While Americans and Europeans are struggling with debt crises, China today boasts about having $3.2 trillion is its coffers. This was revealed by Professor Jianling Wu Thursday in a talk at Stanford. Wu is a five-time recipient of China’s highest award for economic research.
Wu stated that after 30 years of economic reform the Chinese economy grew tenfold and recently became the world’s second largest and is also the world’s largest exporter. These reforms opened up opportunities for “the flourishing of the entrepreneurship of the Chinese people.”
During the era of Chairman Mao commercial activities were limited and the “passion for entrepreneurship was repressed,” Wu said. “An enormous amount of human and nature resources have been put into more efficient use.” Wu also said that 250 million people have migrated from rural to urban areas. Furthermore, a land mass the size of Ireland has been transformed for urban use.
Observing a shortage of demand due to a low rate of domestic consumption in the 1990s, the Chinese government embarked on an export oriented strategy. By importing advanced equipment and technology from abroad China was able rapidly grow its production capacity. Wu said this investment “quickly narrowed the technology gap between China and developed countries.”
However, Wu sees challenges for China as the “incomplete reform as the semi-market and semi-command economy system result in severe economic and political problems.” While it doesn’t control the majority of China’s GDP, the state still controls the key sectors of banking, petroleum, railroads and telecom. The government also gets tremendous amounts of land from peasants at low prices.
Furthermore, the rule of law is not yet established in China. Wu believes that too much power is in the hands of government officials.
“Governments at all levels have tremendous power in allocating important economic resources,” he said.
The great debate in Wu’s view is that “either the government will decrease its control and the system will mature into a market economy or the government will constantly exert control.” Commodity prices were liberalized in the 1990s and privatization enhanced the power of the market. But after the economy overheated in 2004, China moved back to state capitalism.
Wu cited successes of the “China Model” including the 2008 Beijing Olympics, the growth of high speed rail and the stability of China’s economy during global economic crises. Wu said “China’s technology is now approaching that of developed countries.”
He expressed concern over inflationary pressures, corruption, and “crony capitalism”. “Achieving a smooth transition is never easy”, he said. “More and more people call for action by government officials to benefit the people.”
The first question to Professor Wu was posed by Professor Nick Hope of the Stanford Center for International Development. He asked what the new government that takes office in China in 2012 will do. Wu replied that he thinks they’ll move forward.
A member of the audience asked what would be the driving force for political reforms. Wu said “the increasing middle class. It grew very fast. It’s still very young and needs to learn how to be good citizens.”
Gerhard Casper of Stanford Law School and Stanford’s 9th president asked “Has there been real progress toward rule of law?” Wu answered, “Yes, but there was a setback in 2004. We’ve had rule 'by' law (of the government) but not rule 'of' law.”
Wu’s talk was the second Ku-Shu Liang Memorial Lecture established to celebrate the life and accomplishments of Dr. Kuo-Shu Liang who was governor of the Central Bank of Taiwan from 1975 to 1979.