chinese economic reform (1978-2008)

Thesis presentation:“Understanding Chinese Economy”

Luis Torras

Prof. F. Xavier Mena

Barcelona, June 20, 2008

1

2

This document was created to give support to the oral defense of the Thesis “Understanding Chinese Economy”, delivered in ESADEBusiness School (Barcelona) on February 11, 2008. This document is not complete unless supported by the underlying detailedanalysis and oral presentation.

© 2008 Luis Torras

Objectives of the presentation

A. Present the structure of the Thesis and the approach followed in order toexplain Chinese economy

B. Explain the main contents of the Thesis and the key issues of Chineseeconomic reform

3

C. Show the importance and relevance of Chinese economic emerge due to thereform process

D. Present the conclusions of the Thesis: key messages about Chinese economy,learning’s from Chinese experience and future perspectives for Chineseeconomy

“The single most important thing to happen in our lifetime will be theemergence of China.”

John Thorntonformer President of Goldman Sachs now Professor at Tsinghua University

“The integration of China into the global economy, which this has beenpart of, is a change of historical proportion.”

4

“El éxito de China se ha basado en la introducción gradual demercados y la apertura a las fuerzas de la globalización.”

Xavier Sala-i-MartínProfessor of Economics at Columbia University

Joseph E. Stiglitz2001 winner of the Nobel Prize in Economics

Agenda

A. Thesis objectives and structure

B. Chinese economic reform

C. Outcome of the reform

5

D. Conclusions

I had three main objectives regarding this Thesis

Explain Chinese economyWhy China developed

economic growth?

A OBJECTIVES AND STRUCTURE

Contribute to the ideas debate Give a global perspective

Goalsof theThesis

Show the magnitude, thehistorical perspective and

impact of Chineseeconomic growth

Serve as a document to discusswhich are the best economicpolicies to support prosperity

and ensure freedom

6

In order to achieve these objectives, I have structured the Thesis inseven chapters, following the next approach…

Key messages

� Many books talk about China, but very fewgo deep in the causes of economic growthand give a wide perspective all at once

� Lack of clarity when talking about Chinese

Structure of the Thesis Contents

� SUDDENLY CHINA � Magnitude, historicalproportions and impact ofChinese economic growth

� THE SETTING OF THESTAGE

� Geography, history andpolitical institutions in China

A OBJECTIVES AND STRUCTURE

7

� Lack of clarity when talking about Chinesereform: use of terms such as marketsocialism

� Show economic Reform as the key issueto understand China, and 1978 as theimportant milestone

� Understand why socialism failed in orderto understand why reform succed

� Include inside information

� SOCIALISM IN CHINA � Maoist era policies andeconomic regime (1949-78)

� THE REFORM � Origins of the reform,evolution and development

� THE REFORM AND THESTRUCTURE OF THEECONOMY

� Principles of the reform andhow the reform works inChina

� CHINESE ECONOMYTODAY AND TOWARDSFUTURE

� Current issues and futurechallenges of Chineseeconomy

� CONCLUSIONS � Final conclusions

Agenda




8

D. Conclusions

Chinese economic history in 20th century can be divided in twomain periods with 1978 as the important milestone

WTOentry

ECONOMICREFORM

MAOIST ERA � Between 1949 and 1978China suffered theconsequences of asocialist planned regimeth t d f i d

B CHINESE ECONOMIC REFORM

Chinese economic performance in the 20th centuryGDP

9Source: The World Economy by Angus Maddison; author

AsianCrisisShenzen

SEZ

DengXiaoping

Cultural Revolution

End ofQingdynasty

CommunistParty of Chinafoundation

People’s republicof China; Maofirst Chairman

Great LeapForward

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Farmprivatization

that caused famine andstarvation

� In 1978, Deng Xiaopingbecame China’s newleader and the economicreform began

� 1978 it is the essentialmilestone to understandChinese recent history

The Communist People's Republic of China was established in1949 and a socialist ideology came to govern the mainland

B SOCIALISM IN CHINA (1949-1978)1

� The last dynastic monarchwas killed in a militaryuprising in 1911. Subsequentyears saw a power strugglemainly between the People'sParty (KMT) and the CommunistParty (CCP) The latter gained

Beijing

PEOPLE’SREPUBLIC OF

CHINA

10

Party (CCP). The latter gainedcontrol of mainland China by1949, and the KMT fled toTaiwan and established the"Republic of China"

� The People's Republic ofChina was founded onOctober 1, 1949 by MaoZedong, Chairman of theChinese Communist Party(CCP). A socialist ideologycame to govern the mainland

Between 1949 and 1978, Mao and the CCP set up a socialistplanned-economy regime based on Marxist theory

Socialism aims a socialsystem based on publicownership of the means ofproduction

Socialism in China was implementedthought three main things: Agriculturalcollectivization, central plannedeconomy and repression

French scholar J.L. Margolinestimates the number ofdeaths due to the Communistpolicies in 65 million people

A i lt l ll ti i ti

WHAT IS SOCIALISM? HOW WAS IMPLEMENTED IN CHINA? WHAT WERE THE RESULTS?

Therefore in a socialist � Violence (many people were forced


11Source: Mises (1981); Huerta de Soto (2001); Margolin (1998)

� government is the only employer

� government decides what has tobe produced (planned economy)

� anyone can consume more thatwhat the government allows himto do

� there is no room left for freedom

� Agricultural collectivizationTherefore in a socialistcommonwealth…

“the theory of communism(socialism) may be summed up inthe single sentence: Abolition ofprivate property”

Communist Manifesto (1848)

• Mao started an agricultural revolution in orderto collectivized the land and set up a communesystem

• Peasants were force to join the communes andsmall business and private property wasabolished

� Great Leap Forward (1958-62)• Once all resources were centralized in the

power of the State, the communists design aplan in order to transform China into anindustrialized country

� Cultural revolution (1966-78)• In order to re-establish faith in the revolution,

Mao intensified the purges and violenceagainst those who question their policies

� Violence (many people were forcedto move to the countryside, peoplewere forced to join the communes,private business forbidden,…)

� Between 30-65 million peopledied, 35 million during the period ofthe Great Leap Forward alone(worse famine in absolute terms inhuman history)

� Starvation

� Internal purges

� Social repression

� Environment collapse

� Dictatorial state under the CCP

� China did not develop growth andindustry

During Mao Zedong's rule, the CCP focused on:

� Rural collectivization� Central planning� State control and ownership of industry� Chinese self sufficiency

China's Communist Party (CCP) focused on Soviet-like socialistpolicies to rebuild the economy after wars and invasions


Summary chart: Socialism in China

1949

1950s

1958

The Chinese CommunistParty (CCP) establishes thePeople's Republic of China (PRC)

1953

First Five Year Plan announced• Industry nationalized• Profits diverted to "key" industries

(iron, steel, textiles)

Second Five Year PlanannouncedMao's "Great LeapForward"

Nationalization of industries: focus on industrializationLand reform: collective model in the agrarian sector(Soviet model )

� Chinese self-sufficiency

Cultural Revolution1966

12

� Economic growth main priority, couldbest be achieved throughliberalization policies. In 1978 the

Positive:� China's GDP quadrupled from 1978 to 2002� Manufacturing exploded; in Shenzhen (the first SEZ), the

B ECONOMIC REFORM (1978-2006)2

Open door policy Results

Deng Xiaoping economic policies

Deng's vision for China: The Open Door Policy (1978) reversedpolicies that had closed China's market

pfirst Special Economic Zones (SEZ)were opened to internationalinvestment

� Descollectivization of the agrariansector (Household responsibilitysystem). Allowed private business aswell

� Responsibility in agriculture andindustry was decentralized, small-scale enterprises and services werepermitted

g p ; ( ),number of manufacturing enterprises increased from 26 in 1980to 500 in 1984, and personal income was five times the nationalaverage

� Trade and investment flourished, China's economy grewfaster than any other in the world in the 1980's

� Liberalization policies set the stage for China's accession tothe WTO

Negative:� Serious environmental problems caused by industrial

pollution and rapid economic development� Inequalities and migration pressures

13

COMMUNISTDICTATORSHIP

As of20081)

The reform refers to the process of transformation of the Chineseeconomy: from planned economy to market economy


The reform began in 1978, and today is still the key issue to understand Chineseeconomy

1978FREE OPEN

SOCIETY

P i t

1984 1988 1990 2000 2007

14

Abolition ofprivate property

and privatebusiness

Central plannedclosed economy(“Soviet type”)

Political andsocial

dictatorship

Private property

Freeentrepreneurship

Free-marketeconomy

Democracy

(rule of law)

1) Based on the 2008 Index of Economic Freedom by The Heritage Foundation

Source: Author

Commune systemdescollectivization

HouseholdResponsibility

SystemIncreaseprocurement prices

Agriculturaldecentralization

SOEs allowed to retaintheir profits

Creation of a ProfitTax

Bank system

“Growing out of theplan”

Openness (SEZ)

Join WTOin 2001

Privateproperty inChina

Reduction of SOEs

Marketliberalizations

30%

55%

70%

0%

Reductionof tariffsPL

AN

NED

EC

ON

OM

Y MA

RK

ET ECO

NO

MYIncrease efficiency

Market mechanisms

Fiscaldecentralization

Agricultural descollectivization provide the right incentives togenerate the surplus needed for Chinese industrialization


Household responsibility system – “growing out of the plan”

Maoist era lack of incentives

� In 1979, procurement prices rised by22%, and 40% accumulative during thenext decade

Key facts

15Source: Author

next decade� Descollectivization of the commune

system was done with the HouseholdResponsability System that allowedsubcontracting small plots to individualhouseholds

� In 1983, almost 98% of the agrarian sectorhad switched to the HRS

� Results (1978-1988):

� Fixed quota (State plan) from 47.8million tons to 50.5 million

� Domestic production jumped from304.8 million tons to 394.1 million

The Dual-track strategy was used in several issues of the reform aspart of “the growing out of the plan” system…

90100

The idea was that market economy began to drive Chinese economy gradually


Share of regulated price for industrial transactions [%] Key facts

� Dual-track strategy represent thecoexistance of both systems (socialismand capitalim) during some time

01020304050607080

1991 1995 1999 20031978 1985

Market prices State guided State fixes

Source: OECD 16

� This way, the number of loosers due tothe reform was minimize, while the oldinstitutions serve as second best optionbetter than abolish them all at once

� Examples

Coal market(in million tones)

Labour market(in million people)

Planed1981 1989

329 427

Market 293 628

Planed 74.5 112.1

Market 48.9 204.9

Deng Xiaoping: the road to capitalism to promote growth

Deng Xiaoping's policies focused on:

� Economic growth� The role of market forces, foreign trade and

investment from the west (openness)


Summary chart: Chinese economic reform

1978

Rural Reform and"Open Door Policy"declared

China appliesto join GATT

Hu Jintao succeedsJiang Zemin in thefirst peaceful trans-ition since 1949

� But: It did not allow for more political freedom

1985 1989

1994

1995

1997

2001

2002

Urban reform,reforms ofState OwnedEnterprises(SOE)

1986

Tianamen Squaremassacre causesinternationaloutrage

China's eco-nomy grows10% peryear, thefastest inthe world

Liberali-zationpackageintro-duced

Hong KongrejoinsChina

China joinsthe WTO

Deng dies.Jiang Zeminbecomesleader. Plansto privatizeChina's SOE'sannounced

17

Descollectivization(Household responsibilitysystem)Rural Industry (TVE)

Olympic Gamesin Beijing

2008

Source: Author

Agenda




18

D. Conclusions

Chinese GDP growth has been exponential since the first wave ofreforms in the late 1970s and has no precedents in world history

18 232

GDP Growth [RMB Billion at current prices] Years taken to double real GDP per capita

China(1990-1998) 8

Chinese economic growth has been smooth during all this years…

C

ECONOMIC REFORM

OUTCOME OF THE REFORM

19

452 8961,855

5,848

8,947

18,232

1980 1985 1990 1995 2000 2005

Source: China Statistical Yearbook 2006 ; IMF

Japan(1885-1919)

US(1839-1886)

China(1981-1990)

South Korea(1966-1977)

UK(1780-1835)

9

11

34

47

55

Chinese economic growth and FDI distribution is concentrated incertain regions

Chinese economic output distribution Chinese FDI distribution

Chinese economic growth has been uneven during the last decades

C OUTCOME OF THE REFORM

20Source: China Statistical Yearbook 2006

An overview of China today – the world’s largest nation (bypopulation)People's Republic of China 2007

Population1.31 bn

GDPUSD 3.25 trn (USD 6.99 trn at PPP)


GDP per capitaUSD 1,470 (USD 5,300 at PPP)

GDP growth9.1% (1994-2004 av.)

Leading export partners• US 21.0%• Hong Kong 17.0%• Japan 12.4%

Leading import partners• Japan 16.8%• Taiwan 11.5%• US 8.0%

Source: The Economist 21

Beijing

PEOPLE’SREPUBLIC OF

CHINA

Foreign directinvestmentUSD 60 Bn

China has become the “world’s manufacturing plant”, having aneconomic model based on exportChinese economic model – an overview1)

Chinese economic model isexport driven. With relativelycheap labour cost, Chinesemanufacturing activity is mainly

ImportsRaw materials

and componentsEconomic model


g y y(almost 50%) on ensemble andtransformation of componentsand semi finished goods.

Source: The Economist; author 22

Exports

1) data for 2006 2) Rank 3 after US and Japan3) G7 total labour force 57 million (US, Canada, Japan, France, Germany, Italy and UK)

Industrial activity2)

USD 893 Bn

Labour force3)

100 million

• Main consumer of rawmaterials, oil, coal,aluminium, iron, steel

• China has one of the mostopen economies in theworld (Chinese traderepresents 60% of its GDP) Components and

semi finished goods

Beijing

USD 960 Bn

China almost monopolizes all foreign direct investment in Asia

80

70

60

Foreign direct investment in Asia [USD Bn]

� In 2007, China recived USD 60 bn of FDI1)

� In the past, the most common way toinvest was using a JV, today more than60% of the investment is done using a

Foreign direct investment characteristics


23

China Singapore Korea Indonesia Thailand Japan

50

40

30

20

10

0

1980 1990 2000 2001 2002 2003 2004 2005

Source: UNCAD

wholly foreign owned enterprise2)

� Main investors:� Hong Kong (50%)� US (9%)� Japan (8%)� Taiwan (8%)� EU (8%)

� Main destinations of the FDI in China:� Industry and manufacturing (60%)� Real state (25%)� Services (15%)

1) Ranking 3 world wide, after the US and the UK2) From 1990 to 2004, equity JV fell from 55% to 37% while WFO jumped from 20% to 66%

Globalized markets have tapped into Chinese products andexports had boom since 2001

424140403836

34

29

252323

Exports [% as GDP] 2006 exports distribution [%]

Japan

Britain

OthersHong Kong

103

2316


20052000 2010E

� Chinese exports have skyrocketed, up from 14.5% ofGDP in 1993 to 40% in 2007

� Exports as a percent of GDP is expected to rise tonearly 43% by 2010

� Exports grew at 18% between 1992-2001, and 30%since 2001 (join WTO)

� In last ten years, China has increase its exports to US andEurope from 18% to 22%, and from 13% to 19% respectively

� On the other hand, Hong Kong and Japan had reduce itsshare from 22% in 1996, to 16%, and from 20% to 10% in thecase of Japan

Source: The Economist

United States

EU

Britain

South KoreaSingapore

Taiwan

52

2

21

19

3

24

Rank CountryGDP

(Trillion$) Rank CountryGDP

(Trillion$) Rank CountryGDP

(Trillion$)

GDP Ranking in 1990 GDP Ranking in 2003 GDP Ranking in 2006

In less than 15 years, China has recovered positions in economicdevelopment, and today already is a world economic power

Top ten economies by real GDP


25

1. U.S. 13.2

2. Japan 4.3

3. Germany 2.8

4. China 2.6

5. U.K. 2.3

6. France 2.2

7. Italy 1.8

8. Canada 1.2

9. Spain 1.2

10. Brazil 1.0

1. U.S. 5.8

2. Japan 3.0

3. Germany 1.5

4. France 1.2

5. Italy 1.1

6. U.K. 1.0

7. Canada 0.6

8. Spain 0.5

9. Brazil 0.5

10. China 0.4

1. U.S. 11.0

2. Japan 4.3

3. Germany 2.4

4. U.K. 1.8

5. France 1.8

6. Italy 1.5

7. China 1.4

8. Canada 0.9

9. Spain 0.8

10. Mexico 0.6

Source: IMF

Note: the figures are not PPP adjusted. If we adjusted the GDP figures, for 2006 China is already the second largest economy just below the US

Source: IMF

China has been the major engine for global economic growthduring the last decade

China accounts nearly 20 per cent of world’s total population

Absolute size [%] Growth 1999-2004 [%] Size Growth

China Share of Wordlwide Global Rank


26Source: OECD; IMF

4

7

6

8

15

GDP

FDI

InternationalReserves

Exports

Imports

11

14

14

21

N.A.

7

3

3

2

3

2

1

1

1

1

Chinese economic growth has had an important impact on the restof the world

� Offshoring� Big potential market

Investment opportunities

Business world� Low value-add jobs are moving to China� Low labour cost

Relatively high productivity

Labour markets

Summary chart: Chinese impact in the world economy


27

� Investment opportunities� Cost reductions

� Relatively high productivity� Relatively skilled workers

� Deflationary trends in the manufacturingproducts

� Inflationary trends in raw materials andcomponents

� Increase of international trade flows� Increase of the international reserves of

ChinaMacroeconomic

� China emergen can not be compared withother Asian tigers

� China would like to increase its influence inthe supranational institutions

� China‘s emerge is more similar to the rise ofthe US in the XIX century

Geopolitics

Chinese impact inthe world economy

Source: Author

Agenda




28

D. Conclusions

Chinese economic emerge is not a surprise, but a return to thehistorical world economic landscape

Chinese economic performance thought history

China‘s share of world GDP [%]

33

Share of world GDP [%]

30

D HISTORICAL PROPORTIONS1

29

28

23

27

9

4 5

12

17

1600 1700 1820 1870 1913 1950 1973 1998 2006

Source: The World Economy by Angus Maddison; IMF

Note: GDP at purchasing-power parity; 2006 estimated

0

10

20

1980 1985 1990 1995 2000 2005

EUUS

China

Japan

Rest of Asia

In 1978 economic reform began, and still today it is the main issuein order to understand Chinese economy

D ECONOMIC REFORM: MAIN ISSUE2

Chinese Socialism1958

Soviet-like system1949

Open door policy1978

Liberalization1994

1960

The GreatLeap Forward

1966 1976Cultural Revolution

2006

Summary chart: economic policies in China 1949-2006

30

� Chineseeconomicpolicy based onthe Sovietmodel

� Agriculturalcollectivization

� The Great Leap Forward(1958-60) broke with Sovietmodel. Mass mobilization ofresources to promote Chineseself-sufficiency

� The Cultural Revolution(1966-76) focused on politicalconsolidation

� Open door policy:Built on a principle ofmodernization andemphasized econo-mic liberalization toachieve growth

� This policy allowedforeign investmentin China for the firsttime (SEZ)

� Liberalization: Aliberalization andprivatization packagewas introduced in orderto realize China'scandidacy in the WTO.

� The focus of the CCPwas to enter the globalmarket (while stillrestricting politicalfreedom)

Mao Zedong Mao Zedong Deng Xiaoping Deng Xiaoping, ZhuRonji

• Existence of a real consensus. Chinese economic reform has had a clear objective since thebeginning and had a real consensus of all society

• Gradualism: Chinese economic reform in contrast of other former Soviet economies that had

China recognize that the institutions that work in one economymay not work in other economies

D KEY SUCCESS FACTORS3

Key success factors of Chinese economic reform

1

• Gradualism: Chinese economic reform, in contrast of other former Soviet economies that hadfollowed a “big-bang” strategy, has perform its economic reform step-by-step

• Existence of carefully designed strategy and the existence of mechanism that helped to drive thetransformation of the economy step-by-step (e.g. SEZ, dual-track strategy)

• Decentralization, that together with pragmatism make possible that good policies spread around therest of the country and that local governments adapt this policies to its particular region

• Customization of economic institutions. China chose its own institutions recognizing its uniquecase and its particularities

31

2

3

4

5

The poverty rates in China are falling since the reform and theopen up of Chinese economy to globalization dynamics…

People living with less than $2 a day [%]

100

400 million people had abandoned poverty in China since 1978

D BENEFITS FROM GLOBALIZATION4

� There is a strong correlation betweenglobalization and reduction on poverty

Key facts

32

Sub-SaharanAfrica

World

China

0

20

40

60

80

1981 1984 1987 1990 1993 1996 1999 2000

Source: World Bank

� More globalized economies, such as China,had reduced its poverty rate more than otherregions which are far less connected with theworld economy

� Opening its economy, China enter in theinternationalization of the value chain,attracting low add value activities

� China had benefit from the technology of othercountries, while increasing its internal wealth

� Today, World Bank estimated that Chinesepoverty rate is close to 8%

China is been the country that has benefit the most form globaleconomy developing region-states

Main Chinese economic clusters

D CHINA AND THE GLOBAL ECONOMY5

Beijing / Tianjin Area

• R&D• IT bio space and defense

Liaoning Area• Heavy industry, aircraft

S ft

Source: BBT Research Institute 33

BeijingTianjin Dalian

Tsingtao

Shanghai

Suzhou

FuzhouXiamen

Hong KongShenzhenGuangzhou

Dongguang

• IT, bio, space and defense• Government services

• Software• Japanese BPO

Shandong Area• Heavy industry, aircraft• Software• Japanese BPO

Zhu Jiang Delta• IT• Electronics components• Chemicals• Automobiles

Chang Jiang Delta• Textiles• Automobiles• Laptops, mobile phones• Financial institutions• LCD panels

Xiamen / Fuzhou Area• Agricultural products• Textiles• Taiwanese companies• Tea

Among the main challenges that China is facing today, there is themigration pressures issue

Rural vs. urban income [USD per capita]

Urban CAGR 7.7%Rural CAGR 4.3%

1000

D MAIN CHALLENGES6

� There are important differences between urbanand rural areas:

I l h l i d i h

Key facts

Migration pressures are due to inequalities between urban and rural areas

34Source: China Statistical Yearbook 2006

Rural Urban

0

200

400

600

800

1996 1997 1998 1999 2000 2001 2002

� In rural areas school period is three yearsshorter

� Child mortality is 5 times higher in ruralareas

� Personal income: $355 in rural areas vs.$1,140 in urban

� Job creation is focus on urban areas

� Since 1990, around 80-150 million people havemoved to cities

� In 1990, 74% of the population live in rural areas,in 2004 just the 58% live in rural areas

There is a strong correlation between freedom and economicgrowth

GDP per capita1) vs. Economic Freedom [USD]

China ranks 126, with as score of 52.8%, in the 2006 Index of Economic Freedom

D ECONOMIC FREEDOM7

� China has improve its economicfreedom score during the last 30years (from near 0 in 1978 to 52

100,000

GDP per capita

Key facts

35Source: 2006 Index of Economic Freedom

in 2006)

� The improve on economicfreedom has bring economicdevelopment as well

� China still have reforms pending,the most important is to improveand ensure property rights(develop an institutionalframework)

� The objective of the reformmust remain the same:transform Chinese economy intoa true free-market economy

Economic Freedom Score

10,000

1,000

100

20 40 60 80 100

Hong Kong

U.S.

China

1) GDP per capita is measured using an exponential scale; data from 157 countries

Spain

Chinese economic model has still road ahead and potential forgrowth

There are some facts that may let us think that China will continue its economicdevelopment

D ECONOMIC PERSPECTIVES8

� There are still 700 million people living inthe country side ensuring cheap labour cost

Key issues Forecast for Chinese economy

� “with the current trends China will surpass U.S.

36

the country side, ensuring cheap labour costat least in poor Chinese provinces

� Region-state model, new regions will appearin the inside provinces that will continuecreating wealth in the future

� China has still a long road ahead tocomplete its reforms. Economic growth willcontinue, if China continues to improve itseconomic freedom and ensures consistentinstitutional framework

economy within two decades” Odded Shenkar

� EIU estimates that Chinese economy will bethe biggest economy in 2020 with a GDP atPPP of USD 29.6 Bn

� According to Di Ruipeng, China would be thesecond largest long-term contributor toincremental of world’s GDP

� Jeffrey Sachs advice Americans to be preparedfor a world in which Chinese economy willdouble US economy

Hayek’s road to serfdom may be a two way road as well…

Friedrich Hayek wisely explains how socialism, and the abolition of private propertyand the free market endangers political freedom as well

D POLITICAL PERSPECTIVES9

Politicaldictatorship

Central plannedeconomy

Abolition ofprivate propertyConcentration of allproperty in the government

Economic collapse due tothe impossibility of economic

The Road toSerfdom

37

property in the government the impossibility of economiccalculus

DemocracyFree-marketeconomy

Private propertyThe Road toFreedom

We tend to agree that economic freedom is linked to economic growth, therefore ifChina want to continue with its prosperity will have to embrace political reforms as well…

Source: Hayek (1966)

Ideas matter, and China’s example of how bad ideas are always themain risk for freedom and prosperity

D IDEAS MATTER10

� To solve world problems, such as poverty, we do not need huge amounts of money, but to applythe good ideas (i.e. private property, freedom, free entrepreneurship, rule of law, limitedgovernment, consistent institutional framework,…).

Collectivist ideas were extremely harmful for Chinese population

38

� China is a good example of that, and can be a valuable lesson in order to help Africa to developeconomic prosperity

� As Victor Hugo said: “it is not the capital or the technology what moves the world, but the ideas”(Marx was wrong once again)

� Open free societies will always have enemies, our time is no exception. Today, there are still manyforms of collectivist ideas we must combat to ensure peace and freedom

� “The price of freedom is eternal vigilance”. Thomas Jefferson (1743-1826)

Q&A

Thank you!

39

chinese economic reform (1978-2008)

Documents

thesis objectives

chinese economic reformc

relevance of chinese

chinese experience

thesis contents

thesis presentation

china magnitude

theemergence of china