Economics 159

The Economy of China

Professor Louis Putterman                                                                  Fall, 2004
Office: Room 206 Robinson Hall
tel: x33837; fax: x31970; e-mail: Louis_Putterman@ brown.edu
Office Hours: M and W, 2:30-3:20, and by appointment

This course examines the organization, structure, and performance of the economy of mainland China. It focuses on the institutional structure of the economy on the micro level, on the changing economic system including the roles of planning and markets, on government economic strategy and policies, and on outcomes with respect to industrialization, economic growth, income distribution, and welfare. The pre-reform period (1949-78) receives attention in its own right, but especially as it influences developments in the market-oriented reform period since 1978.  Topics covered include rural and urban development, industrial strategy and planning, economic reform,  agriculture, industry, and international trade and investment. Both analytical and descriptive methods are used. The course will assume previous knowledge of microeconomic theory and will use little that is new in the way of formal models. Prerequisite: economics 111 or 113. Economics 121, 151, and 158 are helpful but not assumed.

We are using a still-unpublished book by Barry Naughton, The Chinese Economy, which has undergone revisions as recently as this past summer, and which promises to become the standard text in this field when it is published.  Copies of the book manuscript will be available for purchase at the Brown Bookstore.  Other readings are suggested on the syllabus to round out your knowledge, but they are not required.

It is very important to note that the readings and lectures are complements to each other, not substitutes. At times, lectures will cover material not in the book, or may take a different approach from the book’s. Come exam time, you are expected to show your knowledge of both the reading and the ideas and facts brought up in class.

Exams and Grades: there will be two in-class mid-term exams and a three hour final examination as scheduled by the registrar. These will count for 25, 25, and 50% of the course grade, respectively. The format will be a combination of essays and short answer questions.

Tentative schedule: No class, Friday, Sept. 17; 1st exam, Wed., October 13; 2nd exam, Wed., Nov. 10; possible meeting or meetings during reading period: to be announced. 

Final exam: as announced by registrar.

Syllabus:

1. Introduction (Legacies and Setting)

a.       Preview: China's road to socialism, the planned economy, and market reforms; China's path of structural change, and China's economic performance since 1949.

Reading: Naughton, Introduction

b.      China before 1949: geography, resources, historical background

Readings: 1. Naughton, Chapter 1, Geography

2. Naughton, Chapter 2, The Traditional Economy through 1949

c.   The case for planned socialism, in general, and in the developing world; background of Chinese socialism 

d.   Stalinist development strategy compared to laissez faire, import substitution industrialization (ISI), and export promotion; implications with respect to structural change (industrialization).

g.   China as a Soviet-type economy

      Reading: Naughton, Chapter 3, The Experience and Legacy of the Socialist Era, 1949-1978

h.  The reform process in long-term perspective: roles of agricultural, industry and trade; ‘growing out of the plan’; where China stands today.

     Reading: Naughton, Chapter 4, Transition to a Market Economy

i.  The urban-rural divide

     Reading: Naughton, Chapter 5, The Urban-Rural Divide

2. Patterns of Growth and Development

a.       Growth and Structural Change

Reading: Naughton, Chapter 6, Growth and Structural Change

b.      Population

Reading: Naughton, Chapter 7, Population

c.       Labor and Human Capital

Reading: Naughton, Chapter 8, Labor and Human Capital

d.      Living Standards and Inequality

Reading: Naughton, Chapter 9, Living Standards and Inequality

3. The rural economy

a.  Rural organization (before 1949; land reform and collectivization; the early   communes; the 3-tier commune system; de-collectivization)

                 Reading: Naughton, Chapter 10, Rural Organization

     (Optional suggested reading: Putterman, Continuity and Change in China’s  

                     Rural Development, 1993, Chapter 1; Dwight Perkins and Shahid 

                     Yusuf, Rural Development in China, 1984, Chapter 5.)

b.  Incentive theory: the household versus the collective

c.  Output and productivity of Chinese agriculture

Reading: Naughton, Chapter 11, Agricultural Technology and Output

d.  Rural industry

      Reading: Naughton, Chapter 12, Township and Village Industries

4. Industry and the Urban Economy  

a.       The organization of industry in China

Reading: Naughton, Chapter 13, Industry: Ownership, Finance and Corporate Governance

(Optional suggested reading: Gary Jefferson and Thomas Rawski, "Enterprise Reform in Chinese Industry" Journal of Economic Perspectives, Spring 1994.)

b.      China’s industrialization

Reading: Naughton, Chapter 14, Industry: Growth and Structural Change

c.       Technology

Reading: Naughton, Chapter 15, Science & Technology and Industrial Policy

5. Trade and foreign investment

a.       Trade

Reading: Naughton, Chapter 16, International Trade

b.      Foreign Investment

Reading: Naughton, Chapter 17, Foreign Investment

(Optional suggested reading: Nicholas Lardy, "The Role of Foreign Trade and Investment in china’s Economic Transformation," China Quarterly 144, pp. 1065-82 (Dec. 1995) reprinted in Andrew Walder, ed., China’s Transitional Economy, Oxford University Press, 1996.)

6. Macroeconomics and Finance

a.       Trends and cycles

Reading: Naughton, Chapter 18, Macroeconomic Trends and Cycles

b.      Government and enterprise finance

Reading: Naughton, Chapter 19, The Fiscal and Financial Systems

7. Conclusion: China’s Future

Reading: Naughton, Chapter 20, Environmental Quality and the Sustainability of Growth