ECON 455 Lecture 4 Transition to a market economy strategy and

ECON 455 Lecture 4 Transition to a market economy strategy and

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Unformatted text preview: 1 1 Econ455: Economic Development in China Lecture 4: January 22 Transition to a market economy strategy and process 1978-2005 Sandra Poncet Lorch Hall, room 207 Email: sponcet@umich.edu Office Hours: Mondays 16:30-18:30 & Wednesdays 10:30-12 __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ 2 2 Lecture Outline I-Situation before the reforms A-Mean features B-Problems II-Reforms A-Incentives for reforms B-Approach and start C-A two-phase framework 1-Transition through 1992 2-1993-present Conclusion: O utcomes and Challenges __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ 3 3 Introduction The choice of heavy industry oriented strategy to promote overall industrialization and economic development Hoffmanns law Political & military situations called for defense improvement Constraints of small market and inadequate demand This choice was in direct conflict with China's resource endowments and ability to mobilize resources: anti-comparative advantage, leap forward development strategy (Lin et al., 1996) Scarcity of capital Scarcity of foreign exchange Inability to mobilize funds __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ 4 4 Introduction Resolution of the contradiction between the strategic goal and the economic reality Need for macro-policy environment that would artificially reduce the cost of heavy industry development by providing:-cheap labor-cheap capital-cheap raw material-cheap imported equipment and technology for heavy industry projects....
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ECON 455 Lecture 4 Transition to a market economy strategy and

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