BEIJIING REVIEW. DECENBER 7-13,1998

COMMENTS ON REFORM AND OPENING UP

----An Interview with Japanese economist Prof. Susumu Yabuki

China on the Rise

Prof. Susumu Yabuki

This year marks the 20th anniversary of Chinafs reform and opening. Recently, Beijing Review correspondent He Xuehong in Japan interviewed Prof. Susumu Yabuki of Yokohama City University Commerce Department, a well-known specialist in Chinese economy.

QUESTION: It's been 20 years since China adopted the reform and open policies.

Profound changes have taken place. How do you see these changes?

ANSWER: Before the reform and opening, or during the era of planned economy, China had been in a state of isolation. Hence its economy was rather backward.

In 1949, when the People's Republic of China was established, Chairman Mao Zedong proclaimed on the rostrum of Tianfanmen, "The Chinese people have stood up." After that, however, Chinese mistakes on some issues brought its economy to a standstill once again.

Only after China adopted the reform and open policies formulated by Deng Xiaoping in 1978, did its hibernating, economy begin to revive.

This is my understanding of the Chinese economy. Recently, my new book, China's New Political Economy, was translated into English. It has a subtitle--The Giant Awakes, a saying originating, from the aphorism of Napoleon III (1808-73) of France. He predicted: China was likened to a "sleeping lion"; yet "when China awakes, she will shake the world." Awakening, from a long, hibernation, China is marching toward the 21st century with rapid development. This imposing sight makes me think of Napoleon's aphorism.

China's economic recovery started in the coastal areas. The tide of market economy then gradually spread to the hinterland. Now, I feel the whole Chinese mainland is awakening.

Let's review the economic development in Asia. At first, the Japanese economy maintained 30 years of high growth. Then, the Republic of Korea, Taiwan. Hong Kong and Singapore, known as the "four small dragons", underwent a period of rapid expansion. They were followed by Thailand, Malaysia and Indonesia, which were called the "three small tigers". It is under such circumstances of economic rivalry among various Asian countries that the Chinese economy entered an age of fast progress.

Despite some twists and turns in its reform and opening process. The Chinese economy has enjoyed high growth since Deng Xiaoping made his well known remarks during his 1992 inspection tour of south China. I think China's economic growth can last at least for about 30 years. This view comes from my own experience, or, I would say, is based on my intuition.

I believe, during the economic takeoff, high growth can last for quite a long, time. In addition, I don't think such development trend of China's economy will be changed due to the turmoil caused by last year's Asian financial crisis.

Mao Zedong made contributions to the independence of the colonial and semi-colonial China, but he failed to achieve more in the subsequent economic construction. Of course, such failure did not happen only in China. The fonrmer Soviet Union and other East European countries also lost. Only later, was it realized that the problem lay in the planned economic system and the way of thinking associated with it. Becoming aware of this, those countries began the transition to a market economy. But the CIS nations have been encountering big difficulties during their transitional process. Some East European countries have done pretty well, but some others, like the former Yugoslavia, have been plagued by disintegration. China and Viet Nam are countries comparative successful in the transition.

Q: Since Premier Zhu Rongji took charge of the State Council last March, the Central Government has adopted a series of new measures, including reform of State-owned enterprises, government institutional restructuring and reform of the financial system. What's your comment on these reforms?

A: I set a very high value on the leadership ability of Premier Zhu Rongji. The most important reason is that he has an honest personality, and, as an economist, his capability is outstanding. Deng Xiaoping said Zhu is "well versed in economy". I deem this comment very accurate. Therefore, with Premier Zhu personally assuming command, I don't think there will be any big problem with China's economic development.

In my own opinion, however, China should have carried out these reforms earlier. It might have been better, if these reforms were timely implemented in light of the market economic development. But, due to various reasons, they were delayed, resulting in certain difficulties.

The fact that Premier Zhu made public his resolute decision to complete these reforms within three years means he wants to make up for the lost time. It also shows his determination because he has no way of retreat. As an economist, Zhu's achievements are well reflected in the Chinese economic indices over the last few years. For example, China's foreign exchange reserves were up from US$20 billion in 1993 to US$140 billion in 1997. The foreign trade suffered a deficit of US$12.2 billion in 1993, but registered a favorable balance of US$40 billion last year. In addition, overseas direct investment increased noticeably.

These achievements resulted from the stable exchange rate of the RMB. In other word, only with the correct RMB exchange rate, has the Chinese economv been safely connected with the world economy. Moreover, the increase rate of China's GDP has remained high over these years, while the price has been stable. This success of macro-control is obvious to all. In regard to the government institutional restructuring, I have the greatest concern about the reorganization of the State Planning Commission into the State Development Planning Commission. The augmentation of the State Economic and Trade Commission is also a major move.

During the era of planned economy, the State Planning Commission played an important role. Under the current market economy, however, the function of the State Development Planning Commission should be reduced correspondingly, while the State Economic and Trade Commission, an organ promoting the market economy, should be strengthened.

Conforming to the requirements of the times, Zhu's cabinet has decisively introduced bold reforms. This resolute courage is to be respected. Japan's hesitancy in administrative reform is in distinct contrast with the pace of China's reform.

Q: Should China make some adjustments to its reform and open policies under the buffet of the Asian financial crisis?

A: China's policies have so far enabled the door of the country to remain only half-open. Thus, China could ingeniously avoid the fatal attack of the Asian financial turmoil this time, reducing losses to the minimum. The key now is the future countermeasure.

Today, there are many elements that can throw the world economy into disorder, such as hedge funds. But I donft think it is wise to hesitate about opening because of the misgivings.

According to a regulation formulated by the International Monetary Fund in December 1996, the RMB can be freely converted for foreign currencies under the current account, but cannot be transacted under the capital account. China aims to realize the free convertibility of RMB, including capital transactions, in due course as part of its effort to enter the World Trade Organization. This effort will benefit the world as well as the Chinese economies.

To sum up, I think China should on the one hand further study the world economic operations, while on the other, preparing domestic countermeasures for carrying on its reform and opening drive in a down-to-earth manner. I believe this is the only option for China. In other word, returning to a closed economy is an old road leading China to re-isolation. China had a lesson about that closed-door when its economy fell far behind others. Therefore, I don't think China would follow the same disastrous road.

Q: China's transition to the market economy has also witnessed the rise of various problems. What do you think of them?

A: As a populous country with a long history, China indeed faces many accumulated problems. But it is useless simply enumerating these problems without I think problems could only be solved when they are viewed in the light of reality.

In regard to people's life, guar-anteeing employment and reducing unemployment may be the biggest practical problem. For this purpose, high economic growth must be maintained. High technology is certainly required, but sometimes, lower technologies are also needed so as to provide as many employment opportunities as possible. To guarantee peoplefs living standard is of vital importance.

In politics, China practices the democratic centralism under the leadership of the Communist Party of China. This centralism has enabled the reform to be carried out more easily. This is the positive side of this system. But at the same time, it is also easy to cause corruption, which should be given enough attention.

In addition, I would like to give some of my own opinions on political democracy, though it is a sensitive topic. Personally, I think it is not wise to be over-anxious for political reform, while the economic conditions are yet to be ready. The Republic of Korea, Taiwan and Singapore gradually started their democratization drive after experiencing high economic growth, and economic and social conditions were mature. Thus, they succeeded.

In contrast, the former Soviet Union adopted the "shock therapy" or the "big bang approach", hoping to realize democratization overnight. In the end, the country fell into chaos.

I think the former can serve as a "positive teacher", while the latter is a "negative teacher". China can learn much from both positive and negative experiences.

Moreover, global and recional environment are also issues that cannot be ignored. Solutions to these problems can only be found during the process of economic development.

Some people think economic development should be held back, for it has brought about many problems. I don't agree with this. While bringing problems, economic development also creates conditions for solving them. This should not be overlooked. Therefore, China should continue to follow the road of sustained development.

BEIJING REVIEW, DECEMBER 7-13, 1998

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