China’s Economic Development
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China’s Economic Development

Institutions, Growth and Imbalances

Lu Ming, Zhao Chen, Yongqin Wang, Yan Zhang, Yuan Zhang and Changyuan Luo

The authors identify three major factors in the growth of the Chinese economy: economic decentralization and political centralization; the urban–rural divide; and relational society. These are explored in depth via analyses of factors including urban and rural economic development and their political and social foundations, industrial agglomeration, transitions of public services and governmental responsibilities towards them and developmental imbalances and mechanisms. It is illustrated that whilst contemporary China has obviously made great economic strides, a wide variety of problems are accumulating over time. The book concludes that following three decades of high economic growth, China now faces great challenges for sustainable growth, and the institutions of China’s economy have reached a critical point. Strategies for dealing with these challenges and requirements for the successful future development of China are thus prescribed.
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Chapter 5: Transitions of public services and government responsibilities during the marketization process

Institutions, Growth and Imbalances

Lu Ming, Zhao Chen, Yongqin Wang, Yan Zhang, Yuan Zhang and Changyuan Luo


Since the foundation of the new China, an overwhelming majority of urban residents have been covered by a welfare network that includes pensions, medical care, education, and housing, all supported by state-owned and collective enterprises. In rural areas, health care was provided through cooperative medical-care organizations within the scope of the collective economy. Since the beginning of China’s reform and opening-up, the power of marketization has had a pronounced impact on the social welfare system. In the cities, as early as the mid-1980s, state-owned and collective enterprises had already felt the pressure of competition from non-public enterprises, which carried a much lighter welfare burden. At that time, the reform of marketization and the socialization of the welfare system began to take effect. Since the mid-1990s, marketization reform has caused substantial changes in pensions, medical care, education, and housing. The system that has customarily been used to assess political achievements is heavily based on GDP growth. This gives local governments an incentive to invest local funds in areas that can promote GDP growth directly, while the funding of public services is more often left to the market. The dismantling of people’s public communities has caused a serious lack of medical care in rural areas. The reform of marketization has inspired the development of new pension, medical-care, education, and housing systems. The average quantity, quality, and efficiency of medical care, education, and housing have all increased.

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