IDEAS home Printed from https://ideas.repec.org/p/cdl/globco/qt9cn9b13c.html
   My bibliography  Save this paper

Policy Paper 11: China’s Nonconformist Reforms

Author

Listed:
  • McMillan, John

Abstract

How has China achieved its spectacular economic growth under reform, despite having no commercial law, no financial market, prices that are only partially freed, and no privatization? I argue that the fundamental reasons for China’s success are not unique to China. China succeeded because it unleashed the forces of competition. China shows the power of incentives; but it also shows that, in a transition economy, workable incentives can take surprisingly nonstandard forms. Novel institutional forms evolved to solve the unprecedented problems of transition. Entry of new firms, albeit with an unusual ownership structure, produced a competitive non-state industrial sector. New state-imposed incentives induced the state-owned firms to improve their efficiency. The discipline on managers that comes from product-market competition helped compensate for the missing financial-market discipline. Reputation incentives substituted for formal legal enforcement of contracts.

Suggested Citation

  • McMillan, John, 1994. "Policy Paper 11: China’s Nonconformist Reforms," Institute on Global Conflict and Cooperation, Working Paper Series qt9cn9b13c, Institute on Global Conflict and Cooperation, University of California.
    • Handle: RePEc:cdl:globco:qt9cn9b13c
    as

    Download full text from publisher

    File URL: https://www.escholarship.org/uc/item/9cn9b13c.pdf;origin=repeccitec
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. McMillan, John & Naughton, Barry, 1992. "How to Reform a Planned Economy: Lessons from China," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 8(1), pages 130-143, Spring.
    2. Dollar, David, 1990. "Economic Reform and Allocative Efficiency in China's State-Owned Industry," Economic Development and Cultural Change, University of Chicago Press, vol. 39(1), pages 89-105, October.
    3. McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 399-426, Fall.
    4. Oulton,Nicholas & O'Mahony,Mary, 1994. "Productivity and Growth," Cambridge Books, Cambridge University Press, number 9780521453455.
    5. Byrd, William A., 1987. "The impact of the two-tier plan/market system in chinese industry," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 295-308, September.
    6. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
    7. Gary H. Jefferson & Thomas G. Rawski, 1994. "Enterprise Reform in Chinese Industry," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 47-70, Spring.
    8. Jean Tirole, 1991. "Privatization in Eastern Europe: Incentives and the Economics of Transition," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 221-268, National Bureau of Economic Research, Inc.
    9. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Privatization and Incentives," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 84-105, Special I.
    10. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    11. Theodore Groves & Yongmiao Hong & John McMillan & Barry Naughton, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 183-209.
    12. McMillan, John & Whalley, John & Zhu, Lijing, 1989. "The Impact of China's Economic Reforms on Agricultural Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 781-807, August.
    13. Sachs, J.D. & Woo, W.T., 1994. "Structural Factors in the Economic Reforms of China, Eastern Europe and the Former Soviet Union," Papers 94-01, California Davis - Institute of Governmental Affairs.
    14. Groves, Theodore & Yongmiao Hong & John McMillan & Barry Naughton, 1995. "China's Evolving Managerial Labor Market," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 873-892, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Franklin Allen & Jun & Chenying Zhang & Mengxin Zhao, 2012. "China's Financial System: Opportunities and Challenges," NBER Chapters, in: Capitalizing China, pages 63-143, National Bureau of Economic Research, Inc.
    2. Hongbin Li & Lingsheng Meng & Junsen Zhang, 2006. "Why Do Entrepreneurs Enter Politics? Evidence from China," Economic Inquiry, Western Economic Association International, vol. 44(3), pages 559-578, July.
    3. Li, Hongbin & Meng, Lingsheng & Wang, Qian & Zhou, Li-An, 2008. "Political connections, financing and firm performance: Evidence from Chinese private firms," Journal of Development Economics, Elsevier, vol. 87(2), pages 283-299, October.
    4. Hongbin Li & Lingsheng Meng & Junsen Zhang, 2005. "Why Do Entrepreneurs Enter Politics?," Discussion Papers 00009, Chinese University of Hong Kong, Department of Economics.
    5. Lino Sau, 2012. "Evolution of China's financial system and its impact on economic development," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 5(1), pages 1-15.
    6. Chittawan Chanagul, 2009. "Democracy and Economic Development," Vienna Economics Papers 0911, University of Vienna, Department of Economics.
    7. Adam Fforde, 2002. "Resourcing Conservative Transition in Vietnam: Rent Switching and Resource Appropriation," Post-Communist Economies, Taylor & Francis Journals, vol. 14(2), pages 203-226.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cull, Robert & Xu, Lixin Colin, 2000. "Bureaucrats, State Banks, and the Efficiency of Credit Allocation: The Experience of Chinese State-Owned Enterprises," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 1-31, March.
    2. Jin, Zhangfeng & Pan, Shiyuan, 2020. "Incentive Pay and Firm Productivity: Evidence from China," GLO Discussion Paper Series 479, Global Labor Organization (GLO).
    3. Wang, Yijiang & Chang, Chun, 1998. "Economic transition under a semifederalist government: The experience of China," China Economic Review, Elsevier, vol. 9(1), pages 1-23.
    4. Xu, Cheng-Gang, 2010. "The Institutional Foundations of China?s Reforms and Development," CEPR Discussion Papers 7654, C.E.P.R. Discussion Papers.
    5. Torsten Heinrich & Jangho Yang & Shuanping Dai, 2020. "Growth, development, and structural change at the firm-level: The example of the PR China," Papers 2012.14503, arXiv.org.
    6. C. Goodhart & C. Xu, 1996. "The Rise of China as an Economic Power," National Institute Economic Review, National Institute of Economic and Social Research, vol. 155(1), pages 56-80, February.
    7. Goodhart, C. A. E. & Xu, Chenggang, 1996. "The rise of China as an economic power," LSE Research Online Documents on Economics 3753, London School of Economics and Political Science, LSE Library.
    8. Lawrence J. Lau & Yingyi Qian & Gerard Roland, 2000. "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 120-143, February.
    9. Jeffrey Sachs & Wing Thye Woo, 2003. "China's Economic Growth After WTO Membership," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(1), pages 1-31.
    10. Alan de Brauw & Jikun Huang & Scott Rozelle, "undated". "Sequencing and the Success of Gradualism: Empirical Evidence from China's Agricultural Reform," Center for Development Economics 173, Department of Economics, Williams College.
    11. William Jefferies, 2021. "China’s Accession to the WTO and the Collapse That Never Was," Review of Radical Political Economics, Union for Radical Political Economics, vol. 53(2), pages 300-319, June.
    12. Justin Yifu Lin & Fang Cai & Zhou Li, 1994. "China's economic reforms : pointers for other economies in transition?," Policy Research Working Paper Series 1310, The World Bank.
    13. Jeffrey D. Sachs & Wing Thye Woo, "undated". "Understanding China'S Economic Performance," Department of Economics 97-04, California Davis - Department of Economics.
    14. Macours, Karen & Swinnen, Johan F. M., 2000. "Causes of Output Decline in Economic Transition: The Case of Central and Eastern European Agriculture," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 172-206, March.
    15. ., 2013. "The Needham Puzzle, the Weber Question and China's Miracle: Long Term Performance since the Sung Dynasty," Chapters, in: D. S.P. Rao & Bart van Ark (ed.), World Economic Performance, chapter 3, pages 42-87, Edward Elgar Publishing.
    16. Johnson, Simon & Kouvelis, Panos & Sinha, Vikas, 1997. "On Reform Intensity under Uncertainty," Journal of Comparative Economics, Elsevier, vol. 25(3), pages 297-321, December.
    17. Tang, Rongsheng & Tang, Yang, 2022. "Market formation in China from 1978," Regional Science and Urban Economics, Elsevier, vol. 95(C).
    18. Rebitzer, James B. & Taylor, Lowell J., 2011. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 8, pages 701-772, Elsevier.
    19. Yao, Shujie, 1997. "Profit Sharing, Bonus Payment, and Productivity: A Case Study of Chinese State-Owned Enterprises," Journal of Comparative Economics, Elsevier, vol. 24(3), pages 281-296, June.
    20. Fleischer, Belton M. & Yang, Dennis T., 2003. "Labor laws and regulations in China," China Economic Review, Elsevier, vol. 14(4), pages 426-433.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdl:globco:qt9cn9b13c. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lisa Schiff (email available below). General contact details of provider: https://escholarship.org/uc/igcc/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.