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Has China Lost Its Way?: Getting Stuck in Transition

via Analysis
Saturday, July 1, 1995

If China is to become an economic superpower in the next century, financial markets will be essential to arbitrage risk. Such markets may fail to develop because of uncertainty over the role of government. Efficient financial markets will require that the Chinese Communist Party reduce its political leverage over economic decisions and decision makers.

Not every newly industrializing country has well-functioning liquid financial markets in which investors can diversify their risks. Nor do all developing countries have efficient legal systems in which a broad range of property rights can be enforced. China, for example, has experienced considerable growth without either liquid financial markets or an efficient legal system by using intermediaries--officeholders who construct broad exchange networks that are based on relationships rather than on formal institutions. The reputation of individual power brokers and the strength of their connection to party power centers provide the system's coherence. The capital requirements for future growth, however, may surpass the capability of these intermediaries, putting the system under severe strain. To overcome this strain, alternative methods of contracting agency relations that will require considerable elaboration of the legal system are needed. A rule- compliant, constitutionally grounded society and economy must be established so that contracts can be maintained independent of the personal authority of power holders. The danger of not acting is a liquidity crisis, intensified by the absence of institutions to reduce risks.

China's Transition to Markets-Market Preserving Federalism, Chinese Style

by Barry R. Weingastvia Analysis
Wednesday, February 1, 1995

This essay studies the relationship between decentralization and the success of economic reform in China. It begins with a theory about the relationship between the types of decentralization and economic performance. We argue that a particular form of decentralization, called market-preserving federlism, Chinese style, provides a critical component of the political foundations for market success in China.

After discussing the evolution of federalism, Chinese style, during the first fifteen years of reform (1979-1993), we turn to the political foundation of economic reform. We argue that economic success hinges in part on an important aspect of decentralization, notably, that it provides for the political security of the reforms. By creating alternative centers of power at local levels, decentralization established forces that could help resist attempts by the central government to compromise the reforms.

China's form of decentralization has served the critical purpose of creating markets at time when political resistance to economic reform remained strong and when the durability of the reforms was important. Nonetheless, federalism, Chinese style, remains incomplete, accounting for some of the anomalies surrounding China's success. It lacks some national public goods such as enforcement of a common market and a unified monetary system, and the system needs to be institutionalized via a set of rules underpinning the market. We also observed that aspects of the problems facing modern China are not unique but have historical precedents in the economic development of the West. To this end, we highlight some important parallels between the economic and political problems facing the early United States under the Articles of Confederation (1781-1787) and those of modern China.

The Kazakhs: Second Edition

by Martha Brill Olcottvia Books by Hoover Fellows
Sunday, January 1, 1995

The major events that shaped the present day Islamic nation of Kazakhstan.

One Korea?: Challenges and Prospects for Reunification

via Books by Hoover Fellows
Saturday, January 1, 1994

A distinguished panel of scholars from around the world convened at the Hoover Institution in June 1993 to assess prospects for a reunited Korea. Scenarios for reunification identified at that conference are presented in this volume.

Two Societies in Opposition: The Republic of China and the People's Republic of China after 40 years

via Books by Hoover Fellows
Tuesday, January 1, 1991

The essays in this book employ a multidisciplinary approach to systematically compare the People's Republic of China and the Republic of China on Taiwan.

The New Wealth of Nations

by Guy Sormanvia Books by Hoover Fellows
Monday, January 1, 1990

The title of Guy Sorman's book pays homage to the great European economist Adam Smith and his book The Wealth of Nations. Smith was a moralist preoccuppied with the notion of social justice and a realist who believed in an unfettered free market. Sorman's study reiterates that the free market is the universal principle of development, that the free market works.

In the Shadow of Giants: The Major Powers and the Security of Southeast Asia

by James A. Gregorvia Books by Hoover Fellows
Sunday, January 1, 1989

The author illustrates that an increased Soviet military presence should weaken U.S. security associations in East Asia by threatening the integrity of the sea-lanes that supply Northeast Asia with necessary raw materials and possibly lead to the eventual domination of the West Pacific by the Soviet Union.

China Connection: U.S. Policy and the People's Republic of China

by James A. Gregorvia Books by Hoover Fellows
Wednesday, January 1, 1986

This series will provide expert analyses of U.S. interests and involvement in key countries, regions, and organizations.

U.S.-Japan Strategic Reciprocity: A Neo-Internationalist View

by Edward A. Olsenvia Books by Hoover Fellows
Tuesday, January 1, 1985

This volume evaluates the past, present, and future course of U. S.-Japan security relations.

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