China's Economy: From Revolution to Reform (review)

514 China Review International: Vol. 5, No. 2, Fall 1998 through Chinese history from the caves ofYan'an to the Beijing parlor of Madame Song Qingling. Few can claim a life so well spent. Judith Farquhar University of North Carolina, Chapel Hill Judith Farquhar is an associate professor ofanthropology specializing in the ethnographic study oftraditional Chinese medicine. mm David J. PyIe. China's Economy: From Revolution to Reform. New York: St. Martin's Press, 1997. ix, 189 pp., Hardcover $65.00, isbn 0312-17460-8. As David PyIe remarks in his Acknowledgments, the main purpose of China's Economy is to serve as a guide to China's economic reforms for those who are not experts in the field. This volume thus covers everything from the pre-1979 socioeconomic system to the processes of economic reform in the 1980s and 1990s. At the end, PyIe also compares the different strategies between the "gradualist" approach in China and the "big bang" approach in Eastern Europe. In chapter 1, PyIe presents an overview of the economic reforms in China between 1979 and 1994. The reforms began in the agricultural sector from 1979 to 1984 and shifted to the industrial sector from 1985 to 1989; the financial sector finally became the most recent focus of the reforms, from 1990 to 1994. In chapter 2, PyIe provides a historical account of the pre-reform economy and society from the nineteenth century to 1978. He suggests that in communist China, politics and economics are closely linked, and the pre-reform economy and society were relatively stable. In chapters 3 to 6, PyIe first adopts a sectoral approach to evaluate economic reforms after 1978. First, he focuses on the agricultural sector. He examines how a private household responsibility system emerged out of a commune system in the rural areas. Although this privatization of collective farms did bring about high agricultural productivity between 1979 and 1984, there was also an unexpected result : the boom of township and village enterprises (which occurred side by side with the household responsibility system) attracted laborers away from agricul-© 1998 by University ture to the industrial sector. ofHawai ? PressNext, PyIe focuses on the industrial sector and the state owned enterprises (SOEs). He argues that for political reasons, the central government originally did not plan to privatize SOEs. Instead, industrial reform confined itself mainly to the Reviews 515 improvement of the efficiency ofthe SOEs through the adoption ofa dual pricing system and an enterprise contract responsibility system. Although these two systems did not significantly improve economic efficiency and productivity, the SOEs were kept afloat during the post-reform era for the sake of maintaining political stability. PyIe then examines the foreign trade/investment sector and China's opendoor policy. In the Maoist era, the Beijing government did not allow any foreign direct investment. From the late 1970s, however, Beijing initiated an open-door policy to attract foreign direct investment in the special economic zones (SEZs). After the SEZs had attracted a great deal offoreign investment and their industrial outputs and exports had increased significantly, Beijing in 1984 opened more SEZs in the coastal provinces and extended the open-door policy to major cities and inland provinces. The goal of the Chinese open-door policy was to develop the industrial sector by using foreign capital and high technology. However, foreign investors were more interested in cheap labor and the potentially massive Chinese domestic market. As a result, foreign investments were mainly in smallscale , labor-intensive industries, and the products offoreign investment were able to enter the Chinese domestic market. PyIe next studies the fiscal and financial sector, with a special focus on fiscal policy and the decentralization of the financial banking system. In the late 1980s, the Central Bank and the People's Bank released commercial banking functions to newly created and specialized banks such as agricultural banks. In addition, the central government rearranged the revenue-sharing system in order to give local governments more autonomy. As a consequence, the local governments gained a greater incentive to develop their township and village enterprises (TVEs) in order to capture a larger share of the revenue from the central government. In his final chapter, PyIe offers...