China’s New Industrialization Strategy
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China’s New Industrialization Strategy

Was Chairman Mao Really Necessary?

Y. Y. Kueh

Deng Xiaoping’s economic strategy is widely regarded as a complete anathema to Mao’s, but this study strongly argues that without the material foundations laid by Mao, it would have been very difficult for Deng to launch his reform and open-door policy. Deng basically shared Mao’s aspirations and approach in pursuit of China’s industrialization, and this had in fact helped to condition him to the successful gradualist methodology. Deng lost patience at times and resorted to the ‘big bang’ strategy, only to fail miserably. Taken together, the book tells a new story about the economics of China’s transition. This is a highly thought-provoking study, blending institutional and convincing statistical analysis.
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Chapter 11: Inflation and Industrial Deregulation: The Twin Travellers

Y. Y. Kueh


11. Inflation and industrial deregulation: the twin travellers* BACKGROUND Economic transition in China not only represents an arduous process, but has also characteristically been inflicted with bouts of inflation over the past 20 years or so. As a matter of fact, the occasional outbursts of inflation as observed were indeed all triggered by abortive attempts to deregulate the state-industrial sector. This seems therefore quite atypical of the celebrated ‘incrementalist’ or ‘gradualist’ approach propagated by Deng Xiaoping himself. At any rate, the disruptive Chinese inflation experience compares unfavourably with the ‘graduated’ cyclical fluctuations in the West. In mature industrialized countries, the established market system normally does not provide room for any drastic institutional reshuffle and any anticyclical fiscal and monetary policy readjustments made are bound to be marginal in scale. There are two aspects to the background of inflation breaking out in China. The first refers to what may be called the ‘monopoly overhang’. That is, the backdrop of pervasive sellers’ markets which may be readily exploited by any state-run suppliers operating on grounds of the ‘economics of shortage’ à la Kornai. The second is the familiar ‘monetary overhang’. This relates to involuntary accumulation over the years of purchasing powers or financial claims that threaten to burst out, once officially fixed prices begin to be unfrozen in favour of the deregulated SOEs. Both types of ‘overhang’ are clearly inherited from the Maoist past to constrain the pace of industrial deregulation,1 much as the...

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