University of Southern California
Department of Economics
Fall 2008
Economics 346: Economics of Transition and Development: China
Instructor: Professor Guofu Tan
Class Meeting: M.W. 12-1:50PM; KAP 156
Office Hours: M.W. 2-3PM and by appointment; KAP 310B
Email Address: guofutan@usc.edu
Teaching Assistant: Bobby Zhou (zhoubo@usc.edu)
Office Hours: M. 2-4PM, and F. 8-9AM at KAP 332
Special Note: Students requesting academic accommodations based on a disability are
required to register with Disability Services and Programs (DSP) each semester. A letter
of verification for approved accommodations can be obtained from DSP when adequate
documentation is filed. Please be sure the letter is delivered to me (or to TA) as early in
the semester as possible. DSP is open Monday-Friday, 8:30-5:00. The office is in Student
Union 301 and the phone number is (213) 740-0776.
Course Goal and Description: The goal of this course is to help students understand
and analyze the rapid transition and development of the Chinese economy. It focuses on
China’s economic reform, its transition to a market economy, its relation with the East
Asian countries, and integration into the world economy. The topics include the Chinese
economy from a historical perspective, China in the planned economy 1949-1978,
agricultural reform and development, foreign investment and trade, reform of stateowned enterprises, regulation and development, and China’s economic prospects.
Main Textbook (Required): Barry Naughton, The Chinese Economy, Transitions and
Growth, The MIT Press, 2007.
Other References:
Justin Lin, Fan Cai and Zhou Li, The China Miracle: Development Strategy and
Economic Reform, The Chinese University Press, 1996.
Debraj Ray, Development Economics, Princeton University Press, 1998.
World Bank: World Development Report, various years. See
http://econ.worldbank.org.
Journals, magazines and newspapers, e.g., The Economist, the Asian Wall Street
Journal, the Far East Economic Review, LA Times, and NY Times
A useful source of information is the U.S.-China Institute website
(http://china.usc.edu). In addition to funding and calendar information, the site
offers additional resources that many students find useful (e.g., language
programs, calls for papers, and book reviews). Some students will also be
interested in working on the Institute’s student-driven web magazine, US-China
Today (http://uschina.usc.edu).
Grading: Midterm Examination (in class and take home) (30%)
Final Exam (40%)
Assignments (20%)
Attendance, class participation and discussions (10%)
An Outline of the Course Contents and Reading Materials:
We may add other reading materials during the semester.
Topic 1: Introduction: Economics of Transition and Development
Barry Naughton, The Chinese Economy, Introduction.
Debraj Ray, Development Economics, Chapters 1-2.
Discussion Question: How to measure economic development?
Topic 2: Geography, History, and the Traditional Economy of China
Barry Naughton, The Chinese Economy, Chapters 1 and 2.
Justin Lin (1995), “The Needham Puzzle: Why the Industrial Revolution did not
Originate in China?” Economic Development and Cultural Change 43: 269-292.
Discussion Question: Why did not China industrialize before the West?
Topic 3: The Experience and Legacy of the Socialist Era (1949-1978)
Barry Naughton, The Chinese Economy, Chapter 3.
Discussion Question: Is a centrally planned economic system more efficient than
a market economy?
Topic 4: Transition to a Market Economy: Process, Strategy, and Growth
Barry Naughton, The Chinese Economy, Chapter 4.
Justin Lin, Fan Cai and Zhou Li, The China Miracle, Chapters 5-6.
Jean-Jacques Laffont and Yingyi Qian (1999), “The Dynamics of Reform and
Development in China: A Political Economy Perspective,” European Economic
Review 43: 1085-1094.
Discussion Question: How was the “Gradualist” approach to transition adopted by
China different from the “Big Bang” approach taken by many Eastern European
countries and Russia?
Topic 5: Agricultural Reform and Development
Barry Naughton, The Chinese Economy, Chapters 10-12.
Justin Lin (1992), “Rural Reforms and Agricultural Growth in China,” American
Economic Review 82: 34-51.
Discussion Question: Why were township and village enterprises so successful?
Topic 6: Emergence of Non-state Owned Firms and State-owned Firms in Transition
Barry Naughton, The Chinese Economy, Chapters 13-15.
Justin Li and Guofu Tan (1999), “Accountability, Viability, and Soft Budget
Constraint,” American Economic Review 89(2), 426-431.
Discussion Question: How to make soft budget constraints hard?
Topic 7: Ownership Structure and Corporate Governance
Barry Naughton, The Chinese Economy, Chapter 13.
Andrei Shleifer (1997), “A Survey of Corporate Governance,” Journal of Finance
52: 737-783.
Discussion Question: What are the roles of competition and private property
rights system and are they complements or substitutes?
Midterm Examination: October 15 (Wednesday)
Topic 8: Business Strategies and Industrial Organization in the Chinese Context
Discussion Question: Can Chinese firms develop their own brands?
A case study of Lenovo, based on “Lenovo: The Leading Chinese Computer
Company Enters Global Competition,” Journal of Strategic Management
Education, 2005.
Topic 9: Comparative Advantage, International Trade, and China’s Entry into the WTO
Barry Naughton, The Chinese Economy, Chapter 16.
Discussion Question: How do we interpret trade imbalance between China and
the U.S.?
Topic 10: Foreign Direct Investment (FDI) and Multinational Corporations (MNCs)
Barry Naughton, The Chinese Economy, Chapter 17.
Discussion Question: Why is there so much foreign direct investment in China?
Topic 11: Regulation of Markets and Firms: The Role of State in Development
Jean-Jacques Laffont (2005), Regulation and Development, Cambridge University
Press
Discussion Question: Does China need antitrust law?
Topic 12: The Financial Market and Banks
Barry Naughton, The Chinese Economy, Chapter 19.
Discussion Question: How do financial institutions develop?
Topic 13: The Labor Market
Barry Naughton, The Chinese Economy, Chapters 7-8.
Discussion Question: How to solve unemployment problems in China?
Topic 14: Other Issues: Inequality, Pollution, and Sustainability of Growth
Barry Naughton, The Chinese Economy, Chapters 9, 20.
Topic 15: A Comparison with East Asian Economies and with Other Economies in
Transition and Development
Henry Y. Wan, Jr. (2004), Economic Development in a Globalized Environment:
East Asian Evidences, Springer Science & Business Media, Inc.
Review of the Course
Final Examination: Check the University calendar.