BUS 487 - POLITICS AND
ECONOMICS AND
DEVELOPMENT
Professor Marvin Zonis
APRIL 2000
Courtney Bickert
Isabelle Bonneau
Prashant Gandhi
Anthony Haro
Sastry Penumarty
1
ACKNOWLEDGEMENT
We would like to thank our sponsors, who made our trip to China possible:
CNA
DEUTSCHE BANK
DIAMOND TECHNOLOGY PARTNERS
PFIZER
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TABLE OF CONTENTS
I. INTRODUCTION
Objectives and approach
Trip Overview
1
1
1
Summary of findings
1
II. A BRIEF HISTORY OF ECONOMIC REFORM IN CHINA
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III. ANALYSIS OF FIRST TIER ISSUES
Political stability
Reform of State-Owned Enterprises
Banking Reform
Development of the West
WTO
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3
5
6
9
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IV. ANALYSIS OF SECOND-TIER ISSUES
Foreign Direct Investment
Domestic Private sector growth
Corruption
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12
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V. THE FUTURE OF HIGH TECHNOLOGY IN CHINA
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VI. OVERALL CONCLUSIONS
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EXHIBIT A: ITINERARY
EXHIBIT B: CHINA CONTACT LIST
EXHIBIT C: YEAR-TO-YEAR CHANGE IN CHINA’S GDP
EXHIBIT D: PROFITABILITY OF STATE-OWNED ENTERPRISES
EXHIBIT E: ESTIMATE OF THE BANK RESTRUCTURING COSTS(*)
EXHIBIT F1: AGGREGATE BALANCE SHEET OF THE STATE-OWNED BANKS AS OF JUNE
1998
EXHIBIT F2: AGGREGATE BALANCE SHEET OF THE STATE-OWNED BANKS AS OF JUNE
1998
EXHIBIT G : TRENDS IN FDI IN CHINA
EXHIBIT H : GEOGRAPHIC CONCENTRATION OF FDI IN CHINA
EXHIBIT I : BIBLIOGRAPHY
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I.
INTRODUCTION
Objectives and Approach
The purpose of this study was to ascertain both the short-term (12-18 months) and longer-term
growth (3-5 years) outlook for China, and to identify some key challenges that lie ahead. The report begins
with a brief history of economic reform in China in order to provide a context for current and future
economic trends. We then dive into what we have characterized as first-tier and second-tier issues affecting
China’s future growth. The first-tier issues include political stability, reform of State-Owned Enterprises
(SOEs), banking reform, development of the west, and the effect of China’s entry into the WTO. In addition,
foreign direct investment, private sector growth, and corruption will also impact China’s short-term growth
although to a lesser degree. Therefore, we have categorized these as second-tier issues. Finally, given all the
recent hype and publicity, our report also addresses the future impact of the high-technology industry in
China.
From an expenditure approach, any nation’s GDP can be expressed as being the sum of consumption
expenditure, government spending, fixed asset investment and net exports.1 Our report will not only explain
why we think the chosen set of variables issues are important, but it will also tie their effects back into this
fundamental identity.
Trip Overview
Our team consisted of five 1st and 2nd year MBA and IMBA students from the University of Chicago.
In order to ascertain the future prospects and to closely study both the first and second-tier issues, we visited
four cities, which have several unique attributes. Specifically, we visited Hong Kong, Xiamen, Shanghai and
Beijing (Exhibit A). Hong Kong has for many years been a key player in foreign investment in China. For
instance, much Taiwanese investment in China flows through Hong Kong. Xiamen is a Special Economic
Zone (SEZ), which has special policy rights to foster industrial development and foreign investment.
Shanghai is home to the first Special Economic Area, Pudong, where the central government is making
targeted investments to build up infrastructure that will attract foreign and local investment. Shanghai is also
widely regarded as the economic capital of China, as well as a future competitor of Hong Kong. Finally, as
the capital, Beijing is the center of national and international politics. In total we conducted over 35
meetings with a broad cross-section of people, including: government officials, representatives of US and
European MNCs, Chinese business school students, industrialists, e-commerce entrepreneurs, bankers,
economists, journalists and representatives of the US and French embassies (Exhibit B).
1
(GDP = S + I + C + CA)
1
Summary of Findings
The officially reported GDP growth rate in China has been around seven percent for the last few
years. We believe that China’s economy will continue to grow at about the same rate in the next two to three
years. Our team predicts that the economic growth will accelerate a little to around 7.5% in the next 12
months due to resumption in investment and export growth. The fixed-asset investment growth, which
slowed significantly in 1999 is expected to pick-up again in 2000 owing to the official launch of the Western
Area Development Program and increase in foreign direct investment. Also, net exports are most likely to
increase with China’s entry into the WTO. In addition, political stability will be maintained, allowing for
economic growth to continue at its current pace. SOE reform will also contribute positively to short-term
economic growth, but, in the long term, this impact will be tempered by the decline in consumption caused
by the massive layoffs required for restructuring. The positive impact of banking reform is also likely to be
felt more strongly in the longer term (7-10 years) as reforms are completed.
In the longer-term beyond 2-3 years, we believe that the economic growth might moderate if the
central government’s direct investment capacity weakens. The debt-to-equity swap program run by AMCs
may not be as successful as government expects, while the program may engender some new bad loans.
Finally, the long-term difficulties in resolving the unemployment problem during the economic transition
period as well as the ensuing social instability in rural regions may also contribute to the slow-down.
We also believe that investment in China is still quite risky for foreigners. The government is
aiming to use foreign investments and partnerships to increase exports, improve human capital, gain access
to up-to-date technology, and develop the western regions. These goals are not always compatible with those
of the average foreign investor, possibly leading to complications. For instance, MNCs attempting to gain
domestic market share in China seem to have more trouble with the government than do firms aiming to
export their products. In addition, the rule of law in the business sector is weak making it difficult, if not
impossible, for investors to recoup money lost through corruption. While the risks are quite high, the returns
to investing in China can also be high. Many MNCs have established extremely successful business ventures
in China. The Chinese economy will continue to grow and over the long term market reforms will be largely
successful. In conclusion, investment in China is risky, but if it is for the long-term, the payoffs are likely to
be very high.
II.
A BRIEF HISTORY OF ECONOMIC REFORM IN CHINA
For centuries, China’s economy was based primarily on agriculture. In 1949 the Chinese Communist
Party (CCP) came to power and founded the People's Republic of China (PRC). The Party leaders decided to
focus on the development of heavy industry as they saw this as the means to achieve a self-contained
industrial economy. Self-containment was important because of the high level of uncertainty due to the
Korean War and China’s military confrontation with the Nationalist Party in Taiwan.
While this development strategy was extremely capital intensive, China’s economy was quite poor.
This imbalance between China’s goal and the availability of resources made it impossible to accelerate t
economic development through market mechanisms. Therefore, the CCP adopted a planned economy and
created institutional arrangements to lower the barriers to the development of heavy industries, i.e., low
2
interest rates, depressed product and factor prices, and a central resource allocation system. While this
system quickly established a relatively complete industrial structure and likewise led to economic growth
resulting from massive investment (Our research revealed that China’s annualized GDP growth between
1953-1978 was close to 6%2), the costs associated with economic inefficiency were extremely high. For
instance, there were no links between the expansion of an enterprise and its economic efficiency, or between
workers’ income and their productivity. This lack of incentives severely suppressed productivity and
resulted in low economic efficiency.
Beginning in 1978, the CCP, under the leadership of Deng Xiaoping, established a national objective
of modernizing agriculture, industry, defense, and science and technology. Since 1979 China’s economic
reform has gone through three main phases. The focus of the first phase (1978-1984) was to increase the
economic efficiency of all industries by improving the incentive structures. During this period total
agricultural output increased by 42 percent.3 The primary goal of urban reform efforts during this phase was
to increase enterprises’ autonomy. The objective of the second phase of reform (1984-1991) was to improve
resource allocation mechanisms. The main focuses of the reforms were (a) the material management system,
(b) the foreign-trade management system, and (c) the banking system. The third phase of reform (1992present) has focused on the macro-policy environment, including the reform of pricing, exchange-rate and
interest-rate policies.
The results of these reform efforts have been astounding. The annual GNP growth rate between
1978-94 averaged about 10 percent,4 which is far higher than the world average of 3 percent during the same
period. In addition, the per capita annual income of rural residents rose from 133.5 yuan to 1,220 yuan
between 1978-94 with an annual growth averaging 8.25 percent (3.5 times the worldwide average annual
growth between 1952-78). However, the growth of the Chinese economy has slowed a bit in the last five
years (Exhibit C). Some economists have argued that the first two decades of reform reflected “catch-up”
growth for China, and that the country has “run out of easy things to reform”5.
III.
ANALYSIS OF FIRST TIER ISSUES
Political Stability
Political stability in China can be defined as the continuance, in the next five to ten years, of the
existing governance systems at the federal, provincial and local levels. The government should serve a
strong coordination and control function. It is also important that the leadership continue its commitment to
economic reforms.
Political stability in China will have a strong impact, direct as well as indirect, on the GDP growth in
four main ways. First, it will ensure steadfast commitment to economic reforms, even in the face of shortterm challenges. Second, it will help maintain strong consumer and investor confidence in the economy.
Third, it will provide a foundation for continued government infrastructure investment. Fourth, it will bolster
2
The China Miracle, Justin Yifu Lin, Fang Cai and Zhou Li; The Chinese University Press, 1996.
The China Miracle, Justin Yifu Lin, Fang Cai and Zhou Li; The Chinese University Press, 1996.
4
calculated according to comparable prices
3
3
the development of a strong legal system and minimize problems such as corruption and smuggling. Despite
numerous challenges, there are no significant threats to political stability, in the next 1-3 years.
Though it is unlikely that there will be any major shift in the political system in the next three to five
years, there are several challenges that the government will have to deal with. One potential threat to
stability is a change in the leadership in Beijing.6 Many members of China’s current leadership are
septuagenarians, who rose up the ranks of the Communist Party and had taken part in the 1949 revolution. In
late 2002, the Chinese Communist Party will hold its 16th National Congress. At that time, all the first-tier
members of the current leadership hierarchy are expected to make way for a younger leadership team.
Among the leaders whose current terms could expire, in late 2002, are President Jiang Zemin, Premier Zhu
Rongji and Chairman of the national legislature, Li Peng. These younger people are believed to be less
ideologically shackled than their elders, and so can be expected to increase the pace of current reforms, many
of which are in fact designed to strengthen the CCPs grip on power.
In addition, there is a threat from social unrest. The SOE reforms have caused massive
unemployment. According to recent statistics from the Ministry of Labor and Social Insurance7, newly laidoff workers in 1999 totaled 56.4 million, while the total laid-off workers in urban areas alone reached 117.4
million. The real unemployment rate in urban areas has reached 8.2% (end of 1999), although the registered
unemployment rate was only 3.1%.
The SOEs used to provide health insurance, pensions, housing, and education to their employees. In
the absence of an adequate social safety net, many of these benefits have either vanished or decreased
substantially since the layoffs. Even though the Chinese government has stepped up its efforts to create a
social safety net and has increased the total benefits to the unemployed workers, these efforts are insufficient.
With the target to complete SOE reforms within the next three years, these problems will only worsen.
The disgruntlement of these SOE workers poses the most significant threat to China’s political
stability in the near-term. There have been numerous reports of protests of street protests and violence across
China, especially in the northeastern and western provinces.
Falun Gong8 has also been seen as a threat to the political establishment. Falun Gong is a religious
sect that teaches meditation, breathing techniques and self-discipline. While there are numerous such sects in
China, Falun Gong is one of the largest with reported membership from 2 million (Chinese government
figure) to 100 million (Falun Gong leadership). The membership of Falun Gong consists of intellectuals,
laid-off SOE workers, and farmers. In June 1999, about 10,000 Falun Gong members quietly surrounded
Beijing’s Zhongnanhai leadership compound. Since the Zhongnanhai incident, Falun Gong has been banned
and most of its key leaders have been arrested. Li Hongzhi, Falun Gong’s founder, lives in exile in New
York.
Finally, China-Taiwan relations play a significant role in China’s politics. The election of Chen
Shui-Bian as President of Taiwan has only intensified China’s sabre-rattling towards its neighbor. The
United States government’s close relations with Taiwan combined with the Chinese government’s avid
interest in reunifying Taiwan with the mainland make for a lot of tension in the region.
5
The Economist, April 8th 2000.
Court Intrigue, Asia Week, February 11, 2000.
2
Counterpoint, a publication of SG Global Research, March 2000 issue.
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4
Despite all the above challenges, China’s political stability is in no imminent danger. The reasons
for our conclusion are three-fold. First, the Chinese government is aggressively addressing the problem of
social unrest by boosting the benefits to the laid-off workers and setting up programs to re-train them. Even
though it is not entirely clear that these measures will be adequate in the long-term, they are sufficient for the
short-term. Second, the Falun Gong has been banned and most of its key leaders have been arrested since the
Zhongnanhai incident. There is no serious threat from these organizations and addressing the economic
problems in the country will alleviate whatever tension there is. Third, both China and Taiwan have made
some concessions and have indicated a willingness to hold talks. Similarly, the president-elect of Taiwan has
announced concessions, saying that he is open to discussing anything (however, Chen has pointedly not
agreed to the One-China framework). Therefore, the Taiwan issue does not pose a significant threat to
political stability in China in the short-term. However, it could definitely play a very important role in the
medium and long-term.
Reform of State-Owned Enterprises (SOEs)
State Owned Enterprises (SOEs), are a main driver of the Chinese Economy as they represent one
third of China’s GDP. The other two-thirds consist of the collective economy and the private sector in
approximately equal proportions. SOEs also employ a large portion of the population. Effective reform of the
SOEs will have a positive impact on the GDP through more efficient allocation of resources gradually over
time. This positive impact will be offset, however, by declines in consumption associated with the massive
layoffs required for restructuring.
SOEs (mostly large industrial firms) have proven to be extremely inefficient, accumulating debts, in
some cases just to pay wages (bad debt is estimated to represent 30 to 60% of the total amount of debt of
SOEs). Overwhelmed by the financial burden and willing to develop the market economy, the Chinese
government intensified its policy of SOE reforms in 1997.
In pursuing reform, the government has to balance between two potential pitfalls. On the one hand, it
has to conduct the reforms fast enough to avoid further debt accumulation and to enable the economy to
develop. On the other hand, since SOE reform will lead to massive layoffs, restructuring too rapidly could
cause increased political instability and result in a deep crisis for the whole economy by slowing down
consumption.
In order to avoid these two pitfalls, the government is conducting the reform progressively. Rather
than shutting all non-profitable SOEs at once, the government is restructuring them industry by industry
and/or geographic area by area. The policy is to try to make the SOEs profitable through reorganizations
and/or collaboration with Western firms. For example, SOEs in the aerospace industry now subcontract with
Airbus and Boeing to both improve their profitability and acquire up-to-date technology. If the SOEs do not
show a potential for profitability, they are usually closed. Any restructuring or closing involves layoffs. The
aim of this step-by-step approach taken by the government is to allow enough time to create new jobs to
absorb the surplus labor. China’s entry into the WTO will put additional pressure on the Chinese
8
A Two-way Siege, Asia Week, February 11, 2000.
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Government to accelerate SOE restructuring, but it will also provide an explanation to the public for the
painful reforms.
There are several factors that may cause SOE reform to fail. First, the government may not manage
to maintain political stability in the face of the massive layoffs. As mentioned above, the situation of the
unemployed is worsened by the fact that workers lose their social coverage when they are laid off. The
government has managed so far to contain the numerous protests happening around the country, but social
unrest due to unemployment could hinder SOE reform.
Furthermore, the lack of management skills among SOE leaders could be a barrier to successful SOE
reform. The current top managers of SOEs do not have skills to work in a market economy as they were
trained in the Communist era. According to some of our interviewees, SOE managers are focusing their
“restructuring” efforts on diminishing costs rather than on increasing revenues. Not only does this mean that
the underlying unsuccessful structures of these enterprises remain unchanged, but it results in additional
layoffs. On the other hand, there is some promising evidence that some of the SOE managers are beginning
to focus on increasing revenue (i.e. aerospace ventures mentioned above)
Finally, SOE reform in many geographic regions in China may be hindered by a lack of skilled labor
and insufficient infrastructure. According to one of our interviewees, only five percent of the Chinese
population has a university-level education and most college-educated citizens live in urban areas. One
interviewee told us of a visit to a small western town in which he could not find anyone on the street who
could read a set of directions in Mandarin. Moreover, those who do have skills leave the rural areas in search
of better opportunities in urban areas. Finally, the lack of infrastructure development makes it fundamentally
impossible for rural enterprises to increase their access to inputs or to expand their markets beyond the
immediate area. Therefore, SOE reform outside of the major urban centers will be very challenging.
Despite these difficulties, some efficient restructuring will take place in the coming three years. This
will be driven by the government’s strong commitment to reform as well as by the pressures associated with
WTO entry. Statistical figures confirm this analysis: SOEs reported a 77.7% year-over-year increase in their
profits in 1999.
In summary, then, we feel that SOE reform is an issue of central importance to future economic
growth in China. A significant portion of the SOE sector is value-destroying and should be restructured, and
Beijing knows this. The central government is thus trying to time the closure of SOEs to coincide with the
development of jobs for the newly unemployed. Despite the fact that the SOE reform effort has only recently
begun in earnest, this discontinuity between job creations and destruction is already creating problems for the
economy and the government. We feel that Beijing has the resources to manage this dilemma in the near
term, with the advent of new development projects in the west and the center, as well as with a projected
increase in FDI. However, such gradualism must eventually give way to an inevitable radical restructuring of
the society and the economy. We feel that Beijing has at least five years before it must confront these issues,
but when it does, the country may enter severe social turbulence.
Banking Reform
Successful reform of the banking sector is a key prerequisite to building a financial infrastructure
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that will make China’s economic growth sustainable. The Chinese government has instituted banking
reforms9 to overcome the deep-seated structural problems of profitability (Exhibit D), non-performing loans
(NPLs) (Exhibits E and F), and capital adequacy plaguing China’s banks. Because of the weaknesses in
China’s current banking system, there is a very small chance of a crisis.
Banking reforms have a strong positive impact on the GDP growth in two main ways. First, an
efficient banking system ensures the adequate availability and efficient allocation of investment resources
(“I” in the GDP Demand equation). Second, a healthy banking system boosts consumer confidence and
maintains growth in consumption (“C” in the GDP Demand equation) and the high-savings rates. In China
the high savings rate has contributed to rapid growth in the past. Banking reform in China will continue and
will contribute positively to economic growth. The positive impact of reform will be felt much more
strongly in the long run, however.
China’s banking sector consists of one central bank, four large state-owned banks, thirteen other
commercial banks, several hundred urban cooperative banks, and trust and investment companies plus over
fifty-thousand urban and rural cooperatives. In addition, there are a handful of small foreign-funded and
joint-venture banks, hundreds of branches and representative offices of foreign banks, six finance companies
and one joint venture investment bank. We focus mainly on the four state-owned banks: Agricultural Bank of
China, Industrial and Commercial Bank of China, Bank of China and Construction Bank of China. Together,
these banks account for over 70 percent of loans and over 60 percent of deposits in China’s commercial
banking system.
Non-Performing Loans (NPLs) are one of the key problems facing the Chinese banks. The credit
rating of Chinese banks is amongst the lowest in Asia. The People’s Bank of China (or PBC, China’s central
bank) estimates that at the end of 1997, around 20-25 percent of total bank loans, or about RMB $1,500
billion were non-performing. This is equivalent to about 20 percent of GDP. Of the total NPLs, about 6-7
percent is deemed unrecoverable. It is important to keep in mind that the exact amount of NPLs, in the
records of state-owned banks, is not transparent. The NPL problem has a stock and a flow dimension. The
stock problem arises from the bad loans undertaken in the past. The flow problem refers to future loans to
state-owned enterprises (SOEs) operating at a loss, which will not be able to service them.
Many of the non-performance problems of Chinese banks can also be explained by the directed
lending practices prevalent in the centrally planned economy. As provincial governments maintained
authority over bank personnel within their localities, they strongly influenced decisions pertaining to credit
allocation without sufficient due diligence. Banks were made to lend generously to support ambitious
projects of local governments in a race to outgrow neighboring cities and provinces. As credit was allocated
to the local SOEs, construction of huge commercial centers, office skyscrapers and luxury apartments for
which there was no genuine demand, a significant portion of the loans turned “bad” and became
unrecoverable.
The sheer size of the NPLs can be explained by structural factors – under a centrally planned
economy, banks acted on behalf of the government to finance investment and working capital needs of stateowned capital enterprises (SOEs). A large proportion of SOEs is suffering losses and therefore, a large
9
Strengthening the Banking System in China: Issues and Experience, a joint conference held by Bank for International
Settlements (BIS) and the People’s Bank of China (PBC), Beijing, China, 1-2 March 1999.
7
proportion of the loans extended to them have become doubtful. Pulling the plug on SOEs would push them
into bankruptcy, resulting in massive layoffs. As a result, banks are still carrying the NPLs on their balance
sheets.
In 1998, the Chinese government put forward a number of reform measures to deal with the issues of
NPLs and to guard against financial risks in the banking sector. These reforms are discussed in detail below:
(i)
Strengthening the capital base of state-owned banks
In August 1998, special government bonds were issued to the tune of RMB 270 billion to recapitalise (Exhibit 3) the state-owned banks. The plan was implemented in conjunction with the
reduction of the deposit reserve requirements from 13 to 8 percent. This was aimed at further
increasing bank liquidity. The re-capitalization plan raised the capital of the state-owned banks from
RMB 208 billion to RMB 478 billion.
(ii)
Asset Management Corporations (AMCs)
In March 1999, the government established the first of the AMCs to clean up the balance sheets of
the state-owned banks and then repackage and sell the loans of the state-owned banks. The Cinda
Asset Management Corporation has been setup to manage the bad debts of the China Construction
Bank. Cinda has taken over RMB 200 billion of the bank’s bad loans. The goal of Cinda is to
(a) clean up the China Construction Bank’s balance sheet of bad loans by purchasing bad loans at
face value,
(b) increase the recovery rate of such loans,
(c) sell assets or extend maturity for partial payments, and
(d) advise on restructuring and operations
(iii)
New standards for classifying NPLs
The Chinese government has introduced a risk-based classification system for NPLs. The new
system follows the international standards of dividing NPLs into four categories: special mention,
substandard, doubtful and loss. The old system loosely classified loans as overdue, doubtful, and
bad. Under this system, loans would still be classified as “performing” long after an enterprise
ceased functioning due to financial difficulties.
(iv)
Requiring banks to make loans on a commercial basis
Effective from January 1998, the PBC abolished the mandatory quota system for credit allocation.
Banks are now free to lend according to commercial considerations, subject to constraints on
asset/liability ratios and monetary policy targets of the PBC. The goal of this policy is to reduce the
risk of future bad loans.
(v)
Independence of the PBC
The PBC has been reorganized and efforts are underway to de-politicize the banking supervision and
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examination process. Similar to the streamlined structure of the United States Federal Reserve, the
PBC’s provincial offices have been combined into regional headquarters overseeing several
provinces. The goal is to deter local governments from encouraging banks to finance their favored
projects, many of which are over-ambitious and not profitable.
The banking reforms in China are subject to six constraints that will hinder their efficacy. First, the
RMB 270 billion injection is not likely to be sufficient to re-capitalize the banks. Moreover, an even greater
shortfall is likely to surface if China does not contain the flow problem of NPLs properly. Second, the
under-estimation of the real size of the NPLs and the urgency that may result in the event of China’s entry
into the WTO may further aggravate this problem. Third, our research indicated that all AMCs seem to have
overestimated the real value of NPLs. They also appear to be overconfident about the future of these NPLs
after the restructuring. AMCs don’t seem to understand that they will have to sell these NPLs at huge
discounts in the future. Also, since most of the NPLs are from the traditional sectors like steel and cement
where serious over-capacity problems persist, it would be difficult for AMCs to find markets for these
products. Fourth, high levels of NPLs are likely to hold back economic growth as lending behavior turns
cautious and losses get recognized and absorbed. Likewise, slower economic growth may impede banking
reforms. Fifth, in the next few years, bank lending will still be mostly to SOEs and therefore, the ultimate
obstacle to the profitability of the banks is the success of the SOE reforms. The management of banks also
has to transform itself from the “directed lending” culture of the past to a credit culture. Developing credit
analysis and project evaluation skills among bank personnel will be very critical. Finally, shortcomings in
supervisory, regulatory, legal and accounting frameworks need to be addressed and these frameworks need to
be brought up to international standards.
In conclusion, despite the weaknesses in China’s banking system, the imminent threat of a crisis is
not significant. The reasons for this belief are three-fold. First, the public has strong confidence in the
banking system. In addition, PBC funding support is significant and deemed to be stable. Two, China has a
high savings rate of over 40 percent of GDP but limited investment vehicles. Therefore, households and
enterprises place most of their funds as deposits in the banking sector. Three, banks are generally fairly
liquid, with steady growth in deposits and a loan-to-deposit ratio of slightly over 80 percent. All these
factors reduce the risk of deposit runs and illiquidity-induced bank failures. The banking reforms will
positively contribute to economic growth, especially in the long run.
Development of the West
The Chinese government is paying a great deal of attention to the development of the western region
of the country. Zeng Peiyan, the director of the State Planning Commission, recently described a new set of
aggressive policies, which may come to be known as the “three seventy percents.” First, Beijing will
allocate seventy percent of its revenues from this year’s 100 billion RMB bond offering to western
infrastructure development projects. Next, RMB308.14 billion, or seventy percent of the central
government’s disbursements to the regions, will go to western regions. Finally, seventy percent of all foreign
9
aid received by Beijing will be spent in the west.10 Though these policies will have a net positive effect on
economic growth through investment, their impact will be tempered by factors that make investment in the
west difficult and potentially unattractive.
In order to understand its impact on economic growth it is important to understand how this
financing (3% of estimated 1999 GDP) will be invested. First, and perhaps most importantly, the
government is investing heavily in transportation infrastructure. Many of the professionals with whom we
spoke in China indicated that distribution was a major problem confronting their businesses.11 In an effort to
improve the situation, the central government is sponsoring the development of at least three major railroads
in the west. For instance, Beijing is spending RMB23.23 billion to lay 955 kilometers of track between Xian
and Hefei, the capital of Anhui province.12 Furthermore, the central government plans to pave
approximately 17,000 kilometers of highway in the west over the next decade.13 This is of great importance
from an investor’s perspective as it will reduce the cost, and improve the efficiency, of road transportation.
The government is also in the midst of renovating and constructing nineteen airports throughout the country.
Finally, Beijing is actively investing in pipelines, water conservation projects, and telecommunications
facilities throughout the west.
However, investors, particularly foreign investors, are not rushing into the region. First, the central
and western parts of China are among the poorest places on the planet. Guizhou Province, for instance, has a
per-capita GDP of only $277, far below the prevailing level in Shanghai ($3,043).14 Furthermore, human
capital in these regions is not well developed. One professional with whom we met told of a new factory that
his firm had become involved with in Sichuan Province’s capital, Chongqing. In a city of several million
people, the firm was unable to locate a single person who was proficient enough in English to work as a
receptionist. The firm was forced to hire someone from Shanghai.15
We also heard reports from several sources of political unrest in central and western China. Ninety
percent of China’s 80 million people living in poverty reside in these regions.16 Additional social pressures
are being generated by a series of agricultural reforms which, while intended to rationalize the sector,
continue to force farmers off the land. While the government has created town and village enterprises (TVEs)
to absorb the excess labor, there is still a tremendous flow of migrant labor from the farms into the large
cities on the eastern seaboard. Several sources reported that the number of undocumented residents of
Beijing is close to four million. Finally, we heard of daily peasant protests throughout China’s
underdeveloped regions. These issues also negatively affect foreign investors’ interest in western China,
while giving the central government good reason to focus its own investment efforts on this region.
However, all is not completely bleak for the west. As Professor Susumu Yabuki of Tokyo University
points out in a recent article, “Zhu Rongji has begun to use the word ‘strategic’ to describe the west in the
“China to Focus on Western Development, Minister”: www.chinaonline.com, 8 March 2000.
Conversation with Mr. Thomas McLeod, Director of Public Relations, Boeing China, Inc. 23 March 2000.
12
“China to Open Up Region”:www.ft.com, 13 April 2000
13
IBID.
14
China Country Profile 1999-2000. The Economist Intelligence Unit (EIU), London, 2000. Page 41.
15
Conversation with Mr. McLeod.
16
China Country Page. www.worldbank.org
10
11
10
same way that his predecessor Zhao Ziyang used it to describe the eastern seaboard in 1978.”17 Whether the
government can or will make good on its commitments vis-à-vis the west remains to be seen. We agree,
however, with Professor Susumu’s argument that the stakes in the west are simply too high for failure this
time. Clearly, we are not alone. In recent years, western firms such as Boeing, Seimens, Motorola, Toyota,
and P&G have all made substantial capital investments in the region. Therefore, in the short run the overall
investment strategy for western China will contribute positively to economic growth.
WTO
While it is beyond the scope of this report to comment on the political machinations in Washington
and Brussels that will impact the China-WTO issue, we believe that it China’s membership is likely to be
approved. China’s accession to the WTO will have a positive impact on economic growth. First, it will
increase FDI. Second, it will speed banking reform, which will increase access to capital and thereby the
growth of the private sector. Third, it will likely boost exports such as light industrial products, textile,
electronics and some of the labor-intensive agricultural products. Finally, it will catalyze the reform of SOEs
as surplus labor can be absorbed by new foreign and private enterprises. These positive impacts will be
tempered, however, by reform complications that are likely to continue.
Taking as given that China will join the WTO this year, the road ahead will still be rocky. For
instance, one of the most contentious areas of negotiation is financial services liberation. Despite the fact that
the Chinese government has agreed to open the RMB commercial lending market to foreign institutions two
years after WTO accession, The Economist points out that “banks will be able to do serious business in China
only if interest rates are deregulated.”18 Many of our contacts in China expressed a more sanguine view,
namely that China’s joining the WTO will force it to do things (such as deregulate interest rates) that it
wouldn’t have the strength to do without some “legitimate” external pressure.19 Also, while the Chinese
government has expressed anxiety over the cellular telecommunications industry, they have agreed to allow
U.S. firms to engage in distribution in China. Finally, and most importantly, WTO entry will aid China in
what is perhaps it’s most critical effort in the future: the cultivation of healthy private enterprises to soak up
excess labor from defunct farms and SOEs, as well as the young people who enter the work force each year.
IV.
ANALYSIS OF SECOND-TIER ISSUES
Foreign Direct Investment
While the inflow of foreign direct investment has been in decline since 1994 (Exhibit G), the
general prognosis for foreign direct investment (FDI) in China is that it will increase and thereby positively
“China Opens Up the West”, www.chinaonline.com, 8 March 2000.
“New Hurdles: Foreign Banks in China.” The Economist, 8 April 2000, page 85.
19
Conversation with Mr. David Hsieh, Beijing Bureau Chief, AsiaWeek. 22 March 2000.
17
18
11
contribute to short-term economic growth. There are many factors behind the recent decline in FDI. The first
is perhaps best conveyed anecdotally. When we remarked to our contacts that published statistics showed
that only thirty five percent of western and Japanese investors would ever again enter into a joint venture
(JV) with a Chinese partner, invariably the response was: “is it really that high?” Most of these
businesspeople expressed extreme frustration with what they considered the “shady” business practices of
their Chinese partners. Specifically, these individuals reported to us their opinion that the goal of their
Chinese partners was to gain access to technology quickly, rather than to enter into long-term commercial
relationships. Amplifying this negative sentiment have been some well-publicized corruption scandals.
According to the Nihon Keizai Shimbun’s (Nikkei) Beijing bureau chief, these highly-publicized problems,
many of which occurred in the southern province of Guangdong, had a significant negative impact on the
Japanese investment community.20
The influence of these factors on FDI seems to be wearing off, however. For instance, after a
general retreat from the southern region in 1999, the Nikkei’s Beijing bureau chief feels that Japanese
investors will be back in full force in the upcoming year. Underscoring this has been the recent decision of
Toyota to enter into a major, long-term joint venture agreement with a Tianjin-based SOE to manufacture
taxis.21 Furthermore, Japanese consumer and household electronics manufactures have once again begun to
make capital investments. Finally, if China joins the WTO later this year this will further facilitate Beijing’s
efforts to increase FDI. Therefore, FDI will increase in China over the next several years positively
contributing to GDP growth through investment and consumption.
One of the challenges facing Beijing is that this investment continues to be concentrated along the
eastern seaboard. Critical observers have noted that, despite Beijing’s recent “Go West” rhetoric, the
government has been unsuccessful in persuading the provincial and local governments of the west to put
attractive, FDI-generating tax schemes in place to facilitate investment. Again, however, the importance of
maintaining political stability in rural China should improve these efforts and thereby decrease the
geographical concentration of FDI. (Exhibit H).
Domestic Private Sector Growth
The private sector - including foreign investments - represents one third of the Chinese GDP and it is
growing fast. Having come from zero, it is now estimated to represent more than 50% of the GDP in coastal
provinces (Guangdong, Fujian, and Zhejang). The private sector in China will continue to grow and thereby
positively contribute to economic growth. Its continued growth will be further stimulated with China’s
accession to the WTO and the subsequent increased availability of private sector financing.
The private sector employs 100 million people, or 15% of the total labor force of the country.
Although the government is still officially opposed to the development of the private sector for ideological
reasons, it has to support it to help solve the country’s unemployment problems. Everyday in 1999, 4,000
employees who had been laid off by SOEs were subsequently hired by a privately owned company.
20
21
Conversation with Mr. Rinji Takeoka, Beijing Bureau Chief, Nikkei. 27 March 2000.
“Toyota Enters Joint Venture with Tianjin S.O.E.”, www.asahi.com, 27 February 2000.
12
The private Chinese company, Legend, illustrates the potential of the Chinese private sector. Legend
has 90 percent of the personal computer market in China and is currently growing at a rate of 70 percent per
quarter. Legend sells computers in more than 2000 cities all around China, compared to its main foreign
competitors, who are selling in approximately eight cities.
The WTO agreement, which includes a liberalization of China’s banking system within two to five
years, will accelerate the development of the private sector as funding will be more accessible. The issuance
of SOE equity, and the development of the Stock Exchanges in Shanghai and Guangzhou are other promising
factors for the development of the Chinese private sector. This development should have a strong positive
impact on the country’s GDP within the five coming years, as it will boost both investments and
consumption.
Corruption
According to all available estimates, corruption is very high in China. In fact, corrupt activity is
estimated to amount to 0.5 to 4 percent of the total GDP of the country. In 1999, the national auditor general
declared that $US14.2 billion in tax revenues (over 20 percent of the budget) had been misappropriated by
government officials. Corruption has a long history in China. Common forms of corruption today include:
smuggling rings, bribe-taking by government officials, foreign exchange fraud, abuse of police power,
interference by local authorities in the courts, and the misuse of public construction funds.
The prevalence of corruption in the Chinese economy often leads to outcomes that are not
economically efficient. It also leads to an unstable business environment for many foreign investors. In
these ways, corruption has a negative effect on economic growth. The Chinese government has declared that
one of its priorities is to end corruption. While, corruption in China is unlikely to end altogether, it will
decrease. This decrease in corruption will have a positive impact on economic growth as it speeds
investment and limits problems for foreign investors.
First, corruption often results in business decisions that are made based on criteria other than
economic efficiency. For example, the West Railway Station of Beijing, built in 1998, is already falling
apart, with necessary repairs evaluated to $2.5 million. The high level of corruption involved in the project
resulted in the poor quality of construction and the use of fake materials.
Corruption also has negative impacts on foreign investment. Some potential foreign investors refuse
to deal with it or are not allowed to by their national laws. According to our interviewees, corruption is very
difficult to deal with not only because it costs money, but also because it makes the business environment
unstable. Nonetheless, foreign investors seem to find ways to deal with corruption. One of the corporations
we visited concludes all of their transactions with Chinese officials through Japanese intermediaries, so that
risks and responsibilities concerning corruption are taken by the intermediary, not the firm. While firms find
ways to get around corruption, its existence makes business in China less attractive and therefore negatively
affects foreign investment.
Because the history of corruption in China is so long and its forms are so diverse, it is very difficult
to fight. However, all our interviewees agreed that the Chinese government is serious about its intention to
stop corruption. Since the 15th Chinese Communist Party (CCP) Congress, held in 1997, the CCP Central
13
Committee has implemented an intensive anti-corruption campaign. Jiang Zemin has even made the fight
against corruption his personal priority during his office. A Chinese expression says: “Mao made the Chinese
people stand up, Deng made them rich, and Jiang made them clean.”
This campaign has resulted in an impressive number of arrests. In the last 12 months over 130,000
cases of official corruption have been investigated and more than 132,000 government and Communist party
officials punished, including 17 ministers. The largest number of arrests took place in Xiamen, where
$9.5billion of goods was smuggled. The vice-mayor, most of the local Communist Party leaders, the deputy
chief of the police, the head of the customs, and many other officials have been arrested and some
condemned to death.
Fighting corruption also means strengthening the independence and authority of the courts, so they
can more effectively enforce the law. This process also seems to have begun. Finally, the progressive
deregulation of the economy, which will minimize palm-greasing opportunities and the accession to China to
the WTO, should also help.
In conclusion, in the upcoming one to three years, corruption will slow down. However, it is so
deeply rooted and exists on such a large scale that it will not disappear. The decrease in corruption will have
a positive but limited effect on the country’s GDP growth. Its effect on the economy will come mainly
through an increase in the pace and number of investments as organizations do not have to deal with
corruption in the process.
V.
THE FUTURE OF HIGH TECHNOLOGY IN CHINA
Increasing globalization, huge inflows of venture capital money and the recent listing of several
Chinese companies on the US stock exchange have generated a great deal of interest in the future of high
technology in China. Our research and interviews make us cautiously optimistic about the prospects of the
global IT revolution within China. There are several industries or sectors within high technology that are
likely to create real value within the next 12 to 18 months. Two such sectors are hardware and
telecommunication. With an extremely low PC penetration rate, the mainland PC market is forecast to
deliver a five-year compound annual growth rate of 27 percent. China will likely cut the current import
tariffs of 9-15 percent for PC components in half, which will help lower production costs. Companies with
strong brand names, distribution networks and service centers like Legend are anticipated to register strong
growth. The other sector likely to grow substantially in China is telecommunications. This sector already
contributes about one-seventh of the GDP and is expected to grow significantly as China liberalizes its
telecom market. A telling statistic is that China accounts for 52 percent of all fixed lines in all countries with
a per capita income of less than $20,000. While this is impressive, it pales in comparison to the fact that the
country accounts for 79 percent of the mobile phones in this group of developing countries22. China is now
the third largest cellular market in the world after the US and Japan with 40 million subscribers. Our
research indicated that both fixed and marginal costs are lower for cellular infrastructure as compared with
fixed copper line in China. This will help the growth of the wireless market further.
22
Counterpoint – Techno Frenzy; SG Emerging Market Equity Research, March 2000.
14
While hardware and telecommunications are real value creators in China, e-commerce there does not
yet offer any true value. Our visit to China helped us better understand why the future of both business-tobusiness (B2B) and business-to-consumer (B2C) e-commerce is not so bright in China. Our discussions with
several dotcoms revealed that the average online Chinese customer prefers to peruse the web for content, but
is extremely reluctant when it comes to making purchases on the web. Thus, while dotcoms are registering
traffic on their sites, hardly anyone is making or expects to make much revenue. In addition, credit card
penetration is low and the country has four mutually exclusive point-of-sale systems (POSs) for the four
major banks. Thus, secure order-taking and efficient order fulfillment are still almost impossible. On the
B2B side, the major impediment to growth is the lack of transparency in China’s business system. China’s
business environment is not ruled by the judiciary system. Business transactions are based on the strength of
personal agreements not on legal contracts. This fact has been brought out in several publications23 and was
echoed by MBA students from a prominent business school in Shanghai. This system puts serious doubt on
validity of the B2B e-commerce models, which are based on the premise of partnering with unknown third
parties in order to minimize transaction costs.
In conclusion, the high-tech industry in China will continue to contribute to economic growth. The potential
of the hardware and telecommunications industries is very positive. The growth potential of the ecommerce, sector, however, is much more limited.
VI.
OVERALL CONCLUSIONS
The officially reported GDP growth rate in China has been around seven percent for the last few
years. We believe that China’s economy will continue to grow at about the same rate in the next two to three
years. Our team predicts that the economic growth will accelerate a little to around 7.5% in the next 12
months due to resumption in investment and export growth. The fixed-asset investment growth, which
slowed significantly in 1999 is expected to pick-up again in 2000 owing to the official launch of the Western
Area Development Program and increase in foreign direct investment. Also, net exports are most likely to
increase with China’s entry into the WTO. In addition, political stability will be maintained, allowing for
economic growth to continue at its current pace. SOE reform will also contribute positively to short-term
economic growth, but its impact will be tempered slightly by the decline in consumption caused by massive
layoffs required for restructuring. The positive impact of banking reform is likely to be felt more strongly in
the longer term (7-10 years) as reforms are completed.
In the longer-term beyond 2-3 years, we believe that the economic growth might moderate if the
central government’s direct investment capacity weakens. The debt-to-equity swap program run by AMCs
may not be successful as government expects, while the program may engender some new bad loans.
Finally, the long-term difficulties in resolving the unemployment problem during the economic transition
period as well as the ensuing social instability in rural regions may also contribute to the slow-down.
We also believe that investment in China is still quite risky for foreigners. The government is
aiming to use foreign investments and partnerships to increase exports, improve human capital, gain access
to up-to-date technology, and develop the western regions. These goals are not always compatible with the
23
The Economist, April 8th 2000.
15
investor’s possibly leading to complications. For instance, MNCs attempting to gain domestic market share
in China seem to have more trouble with the government than do firms aiming to export their products. In
addition, the rule of law in the business sector is weak making it difficult, if not impossible, for investors to
recoup money lost through corruption. While the risks involved in making illiquid investments can be high,
the returns to investing in China can also be high. Many MNCs have established extremely successful
business ventures in China. The Chinese economy will continue to grow and over the long term market
reforms will be largely successful. In conclusion, investment in China is risky, but if it is for the long-term,
the payoffs are likely to be very high.
16
Exhibit A - Itinerary
Beijing (3/22 – 2/27)
Journalists [AsiaWeek,
Nikkeo, LeMonde,
NYT]; French
Embassy; Lucent; HR
Manager Ericsson,
Boeing, United Airlines
Hong Kong (3/14-3/16)
President - American
Chamber of Commerce;
Bank for International
Settlement; Indian High
Commission
Shanghai (3/19 – 3/21)
Etang.com; IBM;
Representative from
Pudong Government;
Case Corporation;
Reporter
[VirtualChina.com]
Xiamen (3/17 – 3/18)
Dell factory tour; Xiamen
University; Linde; Xiamen
Municipal Economic Dev
Committee
17
EXHIBIT B: CHINA CONTACT LIST
Contact
Surname
1
2
3
4
5
6
7
8
Contact
Given
Names
Batallan Emmanuel
Biliang
Hu
Erik
Eckholm
Gassman Philippe
n
Gay
Patrick
Goecke
Heinz
Griffin
Buddy
Ho
Winnie
Title
Organization
Conseiller Commercial
Chief Representative, Senior Economist
Beijing Bureau Chief
Conseiller commercial
Ambassade de France
SG Global Equities
New York Times
Ambassade de France
Conseiller financier
Head of Controlling Department
Vice President, China Customer Center
Assistant Vice President, Human Resources
Greater China and the Philippines
Staff Correspondent
Manager, Treasury & Credit
Managing Director (co-founder, co-owner)
First Secretary
Professor
Development Manager
Director, Business Unit
MBA student
President
Director, Public Relations
Senior Economist
Ambassade de France
Linde-Xiamen
Dell Computer (China) Co.
Chase
9
10
11
12
13
14
15
16
17
18
19
Hsieh
Hwang
Jacobson
Jarrett
Johnson
Levinson
Ling
Liu
Martin
Mclean
Mo
David
Lisa
David M.
Kenneth
Gale
Daniel J.
Daniel
Louis
Frank
Thomas
Yik-ko
20
21
22
23
24
Nolan
Ng
Sweigert
Shi
Shihong
Paul S.
Marina
Bruce
David
Mu
Chief Executive Officer
College Recruiting Manager
25
26
27
28
29
Shoukang
Takeoka
Tu
Wang
Wu
Lin
Rinji
Roger
Xin
Henry T.
Executive Associate Director
Chief, China Headquarters
MBA student
Manager, Strategic Planning
General Manager, China Operations
30 Yang
31 Yang
Dali
Dali
Professor
Associate Professor
32 Zarit
33 Zhao
William
Deputy senior Commercial Officer
Zheng Yu Vice Director, Senior Economist
34 Zhou
Maggie
MBA Student
Interpreter
Investment Officer
Asiaweek
IBM China Company Limited
Sinofile Information Services Ltd.
Embassy of the United States of America
University of Chicago
Sinofile Information Services Ltd.
etang.com
CEIBS
American Chamber of Commerce
Boeing
Bank for International Settlements,
Representative Office for Asia and the Pacific
VCChina.com
Chase
United Airlines, Inc.
China European International Business School
Shanghai Pudong New Area International
Exchange Center
China Cinda Asset Management Corporation
Nihon Keizia Shimbun, Inc. (Nikkei)
CEIBS
Ericsson
Case Corporation, Shanghai Representative
Office
University of Chicago
Associate Professor of Political Science and
International Relations
Embassy of the United States of America
Economic Research Centre of Xiamen Municipal
Government
International Finance Corporation
18
EXHIBIT C: Year-to-Year Change in China’s GDP
16
14
12
10
8
6
4
2
0
1992
1994
1996
1998
2000
Year
19
Exhibit D: Profitability of State-owned enterprises
350
Profitability of state-owned industrial enterprises
is increasing in terms of
Absolute amounts:
RMB, Billion
300
250
200
RMB, Billion
150
100
50
0
1985
1990
1995
2000
Year
25
But Return on Assets (ROA, %) is declining:
ROA, %
20
15
ROA, %
10
5
0
1986
1988
1990
1992
1994
1996
1998
Year
20
Exhibit E: Estimate of the Bank Restructuring Costs(*)
Non-Performing Loans (%)
20%
30%
Unrecoverable loans (%)
50%
800
1,200
70%
1,120
1,680
(*) The table shows the total cost of bank restructuring under two different scenarios:
A. Bad loans form :
(i)
20% of all loans or
(ii)
30% of all loans
B. If the % of unrecoverable loans is
(i)
50% or
(ii)
70%
21
Exhibit F1: Aggregate Balance Sheet of the State-Owned Banks as of June 1998
Before recapitalisation
Assets (RMB Billion)
481
1,189
Liabilities (RMB Billion)
Foreign liabilities
Liabilities vis-à-vis nonfinancial sectors
Central Bank
claims
Domestic claims
On other sectors
69
1,308
5,800
Liabilities vis-à-vis central
bank
Paid-in capital
Total Assets
7,539
Other
Total Liabilities
199
7,539
Foreign Assets
Reserve Assets
377
5,447
208
Exhibit F2: Aggregate Balance Sheet of the State-Owned Banks as of June 1998
After recapitalisation
Assets (RMB Billion)
481
919
Liabilities (RMB Billion)
Foreign liabilities
Liabilities vis-à-vis nonfinancial sectors
Central Bank
claims
69
Liabilities vis-à-vis central
bank (1,308 – 270)
1,038
New government
bonds
Domestic claims
On other sectors
270
478
Total Assets
7,539
Paid-in capital
(208+270)
Other
Total Liabilities
Foreign Assets
Reserve Assets
5,800
377
5,447
199
7,539
22
EXHIBIT G
TRENDS IN FDI IN
CHINA
# of
Promised Value of
Projects*
Projects*
YEAR number
% change total project value
1979-90
29,525
$
39,840,000,000
1991
12,978
78%
$
11,980,000,000
1992
48,764
275%
$
58,120,000,000
1993
83,437
71%
$
111,440,000,000
1994
47549
-43%
$
82,600,000,000
1995
37011
-21%
$
91,280,000,000
1996
24556
-34%
$
73,280,000,000
1997
21046
-14%
$
51,780,000,000
1998
19846
-6%
$
52,130,000,000
1999**
8052
-16%
$
19,390,000,000
Implemented Project Value***
% change
82%
385%
92%
-26%
10%
-20%
-29%
2%
-20%
total project value % change
$
20,680,000,000
$
25%
4,370,000,000
$
152%
11,010,000,000
$
150%
27,510,000,000
$
23%
33,770,000,000
$
11%
37,500,000,000
$
11%
41,730,000,000
$
9%
45,280,000,000
$
3%
45,590,000,000
$
-9%
18,570,000,000
*- Reported values are for agreed, but not yet
implemented, projects.
** - Data for 1999 are through June,
1999.
***- Projects actually brought to fruition during the year.
DATA COURTESY OF NIHON
KEIZAI SHIMBUN.
Translated by Anthony J
Haro.
23
EXHIBIT H
GEOGRAPHIC CONCENTRATION OF FDI
IN CHINA
All figures are millions of US
Dollars.
Province
Guangdong
Jiangsu
Shanghai
Fujian
Shandong
Tianjin
Liaoning
Beijing
NAT'L TOTAL
1993
1994
1995
1996
1997
$
7,556
$
2,844
$
3,160
$
2,874
$
1,874
$
614
$
1,279
$
667
$ 27,771
$
9,463
$
3,763
$
2,473
$
3,713
$
2,552
$
1,015
$
1,440
$
1,371
$ 33,946
$
10,260
$
5,191
$
2,892
$
4,043
$
2,689
$
1,520
$
1,424
$
1,080
$ 37,805
$
11,754
$
5,210
$
3,940
$
4,084
$
2,633
$
2,152
$
1,737
$
1,552
$ 42,135
$
12,634
$
5,435
$
4,225
$
4,197
$
2,775
$
2,511
$
2,366
$
1,592
$ 52,387
Source: Economist Intelligence
Unit.
24
EXHIBIT I : BIBLIOGRAPHY

The China Miracle, Justin Yifu Lin, Fang Cai and Zhou Li; The Chinese University Press, 1996

Survey China, The Economist, April 8th 2000.

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
Counterpoint, a publication of SG Global Research, March 2000 issue.

Strengthening the Banking System in China: Issues and Experience, a joint conference held by - - Bank
for International Settlements (BIS) and the People’s Bank of China (PBC), Beijing, China, 1-2 March
1999.

“China to Focus on Western Development, Minister” and “China Opens Up the West”,
www.chinaonline.com, 8 March 2000.

“China to Open Up Region”:www.ft.com, 13 April 2000

China Country Profile 1999-2000. The Economist Intelligence Unit (EIU), London, 2000.

China Country Page. www.worldbank.org

“Toyota Enters Joint Venture with Tianjin S.O.E.”, www.asahi.com, 27 February 2000.

Counterpoint – Techno Frenzy; SG Emerging Market Equity Research, March 2000.
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Governing China: from Revolution through Reform, Lieberthal, Kenneth. New York: W.W. Norton, 1995.
Review by Minxin Pei: “provides one of the best introductions to the problems of Chinese history, national
governance, economic reform, and the aging party-state.”

“Why China Will Not Collapse,” Huang, Yasheng. Foreign Policy, Summer 1995.

China’s Transition, Nathan, Andrew. New York: Columbia University Press, 1997.

“Is China Democratizing?” Pei, Minxin. Foreign Affairs, January/February 1998.

The Politics of Lawmaking in Post-Mao China: Institutions, Processes, and Democratic Prospects, Tanner, Murray
Scot. Oxford: Clarendon Press, 1999. Review by Minxin Pei: “gives the most detailed description and analysis of
the rise of China’s National People’s Congress over the last two decades.”

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Howell, and Shang Xiaoyuan. Oxford: Clarendon Press, 1996.

Political Participation in Beijing, Shi Tianjian. Cambridge: Harvard University Press, 1997.
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
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26