Background Information for Teachers:

1. Fundamentals
   1. Geographic Parameters

      Size and latitudes: Nearly the same area as the USA. Only 11% of the land is arable (25% in US)

      • Weather: The monsoon cycle. Rainfall concentrated in summer, -heaviest and most regular in South; light and variable in the North. All the West is arid.
      • Transportation: Natural-routes include sea and the extensive Yangtze River system. No natural interior waterways link South and North.
      • Implications for the Economy:
        
        • Population concentrated in arable plains, coastal strips, and basins.
        
        
        • Regions have been relatively isolated from each other by high cost of long-distance transportation.
        
        
        • The North experiences frequent droughts and floods. (The Yellow River has changed its course several times in recorded history.)
        
        

   2. Family: The Primary Economic Identity
      • People are identified by their families (family name comes first), economic decisions are made by the family, for the family.
      
      
      • The Family Unit: The "small family" - the nuclear household; the "large family" - the extended family. Both play central and pervasive roles in economic activity.
      
      





2. The Traditional Economy
   1. Local Identity: Spatial Structure of the Rural Economy [Skinner]
      • Standard Market Areas: The area served by a standard market town, which provides basic marketing services to the surrounding villages and rural households. Conceptually hexagonal.
      
      
      • Intermediate Market Areas: Each intermediate market town provides second level services to six surrounding standard market towns.
      
      
      • Central Market Areas: Provide higher level, more specialized services to surrounding intermediate market towns.
      
      
      • Macro-regions: Eight major trading areas linked internally by navigable waterways, isolated externally by geographic barriers to efficient transportation
      
      
      • Core and Periphery:. Core areas of macro-regions had higher population densities, more concentrated higher level market towns and cities.
      
      
      • Population Growth: Population growth increased density of rural settlement, causing new villages to appear, old villages to become new standard market towns, and marketing centers to shift up in scale throughout the system.

       

   2. Change in the Pre-modern Economy

      Technological Innovation and Population Growth: Major population increases generally followed key technological innovations if the country was at peace. Use of iron tools in Warring States period (403-221 BC); introduction of fast-ripening Champa rice in Song (960-1279) (the first it pre-modern green revolution"); introduction of New World Crops (maize [corn], potatoes, peanuts, sweet potatoes) in late Ming (1500s); introduction of industry and modern transportation in late 19th and early 20th centuries.

      The High-Level Equilibrium Trap (Elvin): Theorizes that China did not have its own industrial revolution because the pre-modern Chinese economy made such efficient use of pre-industrial, labor-intensive technology that there was not enough incentive to invest in mechanization.





3. The Modern Economy
   1. When is Modern?

      One economic answer (of several possibilities): When modern transportation (steamships and railways) effectively linked Chinese domestic markets with international markets. This happened in the late 19th century to rice, cotton, soybeans, peanuts, and other agricultural commodities, as well as tea and silk, which had been traded internationally even earlier. Simultaneously, standard market areas begin to disappear when mechanized transportation enables farm families to go directly to higher level market centers.

   2. The Modern Economy Before 1949

      Agriculture: Almost entirely pre-industrial, but very highly evolved. Characterized by specialization, responsiveness to markets, intensive labor. North: Wheat, corn, sorghum, peanuts, cotton. South: Rice, tea, silk, vegetables.

      Industry: Modern industry limited to major cities, most on East coast, plus Wuhan and Manchuria (Northeast China). Textiles, machine shops, iron, cement, coal mining, cigarettes, matches.

      Commerce: Local commerce lively. Inter-regional trade limited by transportation costs. International trade limited, but important from mid-19th century.

      Strengths: Flexibility; ability to respond to market opportunities.

      Major Problems: Wide income disparities. Disruptions caused by war, civil war, banditry.

   3. Major Debates About the Pre-1949 Modern Economy
      • Did international trade stimulate the economy, or make it vulnerable to the disastrous effects of wars, fluctuations in world markets (hairnets, tea, silk, etc.), and the Great Depression?
      • Did Chinese farmers become worse off, better off, or stay at about the same living standard level in the early 20th century?
      • Would China have achieved an efficient modern economy by mid-century if it had not been disrupted by civil wars and the invasion by Japan?

   4. The Centrally Planned Socialist Economy (late 1950s to end 1970s)

      Agriculture: Collectives, the commune system: Commune- Production Brigade- Production Team-Household. Income distributed by work points. About 5% of land allocated to private plots. Industry permitted in communes and brigades for certain products: Cement, fertilizer, farm machinery, electricity.

      Industry: Most state-owned, inputs and products allocated by plan. Profits accruedto state budget. Wages based mainly on seniority.

      Commerce: Primarily through state procurement and marketing agencies. Prices set by state. Relatively little exchange between regions and localities. Foreign trade significant for bottle-neck items, but very small relative to GNP; about 6%. Conducted only by state agencies.

      Strengths: Public health very good given very limited resources. Income differences sharply narrowed. Necessities provided to nearly all. Strong progress in heavy industry and infrastructure.

      Problems: Inflexibility. Lack of specialization. Ineffective incentive systems at all levels. Slow progress in technological innovation. Inaccurate price signals. Stagnation in provision of consumer goods.

   5. The Reforming Economy ("Socialist Market Economy") (early 1980s to the present)

      Agriculture: Shift to household contract farming. Communes disolved; brigades and teams converted (in some cases reverted) to townships or villages. Private enterprise legalized ("specialized households"). Restrictions on non-contract production eliminated. Rapid expansion of rural industry. Industry: Items under plan cut by three-fourths. State enterprises remit taxes rather than all profits. Off-plan production and marketing legalized. Adoption of contract system for management and wages. Private, joint venture and wholly foreign-owned enterprises legalized. Rural industry most dynamic element, accounting for over a third of output in 1990.

      Commerce: Restrictions greatly reduced at all levels. Free markets in cities legalized and encouraged. off-plan trading legalized. Private transportation and trading legalized. Direct contact-between Chinese and foreign firms legalized. Sharp growth in importance of foreign trade, to over a quarter of GNP.

      Strengths: Strong growth in production and productivity in most sectors, notably in provision of consumer goods. Rapid rise in real incomes. Flexibility. Responsiveness to market fluctuations. Great increase in specialization. Much surplus rural labor absorbed by rural and urban informal industry. Free markets generate accurate prices. Economic Zones along the coastal region has contributed greatly to recent industrialization efforts. Tax breaks, low costs for land, and cheap labor have encouraged significant foreign investment.

      Major Problems: State sector weakened by private sector and vice versa. Chaotic price "system." Widening income disparities. Neglect of collective facilities, like schools, clinics, irrigation systems. Persistence of "soft budget constraint" for inefficient state enterprises. Persistence of state subsidies for grain sold in cities. Strong inflationary pressures.

   6. Unresolved Hot Topics

      Is the "socialist market economy" ("socialism with Chinese characteristics") just a euphemism for capitalism? What is socialism? Can rapid economic growth coexist with equitable income distribution? Can rapid economic growth coexist with a healthy environment? (Note the Three Gorges Dam controversy.

Additional resources on Chinese economic identity

William Skinner, "Marketing and Social Structure in Rural China," The Journal of Asian Studies, Vol. 24, No. 1 (Nov. 1964); Vol. 24, No. 2 (Feb. 1965); Vol. 24, No. 3 (May 1965).

Mark Elvin, The Pattern of the Chinese Past (Stanford, 1973).

Thomas G. Rawski, Economic Growth in Prewar China (University of California Press, 1989).

Huang, Philip C. C., The Peasant Economy and Social Change in North China (Stanford, 1985).

Carl Riskin, China's Political Economy: The Quest for Development Since 1949 (Oxford University Press, 1987).

Peter Nolan, The Political Economy of Collective Farms: An Analysis of China's Post-Mao Rural Reforms (Westview, 1988)

Useful Periodicals

The China Quarterly
China Daily
Beijing Review
Current History (September edition)

Other Appropriate Materials:

Mark L. Clifford, Dexter Roberts, Joyce Barnathan and Pete Engardio, "Can China Reform Its Ecomony?" Business Week: September 29, 1987.

Seth Faison, "In Major Shift, China Will Sell State Industries," The New York Times, 1997.

Seth Faison, "A Great Tiptoe Forward: Private enterprise in China," The New York Times, 1997.

Edward A. Gargan, "Weakness Seen in China's Economic Boom," The New York Times, 1997.

Peter Passell, "Economic Scene: Is China's Latest Move to Capitalism Real?" The New York Times, 1997.