RE: After reading Professor Cheung’s China series

July 31, 2008

After reading Professor Steven Cheung’s paper (Chinese version), there are a few issues that maybe worthwhile to think about.

  1. 層層承包 is a clever way to conduct the economic reform Without creating too many shocks and resistance.  The label of ‘Communist’ can still be kept.  Having said that, is this system the Best in human history?  If not, should China continue to upgrade 層層承包 (走自己的路)or gradually shifts to the American system?  Should the American system be the final destination (Cheung disagrees but Demsetz seems to hold this view)?  These are all very important questions to answer.
  2. Monetary policy: One major reason that Zhu was able to maintain rather stable exchange and inflation rates had to do with China’s capital control.  Unlike Cheung, my concern is not that China is shifting to US’ monetary approach, but rather how China may relax her capital control without having to suffer severe financial crisis.  The improvement of existing financial infrastructures, unfortunately, is not covered in the paper.
  3. Unlike most papers and reports that focus on statistics and figures, this paper focuses a lot on the institutional arrangement, which is definitely essential to interpret China’s emergence.

I have a feeling that China may not go all the way to the British/US’ approach, but would definitely need to borrow some key elements from the British tradition.

1.  Rule of law (a constitution that protects human rights and property rights and most importantly, is well enforced);

2.  Independence of courts (China seems to be very hesitant to use the term ‘separation of powers’.  Even so, the increasing dependence of courts is a MUST!);

3.  The relationship between businessmen and officials (the problem is that many officials are now taking up businessmen’s role to promote business opportunities; the competition among provinces helps to control; the degree of corruption <an official who ‘charges’ too high would lose the business to other regions>; even so, China should start to redefine officials’ role and keep them away actively involved in businesses);

4.  Freedom of media must be further enhanced to monitor the government(s)

 Whether Universal suffrage and muti-party system…are necessary?  These are the two elements that I am not so sure and keep asking myself.  The bottom line is to be correct rather than politically correct.

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Coase on China

July 22, 2008

Below is the introduction Ronald Coase delivered at the beginning of the China conference which we have talked about here before. Thanks to Linda, Professor Steven Cheung’s wife, for kindly providing me with a copy of the introduction and granting me permission to reproduce it here:

China’s Economic Transformation

Ronald Coase

July 14, 2008

I now have the very pleasant task of welcoming you to this Conference on China’s Economic Transformation. When Steven Cheung wrote in 1982 his pamphlet for the Institute of Economic Affairs in London on the question “Will China go capitalist?” a question that he answered in the affirmative, I was one of the few people who agreed with him.

But I thought in terms of 100 or 200 years, not 25 or 30 years. What happened in China was a complete surprise to me, its scale, its character and speed – which means that I did not understand what was going on. I therefore determined to hold a conference that would uncover the facts about this extraordinary series of events. We sought out those best able to inform us, academics, businessmen, government officials, about the facts about what happened. I think we succeeded. We have a series of fine papers that greatly enlighten us about what has happened in the years since 1978. As we intent to publish an edited version of these papers (and of the discussions) in a book, they will inform a much wider audience.

Of course, although we will learn a great deal about what happened, it is not to be expected, although some things will be made clear, that there will be complete agreement in the views expressed – nor is it desirable that there should be. A subject in which everyone says the same thing is a dead subject and one which will not progress.

Competition in the market for ideas is as valuable as in the market for goods. The truth is found as a result of the clash of ideas. And it will be so at this conference.

Our first paper by Steven Cheung will be delivered by him on DVD. It is long (about 2 hours) and I decided to divide it into two parts, each about an hour in length with an interval with refreshments in between.

Unfortunately, one of our important discussants, Professor Mundell, will not be able to attend on the first day but will give his views on Tuesday morning. I should explain here that while I speak as though I organized this conference, in fact all I did was to have the idea that such a conference would be a good thing. The actual organization of the conference was carried out by Ning Wang, assisted more recently by Lennon Choy and Marjorie Holme. I have been largely a spectator and admirer of their work. I should also say that, approaching 98 years of age later this year, I get extremely tired and almost certainly will not be able to attend all the sessions. But those who present papers at sessions I do not attend should realize that my absence is in no sense of judgment on the worth of their papers.

I now turn to Steven Cheung’s talk. I came to know Steven when he came to Chicago from UCLA in 1967 on a fellowship and was later in 1968 appointed an assistant professor. I don’t remember how we met. But when we did, we formed an immediate bond and we had the most enjoyable and productive talks together.

Unfortunately for Chicago, he decided to leave Chicago and go to the University of Washington where he had as colleagues Douglass North and Yoram Barzel. However, our relationship did not end and Steve wrote a series of splendid articles published in the Journal of Law and Economics of which I was editor. Then, in 1980, Steve received an offer from the University of Hong Kong. I urged him to accept. I thought it would be a fine place to observe what was happening in China. Just how valuable it would be I did not then realize. But you will learn from his talk what he has gained from his close observation of events in China over the years. I won’t hold up this really important talk any longer. So here we have Steven Cheung speaking on China’s Economic Transformation.


“Alfred Marshall’s footnote”

July 4, 2008

Anyone may correct me if I am wrong. In regards of the ‘Alfred Marshall’s footnote’ (see note 35 & 36 in part 6), the concept is that regional government can charge different ‘land prices’ in order to compete with one another. Less attractive regions even offer ‘negative price’ to absorb investment.

I agree that regional competition is important to China’s growth. In fact, we may look at China, instead of a single country, as an union of regions that compete with one another. The EU model may help us to understand situation a bit more. Let’s see how Professor Cheung further develops the idea.

Wallace S.T. Chan


China’s reform

July 3, 2008

Many oversimply China’s reform as a change of central planning to market oriented. The fact is market, rather than a bundle of demand and supply curves, requires the backup of necessary institutions. At the end of the day, a pro-market institutional arrangement involves property rights, legislative & legal infrastructures etc, which is far more complicated than many Market anarchists realize. The enforcement of contracts is definitely one of the corner stones and I expect Professor Cheung to cover that later.

Wallace S.T. Chan