China's Reforms at 30: Challenges and Prospects is an important and timely work. It is a compilation of several papers by international scholars in political science, economics, and sociology, most of them presented at a conference in 2007 hosted by the East Asian Institute at the National University of Singapore on the theme "China: The Next Decade." The objective is twofold: to provide an overview of China's thirty years of transformation from a centrally planned to a market-oriented economy and to highlight important challenges that lie ahead for China. The topics are both current—exchange rate flexibility, process trade—and fresh—social protests, ethnic minorities, and political process. [End Page 277]
The first two chapters deal with China's economic integration in the world economy in the areas of finance and trade. The first discusses the financial system—somewhat superficially—and proposes that China should make its exchange rate more flexible, not to please other countries but because of growing internal imbalances. The author makes a strong case for more flexibility, showing that "the lack of exchange rate flexibility not only reduces monetary policy independence, it also hampers banking sector reforms" (p. 10) and would lead to rampant inflation in the absence of countervailing policies. Balanced and sustainable growth will eventually call for stable macroeconomic policies and an efficient financial sector.
The second chapter explores China's "mounting external imbalances" (p. 19). Of special relevance is China's trade transformation following its accession to the World Trade Organization (WTO) in 2001. China's share of total world trade increased from 4.1 percent in 2001 to an astounding 7.2 percent in 2006. During this period, China's exports expanded at an average annual rate of 29.6 percent, whereas imports grew at an average of 26.9 percent. In 2006, China's total trade share of GDP was 65 percent compared to 22 percent in the United States and 28 percent in Japan. Neighboring economies (Japan, Newly Industrialized Economies (NIEs)—Korea, Taiwan, Singapore, and Hong Kong—and Association of Southeast Asian Nations (ASEAN)) now account for 50 percent of all Chinese imports and 25 percent of all exports. China's new position in terms of process trade (assembling and processing with imported materials) is described as part of a triangular trade framework, with foreign-invested enterprises (FIEs) taking center stage. China has served as a platform for the last stage of processing of a growing number of final goods to be exported to the United States and the European Union, creating large trade surpluses. Process trade accounted for more than half of China's exports and more than 40 percent of imports in the last decade. Since 2001, China's trade surpluses with the United States and the European Union have grown by about 40 percent and 77 percent a year on average, respectively. The composition of trade has also changed significantly with textiles and footwear making up less than 20 percent of total exports and machinery and transport equipment increasing to about half in 2006. Clearly, FIEs benefited greatly from the accession to the WTO. This chapter helps us understand not only the key role played by China (and FIEs) in the regional production network but also the wrenching structural changes that the American and European economies are undergoing.
The next two chapters are intriguing and focus on China's political unrest and institutional transformation. Chapter 3 examines the different types of political unrest and concludes that they are not the kinds of protests that could challenge the current political regime. China's social protests are divided into three categories. First are the protests resulting from the decline and restructuring of the old state industrial sector, largely urban and concentrated in the rust-belt region. [End Page 278] Second are the protests in the rural sector in reaction to changes such as farming fees, land expropriation for nonagricultural development, and industrial pollution. Last are protests in urban...