Role of state intervention in China

Question 1

State intervention in China helped to revitalise the economy by redeveloping the economy structurally

Answer 1

1979 Central Comm Meeting
- Realised the 1978 10YP was unreasonable
- Introduced socialism with chinese characteristics to correct the structural imbalances (restructuring of management, reorganisation of enterprises to be more efficient)

Provided strategic directions to promote econ transformation
- ** 4 Modernisations** in Agriculture, Industry, National Defence and Science and Tech
- Socialism with Chinese characteristics = focus on modernising industry, increasing productivity
Encouraged economic dynamism and growth

→ transplant techniques from agricultural reform to industry and further experimentation
→ crash training for 800K in energy production, computers led to increase in productivity

Question 2

State intervention in China helped to revitalise the economy by Building a modern banking and credit system that was the backbone for growth

Answer 2

1978 Structural change in banking
- BOC to specialise in foreign trade and investment
- PCBC to handle fixed investment for manufacturing

1979 Formation of ABC
- to deal with banking in rural areas
- PBOC became the central bank and was 2-tiered to clearly delineate roles

1980s
- Regional banks were formed in the SEZs in coastal areas with Rural Credit Cooperatives and Urban Credit Cooperatives formed

1984
-Banking reforms
pending definition of local bank assets and liabilities are based on loans and deposits which incentivised to increase earnings

→ RCC depositions reloaned locally increase from 34% to 57%; State banks and RCC increased total credit by 35% during 1984 to be made available for economic growth

Question 3

State intervention in China helped to revitalise the economy by placing emphasis on education to build a productive labour force

Answer 3

Local
Reinvigorated higher education to supply high-skilled workers and scientific expertise for national development
- Improve the quality of teaching towards critical thinking and creativity

• 1978 Deng Directive to increase the number of students to be sent to study in developed Western nations
• 1980 to 2000, 2000 to close to 40 000 students abroad
  and returnees rising from 162 to about 9000

1995 Education Law
- Affirmed government commitment to equality of educational opportunity

1999 Action Plan for Revitalising Education
confirmed commitment to implement compulsory education across the country

→ facilitated China’s expansion into international markets with the returns to education

Question 4

State intervention in China helped to revitalise the economy by Responding to negative effects of transformation and ensuring sustained economic growth

Answer 4

Reforms in the rural sector to reduce inflation

1981 6% inflation
- Government stopped borrowing from central bank and reduce G on enterprise investment
- Repaid loans from central bank using govt issued bonds
→ Money growth was halved to 14.5%, inflation dropped to 2.4% in 1981

1985 Urban reforms to curb inflation 8.8%
- Rapid growth of HH Y > expanding production which led to rapid inflation
- Govt reduced reduce G and I/r = reduce C and I = fall in AD
- Enforced credit controls on banks and ordered reductions in unbudgeted investments
→ total bank credit growth fell to 22% in 1985 from 34% the previous year

1988 Aggressive Monetary Policy Cuts 27%
- Tightened credit control, raised i/r and cutbacks in G on investment expenses
- Imposed price controls
→ inflation dropped to 0.6% in 1990

1991 Aggressive Monetary Policy Cuts when inflation hit 2.4%
- The government reduced credit expansion and curtailed I, they also reduced the money supply to 24.6% to increase the value of the yen
–> Rate of increase of CPI reduced to 17.1 from 25%