MANAGING ASIAN BUSINESS
“China: Facing the 21st Century”
Bakshi Satpreet Singh
Suriya Maran P
LEADERSHIP OF DENG XIAOPING
Primary Goal was Political Stability and
Rapid Economic Growth
GDP grown at 9.5%
Increase in Per Capita Income
Increase in Trade by 10 % to 45%
China became 7th Largest Exporter
Third Largest in terms of PPP
AFTER DEATH OF DENG XIAOPING
US Block China Membership in WTO
Currency Crisis ,
Reduction in Competitiveness of china’s
Losses Growing in state own enterprise and
Spring and Autumn Period (722 BC-476 BC) was
an age of thinkers Confucius and Laozi lived then.
Warring States Period (475 BC-221 BC): Time of
continual warfare between the kingdoms which
spawned Sun Tzu’s Art of War.
Qin Dynasty (221 BC-206 BC) is relevant only for
Terracotta Warriors. They date from this dynasty.
Han Dynasty (206 BC-220 AD) It was another
golden age. China expanded west as far as India,
opening trade along what would later become the Silk
THREE BASIC PILLAR
This Three basic pillar sustain China’s imperial
Tang Dynasty (618-907): This was a golden age. Also, Xi’an
was the capital during the Tang Dynasty.
Song Dynasty (970-1279): nice artwork from this era and a few
temples reconstructed in the Song Dynasty style.
Yuan Dynasty (1271-1368) basically means Kublai Khan and
the Mongol era.
Qing Dynasty (1644-1912): This period was marked by
colonialism, internal rebellions and the Opium Wars.
Dr Sun Yatsen is regarded by all as the father of modern China.
Mao Zedong was the dominant figure in the Chinese Communist
Party from the founding of the PRC until his death in 1976. After
his death China began to open up to the outside world
Republican era (1911-1949)
WARLORDS: They fought for control of Beijing, to be recognised
as the official government of China .
China joined the allies in the Great War hoping to regain at least
the territories run by the Germans but the treaty of Versailles
awarded them to the Japanese.
MAY 4TH INCIDENT : On May 4th 1919 demonstrations broke
out in many Chinese cities and people of all classes protested and
joined parties like the Guo Min Dang (GMD) and (CCP).
GMD/CCP cooperation ended in1927 when GMD leader chiang-
kai-shek launched a surprise attack that killed nearly 90% of the
CCP- REBUILT : as a rural party during the period of mao
Zedong and developed on four crucial issues :
how to develop and sustain political activity
how to govern territory (ccp)
how to use military force effectively
Long march ; the communists were force to move, it was a
powerful legitimizing force for surviving political leaders.
The allied forces defeated Japan, the u.s recognized the GMD
as the legitimate govt of china.
After full-scale civil war , by late 1949 the (ccp) had routed
On October 1, 1949 proclaimed the formation of the people’s
republic of china
The Maoist era(1949 – 1976)
Maoist period can be divided into four eras:
• political consolidation and economic reconstruction (19491957)
• great leap forward (1958-1960)
• economic recovery(1961-1965)
• cultural revolution (1966-1976)
deployed the people’s liberation army throughout the country .
Great Leap Forward (1958-1960)
• abandon the Soviet model of economic development
-Soviet “scientific planning”
• mass mobilization
• people’s communes
Growing Division (1962-1965)
leadership vs. bureaucracy
breaking communes into smaller units reorganizing economic
reporting, bringing back technical experts, and forcing
peasants to return farming.
the economy quickly recovered and by 1965 output had
returned to pre-great leap level
Cultural Revolution (1966-1976)
“ destroy the old and establish the new”
Red Guards: to destroy the “four olds”
cultural revolution had spun out of control
moderates and radicals took center stage
Mao dies on Sep 9 1976
Deng emerged as the paramount leader in mid-1978 .
Institution of Social Control
CCP control the Chinese population, through
four layers of administration
The central government set broad goals
All citizen were required to belong to a unit
The Danwei were multi-purpose bodies
Key unit’s importance- permission to transfer
from one unit to another
The Era of Economic Reform
Deng inherited in 1978 was relatively stable
His strategy involved two principles:
“Reform measures were legitimate if they
promoted rapid economic growth and if they
did not weaken the party’s control of the
political land system; everything else was
subject to compromise”
While the economy has stabilized, Deng still
faced a great challenge
The Era of Economic Reform
82% of rural income has been stagnant for more
than a decade
60% population lived on the international poverty
Mass starvation had occurred
China’s workforce was skilled and disciplined
Deng’s first step- tighten controls of population
Zhou Enlai had initiated two child policy in 1971
and the campaign’s slogan was “late, sparse, and
The Era of Economic Reform
Deng launched one-child policy in 1978.
A variety of rewards and punishments were used
to enforce the policy
The government relaxed the one- child policy
where resistance was greatest
Deng created space for experimentation and local
officials responded enthusiastically
The reforms can be divided into four categories
Trade and investment reform, rural reform, urban
reform and institutional reform
Reform in the Countryside
The first wave reforms took place in the
Deng undertook several measures to increase
crop production and raise rural income
Created “Dual price” system
He also increased state investment in
agriculture and relaxed restrictions on
interprovincial trade in agricultural products
Reform in the Countryside
A related innovation was the “Household
The reforms had an immediate impact and
production of all types jumped sharply
Increased production and procurement led to
sharp increase I savings
Township and Village Enterprise output grew-
30% a year throughout the 1980 and
By 1995, 23 million TVEs employed 129 million
TRADE AND INVESTMENT
GDP Ratio was only 10%
No stock of FDI
Strong Demand for imports (Primary
fertilizers and capital Equipments).
Internationalization was needed .
In Deng's reform
The First was piecemeal trade reform started in
1979 to mid-1990s.
Prior 1979, all trade followed 12 Foreign trade
After that local official started to license their own
FTCs , allowed local firm to bypass central
government FTCs and reached number 5,075
FTCs registration in 1988 and domestic firm
reached 10,000 in mid-1990.
In 1980 the central government began slow
reduction in import tariff.
FDI has played major role in Hong Kong and
Singapore compare to Japan and South Korea.
FDI troubled political group since it involved
much closer foreign ties than simple trade. So
suggested to foreign control of Chinese asset
But Chinese are more sensitive and restricted
in few geographical places. Other than four
coastal cities of SEZ in 1980.
3rd set of reform is foreign currency.
Until mid-1980 foreign currency transaction
was tightly regulated. All Capital transaction
required approval of Central bank.
Enterprises with foreign capital located in
In 1986 government introduced dual exchange
rate system in domestic firm to buy and sell
limited amount of foreign currency.
IMPACT OF THIS REFORM
Merchandise exports grew from 11billion
in 1978 to 24 billion in 1984
14% growth rate
In 1996 , Exports were $154 billion
FDI was 2.7 billion in 1990 but it exploded
after 1993 and reached 42 billion in 1996.
Rapid accumulation of foreign reserve
Appreciation of Yuan because of large
trade surplus and Inbound capital inflow.
State- Owned Enterprise Reform
The reform in countryside and SEZ has
increased production and income.
Also Increased pressure in state owned
enterprise and protected areas like
– 78% in industrial output
– 19% of total employment in 1978.
SOE Key sectors are heavy industry, minerals
extraction, energy production and banking.
In 1978 they paid income tax 19% of GDP.
Most state owned enterprises in china were
consider overstaffed, inefficient and poorly
The world bank estimated manufacturing
productivity declined 1.2% annual rate in 1978
Iron Rice Bowl System
SOEs Share of industrial output continues to
fall from 78% to 55%
Management Responsibility System
Implemented between 1978 and 1995.
Increased Provincial Autonomy
Financial Sector Reform
Tax Contract System
Local Govt. got freedom to allocate funds to
SOEs and TVEs.
Sharp Decline in Central Govt. Revenue
Fell from 9.6% to 6% of GDP
In 1994 , Established National Tax Service
Reduction of taxes from 26 to 18 , VAT was
Single income Tax applied to Domestic firms.
Revenue rose from 22% to 50 % in 1993
Local Govt. Appoints the directors Regional
Branches of People’s Bank of China.
Pressure Local Branch to overextend Credit.
Direct loan to Political Favoured projects.
Excessive Credit Expansion and Bad Loans
Central Govt. establish “New Central Bank
Competitive Election for Village Level
ECONOMIC STRATEGY IN MID- 1990s
Establish goal of 8%GDP
Planned Economy to a socialist – Market
From Extensive growth (based on
increased input) to Intensive growth (Driven
by improvement in efficiency.
Fight against inflation through fiscal and
SOEs was to refocused and accelerate
Strengthening China Integration with the
Increase Productivity Growth
Economic and political Stability
CHALLENGES ON THE EVE OF
Provincial Center and Province – Province
Political Liberalization and Human Rights
WHITHER CHINA ?
Impact Asian Financial Crisis :
Revealed Weakness Asian development
Model China had been Pursuing
Threaten Export Market
GDP grew by 8.8%
Inflation decline to 3%
Foreign Investment Grown only 3%
Retail Sales Low and inventory pile up
Could China Continue to muddle through – relying on
incremental reform ,Spontaneous Innovation in
provinces and annual US approval of MFN? Or Was it
time to Fundamental Rethink of China’s strategy ,
Perhaps leading to faster and more Comprehensive