In lieu of an abstract, here is a brief excerpt of the content:

Reviews 483 ing that Liew adds to the debate. At $70.00 a copy, there are much cheaper and higher-quality alternatives available. Richard Desjardins Government of Canada Richard Desjardins is a civil servant with the Canadian Government. His research interests include democratic transitions and states and markets. mm Justin Yifu Lin, Fang Cai, and Zhou Li. The China Miracle: Development Strategy and Economic Reform. Hong Kong: Chinese University Press, 1996. xxxv, 330 pp. Paperback $18.00, isbn 962-201-748-7. Repeated like a refrain throughout this book is a coherent and reasonable thesis. The thesis is that the development strategy adopted by China's Communist government shaped the economic institutions diat today's reformers are trying to remake , and diat die piecemeal and inconclusive nature ofreform is the inevitable result ofnot relinquishing that strategy. The development strategy adopted in China enjoyed worldwide favor in the 1950s and '60s. It emphasized die buildup ofcapital-intensive heavy industry, which in a labor-abundant, capital-scarce economy ran contrary to market forces. Viability in the investment program was achieved by suppressing interest rates, overvaluing the currency, and holding down the prices of raw materials, labor, and basic consumer goods. In such an environment, prices no longer functioned as informative signals to business managers . Thus government planners had to take over economic decision making, and, in China, directives were handed down to producers through agricultural collectives and state-owned industrial enterprises. China's reforms began at the bottom with the objective ofimproving the poor incentives inherent in the socialist system. Farmers and enterprise managers were given a degree ofresponsibility for economic performance and rewarded witii a share ofthe profits. But in order for profits to be a meaningful indicator of productivity, prices had to reflect supply and demand. Price liberalization was the essential next step. China's innovation was to confine market pricing to that com-© 1998 by University ponent0feconomic activitydeveloping outside the plan. Over time, the out-ofplan share ofthe economy grew and prices within the plan were gradually adjusted toward market levels. Even the exchange rate was eventually unified at a market clearing position by following this tack. Where the authors see the ulti- 484 China Review International: Vol. 5, No. 2, Fall 1998 mate resistance to the encroachment ofbottom-up reform on the bulwark ofthe heavy industry strategy is in the financial system. After a decade and a half of reform , interest rates remain suppressed and investment funds continue to be allocated under state control. A cyclical pattern has emerged whereby banks are given greater lending authority, credit is diverted to the non-state sector, competition for resources heats up, the state sector is unable to vie successfully, additional credit must be created to maintain state sector operations, inflationary pressure builds, market and state-set prices diverge, increasing disorganization and corruption result, and, finally, the authorities step in to tighten credit and recentralize lending decisions. The authors call this the "vigor/chaos cycle." In their view, the only way to escape this cycle is to abandon the heavy-industry development strategy and let follow a liberalization of the financial system. This book is not organized as a chronicle of China's reforms. A systematic account of reform history is limited to one central chapter, which tells a wellknown story. A follow-up chapter details the outcome of reform in statistical terms using standard sources. Preceding this are two chapters that describe the pre-reform system and its failings with emphasis on the endogeneity of economic institutions given the choice of the heavy-industry development strategy. Again, standard data sources are utilized, and in the details there is nothing new. There is also a chapter contrasting the heavy-industry approach with a superior alternative , one emphasizing trade and comparative advantage as pursued by the Four Little Dragons. The chapter following the report on reform outcomes brings the authors' original vision into focus. Titled "Problems with Economic Reforms," it presents their theory of the vigor/chaos cycle and how it arises from the partially reformed economic system. Other problems dealt with in the chapter are stateenterprise losses and regional imbalances, both ofwhich are rooted in the unrepudiated heavy-industry strategy. The...

pdf