Studies on Economic Reforms and Development in China (review)

This is a very interesting and substantial book. The author is currently Director General of the Department of Management Sciences of the National Natural Science Foundation in China. Since 1998 he has also been serving as a vice-chairman of the very powerful Standing Committee of the National People's Congress, which is the official legislative branch of China. Cheng is also a member, since 1995, of the Central Committee of the China National Democratic Construction Association, one of the older political associations that continue to serve as consultative bodies to the ruling Communist Party. The voices of these associations appear to be getting stronger as the Communist Party increasingly seeks input on national affairs from noncommunist persons and organizations.

The book contains ten chapters. The first two were written specifically for this publication in May and June of 2001. The remaining eight chapters were published in various journals in China and completed between April 1998 and May 2001. They are thus all recent. Further, they all deal with important economic problems in China today as the following chapter titles demonstrate: (1) "The New Economy and the Development of China in the Twenty-first Century," (2) "Venture Capital and its Emergence in China," (3) "Fictitious Economy and the East Asian Financial Crisis," (4) "An Analysis of the Complexities of Enterprise Management and its Implications for China," (5) "The Theory and Practice of Managing Enterprises by Government," (6) "Establishing an Adequate, Equal and Effective Social Security System in China," (7) "A Systematic Analysis of the Housing Reform in China's Urban Areas," (8) "An Analysis of China's Rural Consumer Markets," (9) "Devoting Major Efforts to Developing China's Multinationals," and (10) "Strategic Directions and Policy Implementation in Reforming China's Institutional Units."

Since the author is a reputable applied economist in China, a senior administrator of management sciences research programs, and, furthermore, a very senior legislator in the National People's Congress, this book, which outlines his recent views on economic development in China, deserves careful attention, especially by serious China scholars.

Chapter 1 will be reviewed in depth since it is perhaps the most important chapter in the book. Here Cheng boldly defines the new economy in the new millennium as being comprised of three principle elements: (1) a knowledge economy, (2) a fictitious economy, and (3) a Web economy. The first element, "knowledge," is the foundation of all economic activity since without knowledge there would be no progress in modern education and technology leading to improvements in human productivity and economic prosperity. The second element, the "fictitious economy," is Cheng's elaboration of the Marxian concept of fictitious capital. It refers to the creation of financial securities used in a modern economy to facilitate savings and investments and to denote total or partial ownership of certain tangible and intangible assets and their associated risks and returns. Although Cheng, following the Marxian interpretation, stresses that the use of fictitious capital causes financial bubbles and cyclical behavior, he does not deny that fictitious capital must be used in the development of a modern economy. Finally, Cheng appears to believe that all future economic activity will be Web-based because using the Internet can result in a reduction in costs that is sometimes substantial.

Cheng then makes some observations on the possible impact on China of the new economy. He further suggests the following strategies for developing this new economy in China: (1) create a balance between efficiency and equality; (2) increase productivity, bring about the strategic transfer of labor, and step up the process of urbanization; (3) develop high-technology industries, rely on venture capital for industrialization, and explore the development of a knowledge-based economy for the developed regions; (4) create a large number of innovators, set up an incentive system encouraging learning and innovation, and improve vocational and continuing education; and (5) absorb Western culture selectively and inherit Chinese culture critically. My...