as urbanisation, increased trade and privatisation.
4. Increase total factor probability and confidence.

Question 6

What were the limitations

Answer 6

1. Increased capital accumulation could result in diminishing returns and reduce the marginal product.
2. Damaged performance of listed firms.
3. Environmental impacts.
4. Income inequality.
5. Subjective wellbeing was the same in 2010 vs 1990 but GDP was 5x higher.