Hyperinflation in centrally-planned economies: the Chinese Exception

Rosser Jr, John Barkley rosserjb at jmu.edu
Mon Oct 14 15:46:44 MDT 1996

     Actually Louis Godena and I probably have more
agreement than he realizes about China.  Nevertheless we do
have disagreements.  Here I respond to his latest.
     1)  I fully agree that the SOEs are much more
capital-intensive than other economic sectors.  As I have
noted in various previous posts they are predominantly in
the old heavy industry sector, e.g. steel, cement, etc.  I
don't think Louis disagrees with this.  But, as I also
noted, this was the pattern in the NEP.  That was the
sector that was centrally nationally owned and planned.
     2)  The SOEs tend to be more concentrated in the
north, which is now more slowly growing than the south.
There was a dispersement of industry under Mao, and that
legacy has played a major role in the success of the TVEs.
In that regard I agree, at least partly with LG on the
stabilizing and supportive role of the SOEs.  I have
already agreed that maintaining that sector has had
positive effects, although I think that LG overstates here.
     3)  In the data tables to which LG refers, TVEs are
collectives.  But there is tremendous diversity among them,
in terms of location (urban vs rural), ownership structures
(actually local state owned versus more cooperative), and
in terms of relations with other sectors (de facto
subsidiaries of foreign MNEs vs locally integrated, etc.).
Louis G. agrees that the TVEs are the most dynamic sector
in the PRC and I have argued all along that the central
issue of the Chinese economy is where they are going.  I
would hope that on this, at least, he would agree with me.
     BTW, I shall put aside for now further discussion of
explicitly political issues.
Barkley Rosser
On Mon, 14 Oct 1996 17:10:18 -0400 (EDT) Louis R Godena
<louisgodena at ids.net> wrote:

> Barkely Rosser compares the current economic configuration in China with the
> New Economic Plan in 1920s Soviet Russia.    It is a specious analogy.
> The World Bank estimates that,  between 1985 and 1992,   non-SOEs
> [State-Owned Enterprises] required,  on average,  less than a third as much
> investment as SOEs to achieve equivalent industrial output.    But this
> discrepency largely reflects concentration by SOEs in capital-intensive
> industries.     On the other hand,  SOEs had higher ratios of fixed assets
> to net output in all but two of 40 industrial sub-sectors.    The Town and
> Village Enterprises (TVEs) as well as the collectives (the second fastest
> growing entities in the economy) simply could not survive with the same
> viability without the SOEs.     And I suspect Mr Rosser knows it.
> Here is another little puzzle for Mr Rosser,  squirreling around in his
> footnote maze.     In just four years between 1989 and 1993,  the industrial
> output rose by 193 per cent (!),   a performance that can have no historical
> parallel.   But it creates another puzzle for our would-be NEPman.    Why
> were non-SOEs so dynamic when the vast majority were collectively owned or
> run by townships and villages (and nominally under the control of the
> Communist Party at various levels)?    In China,  it appears,  it does not
> matter whether an enterprise is publicly owned,  only which level of
> government controls it.     The share of TVEs in industrial output,  in
> particular,  rose from 13 per cent in 1989,  to 24 per cent in the first
> nine months of 1995.    To Mr Rosser,  these TVEs are like bumblebees:  they
> fly,  but how?
> Without stinting in any regard other factors peculiar to the Chinese model
> (unlimited supplies of cheap labor,  continued stability of rural life,
> etc),  it appears that for the time being at least the Chinese Communist
> model appears to be bearing fruit at the local and regional level.    The
> large SOEs (the Fungsheng Steel Works,  employing 186,000 workers in one
> factory complex,  is an example) enjoy a symbiotic relationship with
> hundreds of smaller enterprises in each locality,  stabilizing regional
> economies by controlling inflation and investment and providing the nexus
> for continued economic growth.
> Mr Rosser has a hunch that I favor China because it is run by a Communist
> Party,  though I've only initiated two other threads on China in the ten
> months I have been subscribed to this hellish list--one on Chinese
> anthropology a month ago,   and a short piece on Mao's legacy in July.    I
> originally posted on China's relatively low inflation rate as a first step
> toward a comparative analysis with the economy of Vietnam,  which is similar
> in some ways.
> Who cares whether Barkely is "appalled" by the events of June,  1989 in
> Tiananmen Square?   It was not even a blip on the screen.    Authoritarian
> governments in East Asia  in fact,  pursued economic growth--market driven
> and otherwise--for decades without relaxing their hold on political power.
> Only after sustained economic growth had created per capita incomes several
> times those of present-day China did pressures for political reform become
> compelling.    And,  as I pointed out earlier,   the Chinese Communist Party
> has never embraced the goal of a market economy.
> Louis Godena

Rosser Jr, John Barkley
rosserjb at jmu.edu

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