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Economics in China has not been able to disassociate itself from politics. The Chinese word for economy or economics, Jingji, is the abbreviation of Jingshi (or Jingguo) Jimin, which means ‘ruling the society or state and saving the people’. In traditional Chinese learning, this is a generalized concept that covers almost the entire range of a state’s administrative activity. However, the viewpoint implied in this word is that of the rulers or administrators and not that of individuals engaging in economic activity on their own account.

The Quest for Wealth and the Control of Morality

Policies oriented towards the attainment of ‘wealth and power’ had appeared already in ancient China, the Eastern Chou Period (722–256 BC), when the rule of Chou dynasty became in title alone and powerful vassal lords struggled with each other for leadership, which was based on the power of their feudal states. A crucial insight pertaining to economic growth that emerged during this period was that fostering the material welfare of the people was a precondition for a strong state. The famous saying ‘Man will care about honour and disgrace only when he has enough clothing and food’ is attributed to Guan Zhong (730–645 BC), the prime minister of a ducal state. He implemented policies that would bring stability to people’s lives; these policies included the promotion of agriculture, monopolizing salt and iron, state intervention in the public distribution system, maintenance of a balanced budget and the consolidation of taxation and military services. Practical policies were further developed by many politicians in the Warring States Period (475–221 BC). These became part of the arsenal of policy measures adopted by the administrators of the unified state of successive dynasties from the Qin (221–206 BC) to the Qing (AD 1644–1911). A text named after Guan, Guan Zi, was compiled in the Western Han Period (206 BC–AD 8). This contains detailed discussions of the practical economic policies of ancient China.

In ancient China, before the unification by the Qin, political control over merchants was not strict. Wealthy merchants in the pre-Qin period were vividly described in Records of the Historian (‘Shiji’). The editor–historian, Sima Qian (145–87 BC) clearly favoured a liberal economic policy that permitted the innovative activities of talented merchants.

Competitive Schools in Ancient China

Confucius (551–479 BC) also recognized the quest for wealth as a natural human trait. However, he stressed that the teachings of morality (Ren) should control the quest for wealth. According to him, superior men can understand and adhere to the virtues of righteousness and benevolence in their deeds, while inferior men (common people) cannot. The former belong to the ruling class and the latter are the ones who are ruled, who must be guided by the former. Confucius stressed the educational effect of a ruler on the people’s perception of societal order. He was opposed to the levying of heavy taxes and unnecessary state intervention, since that might jeopardize the common man’s standard of living. He maintained that a peaceful and fair reign of a virtuous ruler fosters allegiance. As long as people follow the basic order of society, the wealth of the state emerges as a spontaneous result of the growth in the population.

Meng Ke (c. 390–c. 305 BC), whose name is often mentioned together with Confucius, strictly excluded the consideration of material benefits from the political discourse of superior men. During his first meeting with the king of Liang, Meng declared that he spoke only of ‘righteousness’ (Yi) and not of ‘benefits’ (Li). However, he also stated that the dominance of ‘righteousness’ presupposes the maintenance of a ‘permanent property’ of the people in order to secure the morality of the people (Mencius).

Mo Di (c. 468–c. 367 BC) and his School (Mohists) grounded their altruistic teaching on the extended approval of ‘benefits’. They believed that economic transactions are acts of ‘mutual benefit’, which will eventually support the doctrine of ‘universal love’. From a utilitarian viewpoint, they regarded righteousness as a material benefit; this is in clear contradiction with the Confucians. Mohists further advocated a ban on war and simple burial. Apparently, this School originated from the craftsmen who were not entirely integrated into the social hierarchy existing in the pre-Qin period.

Legalists such as Shang Yang (c. 390–338 BC) and Han Fei (c. 310–238 BC) differed from the Confucians with respect to the measures to be adopted for guiding people. They stressed the effective control of people by the strict enforcement of punishment. They prioritized agricultural production and considered manufacturing and commerce as tertiary activities. The Legalists were prepared to collaborate with princes and politicians who sought to enhance the wealth and power of their states.

Omnipotent State Versus Virtuous Reign

Ancient China was unified by the Qin dynasty, which had adopted the policies of Legalists. The first emperor of the Qin (221–206 BC) suppressed Confucians who criticized his reign as measured against the criterion of virtuous ruler. However, under the following dynasty, the Han, Confucianism established its position as the state orthodoxy, which continued until the end of the Qing dynasty. Still, a Legalist direction survived in the pragmatic mentality and policies of administrative bureaucracy. Thus, Chinese political history witnessed repetitive conflicts between the moralistic direction of Confucianism and the bureaucratic administration in the direction of Legalists.

One of the most noteworthy debates was the dispute on salt and iron (81 BC), in which San Hongyoung (152–80 BC) – the finance minister of the Western Han dynasty – had to defend his policy against the criticism of Confucian scholars. In order to compensate for the deficit in the state finance caused by an expansionary policy, San extended the state monopoly of salt and iron and introduced a state- managed storage and distribution system. Such a system could be legitimized if it was successful in guaranteeing the nationwide provision of necessaries and a stabilization of their prices. However, coupled with a heavy tax burden, San’s system made a devastating impact on the nation. Confucian scholars voiced the dissatisfaction of the people and pressed for the abolition of San’s system.

A similar constellation appeared in the dispute around the economic reforms of Wang Anshi (1021–86). Wang’s attempt to consolidate public finances by suppressing the annexation of lands by rich families and establishing a strict taxation system was opposed by traditional scholars, who were in alliance with the richer families.

Apart from the taxation and market control, Chinese administrators showed their expertise in the area of currency. They are the first to have issued paper money (Jiao Zi) in the 11th century. The Yuan dynasty (1271–1368) adopted the idea of inconvertible notes in its monetary system. The paper currency ordinance of 1287 drafted by Ye Li (1242–92) contained sound measures to maintain the value of paper money in relation to the regularly inspected silver reserve fund. This paper currency system of the Yuan dynasty exerted a certain influence over the currency system of other countries through the commercial networks under the grand Mongolian rule.

The Demand for Equalization

Support for equality is another persistent trait of traditional Chinese economic thought. The equalization of land and wealth was a typical demand raised by numerous peasant rebellions. The Taiping Rebellion (1851–64) put into effect an equal distribution of land, and the rural revolution under Mao Zedong’s (1893–1976) directive displayed a similar kind of egalitarianism. However, the ideal of equality in the distribution of wealth can also be found in Confucian classics. Confucius himself remarked that rulers must worry ‘not about the scantiness of wealth but its inequality of distribution’ since ‘there will be no feeling of poverty under equal distribution’ (Analects). Here, equality is appreciated with respect to its ability to maintain harmony and tranquillity among the ruled. Meng Ke also proposed an egalitarian Jin land system, in which peasants, who were allotted equal amounts of land, jointly cultivated public land for the sake of generating public finance. This proposal was revived several times by reformist politicians as well as by egalitarian rebels.

A vision of an egalitarian ideal society, the Great Harmony (Datong), where neither private property nor egoistic interests exist, is mentioned in the Confucian classic Li Ki. Xiaokang, a society in which the people are guided by order and institutions is not an ideal but a second best, suited to the age of a civilized society. However, towards the end of the Qing dynasty, Kang Youwei (1858–1927), a reformist politician and scholar, revived the ideal of the Great Harmony to regenerate the whole nation.

Preconditions for Chinese Modernization

The nationwide examination system for the recruitment of government officials was established under the Sui dynasty (581–618) and continued until 1905. Based on the Confucian orthodoxy, it moulded the thought of Chinese intellectuals over a millennium. However, Confucian orthodoxy was not totally exempt from change. In addition to the ideas that had emerged in the ancient period, it absorbed heterogeneous ideas from other intellectual schools of thought, such as Buddhism and Taoism. The effect of the development of a rationalistic Neo-Confucianism guided by Zhu Xi (1130–1200) and the emergence of the countervailing school of Wang Yangmin (1472–1528), which introduced an inner integrity to Confucianism, are interesting issues that need to be further researched. Towards the end of the Ming dynasty (1368–1644), these developments promoted a critical attitude towards the traditional order of the empire. Huang Zongxi (1610–95) and Wang Fuzhi (1619–95) developed a utilitarian concept of hierarchy based on the private property and self-interest of the people. Further, the diffusion of the teaching of Wang Yangmin (Xinxue) that stressed purity of mind nourished the morality of the merchants (Yu 1987). However, these developments were not sufficient to modernize the Chinese intellectual tradition from within. The landlord class that recruited state officials through a nationwide examination formed the ruling alliance of the society. Merchants had no other option but to join this alliance as subordinate participants. However, the intellectual legacies of old China were preconditions for the Chinese to cope with the modernization that was initially forced on them by external forces.

Introduction of Western Economics

It was the publication by Wei Yuan (1794–1857) of the Geography of the Maritime Countries (1843) that initiated the movement among Chinese intellectuals of learning from the West. However, Western economics was not introduced until two decades later. Using H. Fawcett’s A Manual of Political Economy as a textbook, W.A.P. Martin, an American Christian missionary, began a course on policies for the wealth of nations at a government school in Beijing in 1867. Later, in 1883, this course was translated and published in Shanghai under the same title. A second significant contribution pertaining to the translation of Western economics was that of a British missionary, J. Edkins, who translated W.S. Jevons’s Primer of Political Economy into Chinese. This translation was published in 1886 with the Chinese title, Policies for the Wealth of Nations and Support of People. Fawcett and Jevons were neither mercantilists nor interventionists. However, both Chinese titles suggest that the Chinese people of this period regarded Western economics as a policy measure to strengthen the state.

Between 1901 and 1902, Yan Fu (1853–1921) published the translation of Adam Smith’s Wealth of Nations in Shanghai under the title Elements of Wealth (‘Yuan Fu’). In his commentary on this translation, Yan clearly stated that the principles of economics advocate free competition, are against state intervention and limit the scope of state involvement in those tasks that are not suited for the private sector. However, most Chinese intellectuals, including Yan himself, accepted the theory of liberal economics because of its contribution to the recovery of the power of the nation (Schwartz 1964).

However, the principles of liberal economics do not appear to have contributed much to the modernization of China. Late 19th-century reformers had to fight against the obsolete bureaucracy of the Qing dynasty. As was typical of revolutions in the 20th century, the social dimension of the Chinese revolution increased in significance with the passage of time. Democrats and liberals worked together on the cultural front of the 4 May Movement (1919). However, this collaboration soon broke down, since democrats shifted their position to that of Communist revolutionaries and began to attack liberals as ‘bourgeois intellectuals’.

The ideology of Western socialists and social reformers was introduced by Sun Yatsen (1866–1925) through his ‘Three People’s Doctrines’. Sun regarded Western capitalism as the root cause of the social problems in the West and searched for an alternative route towards economic development for China. He recognized Henry George’s idea of land nationalization and the German socialist idea of capital regulation. After experiencing the state of anarchy that followed the Xinhai Revolution (1911), he sympathized with the Russian Revolution and led his Nationalist Party, the Guomingdang, in cooperation with the Communists.

Period of the Republic of China

Despite continued struggles among the warlords and an unstable security environment in both domestic as well as external affairs, the period of the Republic of China (1912–49) marked the emergence of economic academism in China. Most of the renowned universities of today originated in this period, and specialized economists, some of whom were educated in the United States, Europe and Japan, began to teach there. There were 16 Chinese publications on economics in the decade following Yan’s translation of Adam Smith’s Wealth of Nations; this number increased to 20 between the 1911 revolution and the 4 May Movement. It further increased to 228 in the decade following 1919 and to 1,116 after 1929 (Shanghaishi 2005, pp. 114–15).

The Chinese Economic Society was established in 1923, and after a decade its membership amounted to c. 600. In 1930, it launched the quarterly journal Jinngjixue Jikan in Shanghai. Ma Yinchu (1882–1982), a Ph.D. holder from Columbia University who had taught economics at Beijing University since 1915, was its president. He served the Guomingdan government as its economic advisor and published his views on the currency problems, banking and public finance in China. The Chinese economists of this period actively participated in policy discussions, such as the currency reforms of 1936, financial problems and industrial development plans.

However, it was the problem of agriculture that most concerned Chinese economists. A large-scale research project in rural economy headed by Chen Hansheng (1897–2004) gave birth in 1933 to the Research Forum in Chinese Rural Economy. This forum gathered a membership of about 500 members and trained economists who continued their research activity in the post-1949 period. The most prominent member among them was Xue Muqiao (1904–2005), who edited Rural China (‘Zhongguo Nongcun’) from 1934.

Social scientists influenced by Marxism eagerly discussed the nature of existing Chinese society (1929–1931). This debate contained a political element since those who supported the Chinese Communist Party (CCP), which was founded in 1921, regarded Chinese society to be a semi-feudal and semi-colonized society, whereas the Trotskyists emphasized the dominance of the capitalistic elements. Such debates on the nature of Chinese social history and its periodization (1931–3) and on the Asiatic mode of production continued in the field of economic history.

Marxist Monopoly Under the PRC

The People’s Republic of China (PRC) started in 1949 with the programme of the ‘New Democracy’ that was to be based on the alliance between Communists and democrats from all sections of the society. The government requested non-resident Chinese scholars to participate in the reconstruction of China.

Ma Yinchu, who was exiled to Hong Kong as a result of a dispute with the Guomingdang government, returned to take over as the president of Beijing University. Initially, several of his colleagues were those who had been educated in American universities. Thus, in the beginning of the PRC, universities in China had non-Marxian economists on their staff. However, the socialist reconstruction of academic system based on the Soviet–Russian model, and the intensifying confrontation with the United States, soon deprived ‘bourgeois economists’ of freedom. Abridged translations of Russian textbooks pertaining to Marxian economics became the standard education materials. In 1957, when the CCP declared a liberal policy towards intellectuals with the appealing phrase ‘Let a hundred flowers blossom’, Ma proposed his idea of population restraint to the People’s Congress of the PRC. This offended Mao Zedong’s positive view of population growth. The ensuing continuous attacks on ‘Malthus in China’ signalled the expulsion of non-Marxian ideas from the academic world under the PRC.

According to the original concept of the New Democratic Economy, the development of capitalism in China, except for ‘monopoly capital’, was to be welcomed as the basis for initiating future socialist transformations. However, in 1953 the success of the agrarian reforms motivated Mao to practise ‘the solution to the problem of ownership’. Through the socialization of the ownership of the means of production, a Soviet Russian-type of planned economy was established in the sectors of industry and commerce during 1953–6. This was followed by the establishment of people’s communes in the rural areas in 1958.

Reform Economists in China

The first criticism levelled against a centrally planned economy also emerged in the years of ‘Let a hundred flowers blossom’. In 1956 and 1957, Sun Yufang (1908–83) proposed an economic model of decentralization with the use of profit targets in the management of manufacturing sector. Sun was a Marxian economist who had studied in Moscow. He grounded his proposal on the validity of the ‘law of value’ in a socialist economy, which is distinguished from the ‘law of market’. In this respect, the views of Gu Zhen (1915–74) were more progressive, in that he openly criticized the abolition of the market mechanism under socialism. During the wave of the Anti-Rightist Struggle that occurred during the latter half of 1957, Sun and Gu were labelled ‘revisionist’ and ‘bourgeois rightist’ respectively.

Chinese economists were aware of the shortcomings of a Russian-type planned economy and the need for reform. However, the ideological rejection of the ‘material interest’ as a tool of ‘revisionists’ prevented the introduction of reforms in the management system of state-owned enterprises (SOEs). Ideological politicians stuck to the appeal to ‘spiritual incentive’. Reforms were then directed towards an administrative decentralization, in which powers and benefits were divided among various administrative organs.

It was only after the declaration of the end of the Great Cultural Revolution (1966–1976) and with Deng Xiaoping (1904–1997) taking over the leadership of China that the damage caused by excessive decentralization and the need for management reforms were seriously taken into consideration. After the strategic decision of the CCP for economic reforms and an ‘open door’ policy, China implemented various policies such as the creation of special economic zones and township and village enterprises as well as the approval of private enterprises and households contracting in agriculture. Under the concept of the ‘planned commodity economy’ (1984), the market economy was theoretically subordinate to the planned economy. The existence of private sectors was legitimized by the theory of the ‘early stage of socialism’ (1987). At last, in the 1990s, by the definition of the ‘socialist market economy’ (1992), the private sector was clearly approved as the main and normal element of Chinese socialist economy.

A group of veteran economists, namely, Xue Muqiao, Du Rensheng (born 1913), Yu Guangyuan (born 1915), Liao Jili (1915–93), Lieu Guogang (born 1923), and others contributed to the transformation of the concept of ‘socialist economy’. In the early 1980s, they re-examined the orthodox and heterodox texts of Marxism, studied reform economics of former socialist eastern European countries, and endeavoured to draw conclusions from the empirical research on agriculture and manufacture sectors. They formed the ‘theory of the socialist commodity economy’.

After Mao’s death and the end of the Great Cultural Revolution, academic economists soon regained their energy. The Chinese Academy of Social Sciences (CASS) was established in 1977. The oldest Shanghai Economics Society, whose origin can be traced back to 1950, resumed its activities in 1978. In the same year, the Chinese Research Forum of Overseas Economics was established and began to work for the diffusion of the ‘Western’ (non-Marxian) economics among Chinese economists.

In the 1980s, Chinese economists recovered their communications with the world community of economists. The government invited renowned Western economists to academic conferences pertaining to the economic reforms in China. It began to send young people to the graduate courses of top Western universities, and encouraged them to assimilate advanced analysis of modern economics. By the mid-1990s, China already had a group of talented economists who could analyse economic reforms in China in a manner similar to the Western (non-Marxian) economists. In the fields of research, economic teaching, and policymaking, the activities of non-Marxian economists became more significant with each passing year. Thus, the monopoly of the Marxian economists was broken.

Present Situation of Economics in China

The ideological/political control exercised by the CCP over Chinese intellectuals had been considerably reduced at the outset of the 21st century. Economists in China can now keep themselves abreast of the latest developments in the field of economics. However, the following three features are noteworthy when compared with economics in other countries.

The first is the peculiar position of Marxian economics in China. At present, it is clear that Marxian economics is just a sub-area in the whole gamut of research activities undertaken by Chinese economists. It is therefore symbolic that the Marxian economists organized themselves into a society named the Chinese Forum for the Study of Capital (founded in 1981). However, Marxian economics still influences society by two privileged routes. One is that Marxian economics continues to be an obligatory course of political economy (Zhengzhi Jingjixue) in most Chinese universities. It is virtually a part of the political education imposed on academicians. The other route is the ideological function for the ruling CCP. The CCP needs Marxian economists to defend its policy on ideological grounds.

The second noteworthy feature of Chinese economics is the focus on institutional economics and political economy. Leading economists of the post-Great Cultural Revolution generation such as Lin Yifu (born 1952) and Fan Gang (born 1953) adopted the framework of institutional economics. Lin attributed the success of the Chinese economy after the implementation of the ‘open door’ policy to the switch of the development strategy and the institutional reforms accompanying it. Fan provided an analysis of the incremental reforms in China by applying the public choice approach. The theories pertaining to modern institutional economics – transaction cost theory, property rights theory, contract and corporate governance theory, and comparative institutional analysis – are widely accepted by Chinese economists.

Lastly, a new divide between the supporters of the prevailing liberal policy and its critics emerged in 2004, and a debate between these two groups has continued since then. First, Lang Xianping (born 1956), a professor at the Chinese University in Hong Kong, attacked managers of the firms whose stocks were newly listed on the stock market. They were charged with smuggling national property by the application of various techniques such as management buyouts. His attack on the privatization policy encouraged economists who were concerned about the increasing inequality in society and diminishing state intervention. They criticized over-hasty privatization and demanded a policy that would enhance the level of equality in society. They stressed the need to implement reforms in the field of social policy, and rejected the unconditional integration of the Chinese economy within the global market. Liberal economists, who stressed efficiency, rebutted them. Another group of economists declared themselves as taking a middle-of-the-road position. The government is said to have attentively followed the debate.

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