China’s Urbanization and the World Economy

China’s Urbanization and the World Economy

Fan Zhang

This innovative book places China’s urbanization within a broader global context, including a detailed estimate of China’s total domestic market and its impact on the world economy.

Chapter 14: Macroeconomic impacts

Fan Zhang

Subjects: asian studies, asian geography, asian urban and regional studies, economics and finance, international economics, urban economics, law - academic, asian law, urban and regional studies, urban economics

Extract

As one of the major countries in the world, monetary and fiscal policies adopted in China, combined with those adopted in the United States and other major countries, have large impacts on the world economy. Under the planned system, most of the firms in China were owned and operated by the government, and the state-controlled production and investment directly by mandatory instructions. For example, there was only one bank in China, the People's Bank of China with many branches all over China, which was completely controlled by the government. Prices and interest rates were also set by the government. The government did not need to collect taxes; it collected profits directly from state-owned enterprises (SOEs). Since the start of the economic reform in late 1970s, China has made a lot of institutional changes and adopted many modern macroeconomic policies. Following the partial privatization of SOEs, most of the firms in the market are independent from government control to some degree. Most consumer goods prices are determined by the market. Although the major banks are still SOEs, there is some competition among banks. The government collects taxes, which have replaced SOEs' profits as the major source of government revenue. While learning to use market instruments, the government still retains many administrative measures to control the economy. Sometimes these administrative instruments have been used alongside modern macroeconomic measures.

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