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Blunt To Sharpened Razor: Incremental Reform And Distortions In The Product And Capital Markets In China

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  • Zhang, Xiaobo
  • Tan, Kong-Yam

Abstract

A key objective of China's reform program was to reduce distortions in the economic system and enhance growth. However, when implemented in incremental and partial ways, local governments or individuals have chance to capture rents inherent in the reform process. Young (2000) warned that the rent-seeking behavior might lead to increasing market fragmentation. Empirical studies have since shown that this did not happen in the product markets. In this paper we argue that as rents from the product markets were squeezed out during the reform process, rent-seeking behavior shifted to the factor markets, especially the capital and land markets. The reform process now needs to be deepened to ensure that the factor markets also become more integrated and efficient.

Suggested Citation

  • Zhang, Xiaobo & Tan, Kong-Yam, 2004. "Blunt To Sharpened Razor: Incremental Reform And Distortions In The Product And Capital Markets In China," DSGD Discussion Papers 60183, CGIAR, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:ags:dsgddp:60183
    DOI: 10.22004/ag.econ.60183
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    2. Zhang, Xiaobo, 2006. "Asymmetric property rights in China's economic growth," DSGD Discussion Papers 55406, CGIAR, International Food Policy Research Institute (IFPRI).
    3. Mukherjee, Anit & Zhang, Xiaobo, 2005. "Rural Non-farm Development in China and India: The Role of Policies and Institutions," DSGD Discussion Papers 58387, CGIAR, International Food Policy Research Institute (IFPRI).
    4. Ronald McKinnon, 2006. "China'S Exchange Rate Appreciation In The Light Of The Earlier Japanese Experience," Pacific Economic Review, Wiley Blackwell, vol. 11(3), pages 287-298, October.
    5. Ronald I. McKinnon, 2005. "Exchange rates, wages, and international adjustment: Japan and China versus the United States," Proceedings, Federal Reserve Bank of San Francisco, issue feb.
    6. Nico Heerink & Marijke Kuiper & Xiaoping Shi, 2006. "China's New Rural Income Support Policy: Impacts on Grain Production and Rural Income Inequality," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(6), pages 58-69, November.
    7. nan, 2007. "Transforming the rural nonfarm economy: Opportunities and threats in the developing world," IFPRI books, International Food Policy Research Institute (IFPRI), number 978-0-8018-8664-5 edited by Haggblade, Steven; Hazell, Peter B. R.; Reardon, Thomas Anthony.
    8. Sylviane GUILLAUMONT JEANNENEY & PING HUA & ZHICHENG LIANG, 2006. "Financial Development, Economic Efficiency, And Productivity Growth: Evidence From China," The Developing Economies, Institute of Developing Economies, vol. 44(1), pages 27-52, March.
    9. World Bank, 2005. "China : Integration of National Product and Factor Markets, Economic Benefits and Policy Recommendations," World Bank Publications - Reports 8690, The World Bank Group.
    10. Zhicheng Liang, 2006. "Financial Development, Growth, and Regional Disparity in Post-Reform China," WIDER Working Paper Series RP2006-90, World Institute for Development Economic Research (UNU-WIDER).
    11. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    12. Ronald I. McKinnon, 2006. "Exchange Rate or Wage Changes in International Adjustment? Japan and China versus the United States," Chapters, in: Lawrence R. Klein & Tayyeb Shabbir (ed.), Recent Financial Crises, chapter 8, Edward Elgar Publishing.
    13. Dougherty, Sean & Herd, Richard & He, Ping, 2007. "Has a private sector emerged in China's industry? Evidence from a quarter of a million Chinese firms," China Economic Review, Elsevier, vol. 18(3), pages 309-334.
    14. Kong-Yam Tan, 2007. "Incremental Reform and Distortions in China's Product and Factor Markets," The World Bank Economic Review, World Bank, vol. 21(2), pages 279-299, March.

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