Mon, May 28, 2001 page8

• China - an economics laboratory

  • By Hsu Tung-ming 許東明
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  In recent years, academics and experts have tended to move from a micro perspective to a relatively macro perspective in their research on China's economy.

  Since beginning the process of reforms and opening up to the outside world, China has been an economics laboratory. Various policies to stimulate economic growth have been considered and put into practice in different areas. Rural industrial enterprises, for instance, were often the focus of study by China studies scholars in the past. In contrast, today's scholars are concerned with larger issues, such as China's direction after entering the WTO. But if we do not continue to observe the elements that constitute China's grass-roots economy, the result may be that we see the forest but not the trees in relation to China's economy.

  This was the tendency of many foreign researchers, whose explanations of Taiwan's economic miracle took into account only a "highly capable government" and largely ignored the small and medium-sized enterprises which had their origins in the country's dynamic society.

  In the process of China's opening up, the Wenzhou model (溫州模式), the Pearl River Delta model (珠三角模式) and the Southern Suzhou model (蘇南模式) have been eulogized as the three major economic models.

  But the success of each was achieved under different conditions and with different allocations of capital.

  The Pearl River Delta model enjoys superior resources compared to the other two because of the geographic proximity of Hong Kong to the delta. The common language of Cantonese, capital coming in from Hong Kong and the network of business relationships that were later established all caused this model to adapt successfully and thrive. This is also a quintessential "expatriate Chinese capital model."

  By comparison, with far fewer resources available, the Wenzhou model and the Southern Suzhou model had no choice but to develop their own paths. In the Wenzhou model, the relationship between local government and business enterprises is one in which enterprises are primarily privately managed and individually owned while the local government provides services to businesses.

  The Southern Suzhou model proceeds according to what foreign scholars refer to as "Local State Corporatism." That is, the local government single-handedly plans and intervenes in the economy, becoming the owner and controller of rural industrial enterprises. In short, the Southern Suzhou model is a form of collective economy with public ownership of property.

  The success of these three regional economic development models in the initial stage of reforms naturally also became something for other provinces and regions to imitate.

  There has been a great deal of discussion in China's economic circles and opinion forums, however, with competitiveness of the Southern Suzhou model declining in recent years.

  Actually, although China's economists and others have discussed strategies for economic development from a macro perspective, how to stimulate the dynamism of the people in order to develop small and medium-sized enterprises is a matter that has received equally weighty attention recently.

  After all, small and medium-sized enterprises may be one of the key pillars of future economic development. This is also why the way in which the Southern Suzhou model should be adjusted has been seen as an important indicator for the development of small and medium-sized enterprises in China.

  When discussing of the Southern Suzhou model, the first item raised is the question of the local government's authority and role. Second is the question of property rights. In fact, these two questions are intimately related, and the same kind of questions arise in discussions of China's state-owned enterprises.

  The non-separation of politics and business has been seen by economists and scholars and even by popular opinion as being the primary reason for the sliding competitiveness of the Southern Suzhou model.

  Failing to separate of politics and business leads to a situation in which business can easily suffer unnecessary administrative interference, making it impossible to make prompt commercial judgements based on market competition. It can also easily lead to a lack of expert leadership and even mistaken judgements. Furthermore, it suppresses the creativity of business enterprises.

  Making the transition from the collective economy of the Southern Suzhou model to the privately managed economy of the Wenzhou model is the recommendation of virtually all specialists and scholars and is supported by popular opinion as well as Jiangsu government officials. And if one recognizes the logic of guiding the economy in the direction of the free market, then the problem of property rights becomes simply a technical issue.

  If the Southern Suzhou model is also guided toward free market competition, then the three primary regional economic development models are in fact moving toward a common historical end. Having gone through different phases of an economic experiment, all three models are finally moving toward the path of a free economy.

  What is worth noting is that the Southern Suzhou model is to the Jiangsu local government as the state-owned industries are to China's central government -- in both cases the failure to separate politics from business is the most direct problem facing business enterprises. The local government is nimbly preparing to move toward a market economy, but there are different opinions as to how the state-owned industries should deal with the non-separation of politics and business.

  Some people believe that failing to separate politics and business undoubtedly leads to low efficiency, separating the two isn't necessarily a panacea for in-creasing competitiveness. Most believe that the relationship to be maintained between government and business should be discussed.

  As an economically developing country, China is now enjoying a stage of flourishing economic growth. But what path should China take in terms of economic strategy?

  Although opinions vary, many specialists are looking for a suitable model in the process of economic development that advanced nations previously experienced. Learning from the close relationship between state-owned industries (or large-scale private enter-prises) and the governments of Japan and Asia's four "dragons" are high priorities.

  Perhaps China, the economics laboratory, will produce a central-local dual economic system in the next stage of its development. The central government and state-owned industries (possibly including large-scale private enterprises) may maintain a close relationship, with the government assisting or intervening when necessary, while local economies may gradually move toward free-market operations. When a bottleneck is reached, adjustments will then be made, still maintaining the nature of an experiment.

  Hsu Tung-ming is a freelance writer currently residing in Beijing.

  Translated by Ethan Harkness
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