This document summarizes Luis Torras's thesis presentation on understanding the Chinese economy. The presentation aimed to: 1) Present the structure and approach of the thesis; 2) Explain the main contents and key issues of China's economic reform; and 3) Show the importance of China's economic emergence due to reform. The thesis was structured in seven chapters to analyze the causes of China's economic growth, the setting and history leading up to reform, policies under Mao, the origins and development of reform, how the reformed economy works, current issues, and conclusions. 1978 marked an important milestone as the beginning of economic reform under Deng Xiaoping that shifted China away from a socialist planned regime.

1. 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 ESADE
Business School (Barcelona) on February 11, 2008. This document is not complete unless supported by the underlying detailed
analysis and oral presentation.
© 2008 Luis Torras
2

3. Objectives of the presentation
A. Present the structure of the Thesis and the approach followed in order to
explain Chinese economy
B. Explain the main contents of the Thesis and the key issues of Chinese
economic reform
C. Show the importance and relevance of Chinese economic emerge due to the
reform process
D. Present the conclusions of the Thesis: key messages about Chinese economy,
learning’s from Chinese experience and future perspectives for Chinese
economy
3

4. “The single most important thing to happen in our lifetime will be the
emergence of China.”
John Thornton
former President of Goldman Sachs now Professor at Tsinghua University
“The integration of China into the global economy, which this has been
part of, is a change of historical proportion.”
Joseph E. Stiglitz
2001 winner of the Nobel Prize in Economics
“El éxito de China se ha basado en la introducción gradual de
mercados y la apertura a las fuerzas de la globalización.”
Xavier Sala-i-Martín
Professor of Economics at Columbia University
4

5. Agenda
A. Thesis objectives and structure
B. Chinese economic reform
C. Outcome of the reform
D. Conclusions
5

6. A OBJECTIVES AND STRUCTURE
I had three main objectives regarding this Thesis
Explain Chinese economy
Why China developed
economic growth?
Goals
of the Show the magnitude, the
Thesis historical perspective and
impact of Chinese
economic growth
Contribute to the ideas debate Give a global perspective
Serve as a document to discuss
which are the best economic
policies to support prosperity
and ensure freedom
6

7. A OBJECTIVES AND STRUCTURE
In order to achieve these objectives, I have structured the Thesis in
seven chapters, following the next approach…
Key messages Structure of the Thesis Contents
Many books talk about China, but very few SUDDENLY CHINA Magnitude, historical
proportions and impact of
go deep in the causes of economic growth
Chinese economic growth
and give a wide perspective all at once
THE SETTING OF THE Geography, history and
STAGE political institutions in China
Lack of clarity when talking about Chinese
reform: use of terms such as market SOCIALISM IN CHINA Maoist era policies and
socialism economic regime (1949-78)
THE REFORM Origins of the reform,
Show economic Reform as the key issue evolution and development
to understand China, and 1978 as the THE REFORM AND THE Principles of the reform and
important milestone STRUCTURE OF THE how the reform works in
ECONOMY China
Understand why socialism failed in order
CHINESE ECONOMY Current issues and future
to understand why reform succed challenges of Chinese
TODAY AND TOWARDS
FUTURE economy
Include inside information
CONCLUSIONS Final conclusions
7

8. Agenda
A. Thesis objectives and structure
B. Chinese economic reform
C. Outcome of the reform
D. Conclusions
8

9. B CHINESE ECONOMIC REFORM
Chinese economic history in 20th century can be divided in two
main periods with 1978 as the important milestone
Chinese economic performance in the 20th century
GDP Between 1949 and 1978
MAOIST ERA ECONOMIC
REFORM China suffered the
WTO
consequences of a
entry
socialist planned regime
that
th t caused f i and
d famine d
Asian
Shenzen Crisis starvation
SEZ
In 1978, Deng Xiaoping
Cultural Revolution
Farm
became China’s new
privatization
Great Leap leader and the economic
Forward
Communist
Party of China People’s republic reform began
of China; Mao Deng
foundation Xiaoping
first Chairman
End of 1978 it is the essential
Qing
dynasty milestone to understand
Chinese recent history
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Source: The World Economy by Angus Maddison; author 9

10. B 1 SOCIALISM IN CHINA (1949-1978)
The Communist People's Republic of China was established in
1949 and a socialist ideology came to govern the mainland
The last dynastic monarch
was killed in a military PEOPLE’S
uprising in 1911. Subsequent REPUBLIC OF
years saw a power struggle CHINA
mainly between the People's
Party (KMT) and the Communist Beijing
Party (CCP) The latter gained
(CCP).
control of mainland China by
1949, and the KMT fled to
Taiwan and established the
"Republic of China"
The People's Republic of
China was founded on
October 1, 1949 by Mao
Zedong, Chairman of the
Chinese Communist Party
(CCP). A socialist ideology
came to govern the mainland
10

11. B 1 SOCIALISM IN CHINA (1949-1978)
Between 1949 and 1978, Mao and the CCP set up a socialist
planned-economy regime based on Marxist theory
WHAT IS SOCIALISM? HOW WAS IMPLEMENTED IN CHINA? WHAT WERE THE RESULTS?
Socialism aims a social Socialism in China was implemented French scholar J.L. Margolin
system based on public thought three main things: Agricultural estimates the number of
ownership of the means of collectivization, central planned deaths due to the Communist
production economy and repression policies in 65 million people
Therefore in a socialist Agricultural collectivization
A i lt l ll ti i ti Violence (many people were forced
commonwealth… • Mao started an agricultural revolution in order to move to the countryside, people
to collectivized the land and set up a commune were forced to join the communes,
government is the only employer private business forbidden,…)
system
government decides what has to Between 30-65 million people
• Peasants were force to join the communes and
be produced (planned economy) died, 35 million during the period of
small business and private property was
anyone can consume more that abolished the Great Leap Forward alone
what the government allows him (worse famine in absolute terms in
to do Great Leap Forward (1958-62) human history)
• Once all resources were centralized in the Starvation
there is no room left for freedom power of the State, the communists design a
plan in order to transform China into an Internal purges
industrialized country Social repression
“the theory of communism
(socialism) may be summed up in Cultural revolution (1966-78) Environment collapse
the single sentence: Abolition of
• In order to re-establish faith in the revolution, Dictatorial state under the CCP
private property”
Mao intensified the purges and violence
Communist Manifesto (1848) against those who question their policies China did not develop growth and
industry
Source: Mises (1981); Huerta de Soto (2001); Margolin (1998) 11

12. B 1 SOCIALISM IN CHINA (1949-1978)
China's Communist Party (CCP) focused on Soviet-like socialist
policies to rebuild the economy after wars and invasions
Summary chart: Socialism in China
During Mao Zedong's rule, the CCP focused on:
Rural collectivization
Central planning
State control and ownership of industry
Chinese self sufficiency
self-sufficiency
First Five Year Plan announced Second Five Year Plan
The Chinese Communist • Industry nationalized announced
Party (CCP) establishes the • Profits diverted to "key" industries Mao's "Great Leap
People's Republic of China (PRC) (iron, steel, textiles) Forward" Cultural Revolution
1949 1953 1958 1966
1950s
Nationalization of industries: focus on industrialization
Land reform: collective model in the agrarian sector
(Soviet model )
12

13. B 2 ECONOMIC REFORM (1978-2006)
Deng's vision for China: The Open Door Policy (1978) reversed
policies that had closed China's market
Deng Xiaoping economic policies
Open door policy Results
Economic growth main priority, could Positive:
best be achieved through China's GDP quadrupled from 1978 to 2002
liberalization p
policies. In 1978 the Manufacturing exploded; in Shenzhen (
g p ; (the first SEZ), the
),
first Special Economic Zones (SEZ) number of manufacturing enterprises increased from 26 in 1980
were opened to international to 500 in 1984, and personal income was five times the national
investment average
Trade and investment flourished, China's economy grew
Descollectivization of the agrarian faster than any other in the world in the 1980's
sector (Household responsibility Liberalization policies set the stage for China's accession to
system). Allowed private business as the WTO
well
Negative:
Responsibility in agriculture and Serious environmental problems caused by industrial
industry was decentralized, small- pollution and rapid economic development
scale enterprises and services were Inequalities and migration pressures
permitted
13

14. B 2 ECONOMIC REFORM (1978-2006)
The reform refers to the process of transformation of the Chinese
economy: from planned economy to market economy
The reform began in 1978, and today is still the key issue to understand Chinese
economy
COMMUNIST As of FREE OPEN
DICTATORSHIP 1978 1984 1988 1990 2000 2007 20081) SOCIETY
Commune system Private
Pi t
property in 30% Private property
PLANNED ECONOMY
descollectivization
Abolition of China
MARKET ECONOMY
Household
private property Responsibility Creation of a Profit
and private System Tax Market 55% Free
business Increase
Bank system liberalizations entrepreneurship
procurement prices Market mechanisms
Agricultural “Growing out of the Join WTO
Central planned decentralization plan” Reduction of SOEs in 2001 Free-market
closed economy Increase efficiency 70%
SOEs allowed to retain Fiscal
Reduction economy
(“Soviet type”) their profits Openness (SEZ)
decentralization
of tariffs
Political and Democracy
social 0%
(rule of law)
dictatorship
1) Based on the 2008 Index of Economic Freedom by The Heritage Foundation
Source: Author 14

15. B 2 ECONOMIC REFORM (1978-2006)
Agricultural descollectivization provide the right incentives to
generate the surplus needed for Chinese industrialization
Household responsibility system – “growing out of the plan”
Maoist era lack of incentives Key facts
In 1979, procurement prices rised by
22%, and 40% accumulative during the
next decade
Descollectivization of the commune
system was done with the Household
Responsability System that allowed
subcontracting small plots to individual
households
In 1983, almost 98% of the agrarian sector
had switched to the HRS
Results (1978-1988):
Fixed quota (State plan) from 47.8
million tons to 50.5 million
Domestic production jumped from
304.8 million tons to 394.1 million
Source: Author 15

16. B 2 ECONOMIC REFORM (1978-2006)
The Dual-track strategy was used in several issues of the reform as
part of “the growing out of the plan” system…
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 the
100 coexistance of both systems (socialism
90 and capitalim) during some time
80
This way, the number of loosers due to
70 the reform was minimize, while the old
60 institutions serve as second best option
better than abolish them all at once
50
40 Examples
30
1981 1989
20
Coal market Planed 329 427
10 (in million tones) Market 293 628
0
Labour market Planed 74.5 112.1
1978 1985 1991 1995 1999 2003
(in million people) Market 48.9 204.9
Market prices State guided State fixes
Source: OECD 16

17. B 2 ECONOMIC REFORM (1978-2006)
Deng Xiaoping: the road to capitalism to promote growth
Summary chart: Chinese economic reform
Deng Xiaoping's policies focused on:
Economic growth
The role of market forces, foreign trade and
investment from the west (openness)
But: It did not allow for more political freedom
China's eco-
nomy grows
10% per Hu Jintao succeeds
Rural Reform and year, the Hong Kong Jiang Zemin in the
"Open Door Policy" China applies fastest in rejoins first peaceful trans-
declared to join GATT the world China ition since 1949
1978 1986 1994 1997 2002
Descollectivization
(Household responsibility
1985 1989 1995 Deng dies. 2001 2008
Urban reform, Tianamen Square Liberali- Jiang Zemin China joins Olympic Games
system)
reforms of massacre causes zation becomes the WTO in Beijing
Rural Industry (TVE)
State Owned international package leader. Plans
Enterprises outrage intro- to privatize
(SOE) duced China's SOE's
announced
Source: Author 17

18. Agenda
A. Thesis objectives and structure
B. Chinese economic reform
C. Outcome of the reform
D. Conclusions
18

19. C OUTCOME OF THE REFORM
Chinese GDP growth has been exponential since the first wave of
reforms in the late 1970s and has no precedents in world history
Chinese economic growth has been smooth during all this years…
GDP Growth [RMB Billion at current prices] Years taken to double real GDP per capita
ECONOMIC REFORM China
(1990-1998) 8
18 232
18,232
China
9
(1981-1990)
South Korea
11
(1966-1977)
8,947
Japan
(1885-1919) 34
5,848
US
(1839-1886) 47
1,855
452 896 UK
(1780-1835) 55
1980 1985 1990 1995 2000 2005
Source: China Statistical Yearbook 2006 ; IMF 19

20. C OUTCOME OF THE REFORM
Chinese economic growth and FDI distribution is concentrated in
certain regions
Chinese economic growth has been uneven during the last decades
Chinese economic output distribution Chinese FDI distribution
Source: China Statistical Yearbook 2006 20

21. C OUTCOME OF THE REFORM
An overview of China today – the world’s largest nation (by
population)
People's Republic of China 2007
Population
1.31 bn
GDP
USD 3.25 trn (USD 6.99 trn at PPP)
GDP per capita Beijing
USD 1,470 (USD 5,300 at PPP)
GDP growth PEOPLE’S
9.1% (1994-2004 av.) REPUBLIC OF
CHINA
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

22. C OUTCOME OF THE REFORM
China has become the “world’s manufacturing plant”, having an
economic model based on export
Chinese economic model – an overview1) Foreign direct
Imports
investment
Economic model Raw materials
and components USD 60 Bn
Chinese economic model is
export driven. With relatively
cheap labour cost, Chinese
manufacturing activity is mainly
g y y
(almost 50%) on ensemble and Beijing
transformation of components
and semi finished goods.
Industrial activity2)
• Main consumer of raw USD 893 Bn
materials, oil, coal,
aluminium, iron, steel Labour force3)
• China has one of the most 100 million
open economies in the
world (Chinese trade Exports
represents 60% of its GDP) Components and
semi finished goods
USD 960 Bn
1) data for 2006 2) Rank 3 after US and Japan
3) G7 total labour force 57 million (US, Canada, Japan, France, Germany, Italy and UK)
Source: The Economist; author 22

23. C OUTCOME OF THE REFORM
China almost monopolizes all foreign direct investment in Asia
Foreign direct investment in Asia [USD Bn] Foreign direct investment characteristics
80
In 2007, China recived USD 60 bn of FDI1)
70
In the past, the most common way to
60 invest was using a JV, today more than
60% of the investment is done using a
50 wholly foreign owned enterprise2)
40 Main investors:
Hong Kong (50%)
30 US (9%)
Japan (8%)
20 Taiwan (8%)
EU (8%)
10
Main destinations of the FDI in China:
0 Industry and manufacturing (60%)
Real state (25%)
1980 1990 2000 2001 2002 2003 2004 2005
Services (15%)
China Singapore Korea Indonesia Thailand Japan
1) Ranking 3 world wide, after the US and the UK
2) From 1990 to 2004, equity JV fell from 55% to 37% while WFO jumped from 20% to 66%
Source: UNCAD 23

24. C OUTCOME OF THE REFORM
Globalized markets have tapped into Chinese products and
exports had boom since 2001
Exports [% as GDP] 2006 exports distribution [%]
41 42
40 40
38 Hong Kong
36 Others
34 16
23
29
25 Japan
23 10
23
Britain 3
5 South Korea
2 Singapore
19 2
Taiwan
EU
21
United States
2000 2005 2010E
Chinese exports have skyrocketed, up from 14.5% of In last ten years, China has increase its exports to US and
GDP in 1993 to 40% in 2007 Europe from 18% to 22%, and from 13% to 19% respectively
Exports as a percent of GDP is expected to rise to On the other hand, Hong Kong and Japan had reduce its
nearly 43% by 2010 share from 22% in 1996, to 16%, and from 20% to 10% in the
case of Japan
Exports grew at 18% between 1992-2001, and 30%
since 2001 (join WTO)
Source: The Economist 24

25. C OUTCOME OF THE REFORM
In less than 15 years, China has recovered positions in economic
development, and today already is a world economic power
Top ten economies by real GDP
GDP Ranking in 1990 GDP Ranking in 2003 GDP Ranking in 2006
GDP GDP GDP
Rank Country (Trillion$) Rank Country (Trillion$) Rank Country (Trillion$)
1. U.S. 5.8 1. U.S. 11.0 1. U.S. 13.2
2. Japan 3.0 2. Japan 4.3 2. Japan 4.3
3. Germany 1.5 3. Germany 2.4 3. Germany 2.8
4. France 1.2 4. U.K. 1.8 4. China 2.6
5. Italy 1.1 5. France 1.8 5. U.K. 2.3
6. U.K. 1.0 6. Italy 1.5 6. France 2.2
7. Canada 0.6 7. China 1.4 7. Italy 1.8
8. Spain 0.5 8. Canada 0.9 8. Canada 1.2
9. Brazil 0.5 9. Spain 0.8 9. Spain 1.2
10. China 0.4 10. Mexico 0.6 10. Brazil 1.0
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 25

26. C OUTCOME OF THE REFORM
China has been the major engine for global economic growth
during the last decade
China accounts nearly 20 per cent of world’s total population
China Share of Wordlwide Global Rank
Absolute size [%] Growth 1999-2004 [%] Size Growth
GDP 4 11 7 2
Exports 7 14 3 1
Imports 6 14 3 1
FDI 8 N.A. 3 1
International
15 21 2 1
Reserves
Source: OECD; IMF 26

27. C OUTCOME OF THE REFORM
Chinese economic growth has had an important impact on the rest
of the world
Summary chart: Chinese impact in the world economy
Business world Labour markets
Offshoring Low value-add jobs are moving to China
Big potential market Low labour cost
Investment opportunities Relatively high productivity
Cost reductions Relatively skilled workers
Chinese impact in
the world economy
Deflationary trends in the manufacturing China emergen can not be compared with
products other Asian tigers
Inflationary trends in raw materials and China would like to increase its influence in
components the supranational institutions
Increase of international trade flows China‘s emerge is more similar to the rise of
Increase of the international reserves of the US in the XIX century
China
Macroeconomic Geopolitics
Source: Author 27

28. Agenda
A. Thesis objectives and structure
B. Chinese economic reform
C. Outcome of the reform
D. Conclusions
28

29. D 1 HISTORICAL PROPORTIONS
Chinese economic emerge is not a surprise, but a return to the
historical world economic landscape
Chinese economic performance thought history
China‘s share of world GDP [%] Share of world GDP [%]
30
33
28 27 EU
23 US
20
Rest of Asia
China
17
12
10
9
5 Japan
4
0
1600 1700 1820 1870 1913 1950 1973 1998 2006 1980 1985 1990 1995 2000 2005
Note: GDP at purchasing-power parity; 2006 estimated
Source: The World Economy by Angus Maddison; IMF 29

30. D 2 ECONOMIC REFORM: MAIN ISSUE
In 1978 economic reform began, and still today it is the main issue
in order to understand Chinese economy
Summary chart: economic policies in China 1949-2006
Soviet-like system Chinese Socialism Open door policy Liberalization
1949 1958 1978 1994
The Great
Leap Forward Cultural Revolution
1960 1966 1976 2006
Chinese The Great Leap Forward Open door policy: Liberalization: A
economic (1958-60) broke with Soviet Built on a principle of liberalization and
policy based on model. Mass mobilization of modernization and privatization package
the Soviet resources to promote Chinese emphasized econo- was introduced in order
model self-sufficiency mic liberalization to to realize China's
Agricultural achieve growth candidacy in the WTO.
collectivization The Cultural Revolution
(1966-76) focused on political This policy allowed The focus of the CCP
consolidation foreign investment was to enter the global
in China for the first market (while still
time (SEZ) restricting political
freedom)
Mao Zedong Mao Zedong Deng Xiaoping Deng Xiaoping, Zhu
Ronji
30

31. D 3 KEY SUCCESS FACTORS
China recognize that the institutions that work in one economy
may not work in other economies
Key success factors of Chinese economic reform
•1 Existence of a real consensus. Chinese economic reform has had a clear objective since the
beginning and had a real consensus of all society
•2 Gradualism: Chinese economic reform in contrast of other former Soviet economies that had
reform,
followed a “big-bang” strategy, has perform its economic reform step-by-step
•3 Existence of carefully designed strategy and the existence of mechanism that helped to drive the
transformation of the economy step-by-step (e.g. SEZ, dual-track strategy)
•4 Decentralization, that together with pragmatism make possible that good policies spread around the
rest of the country and that local governments adapt this policies to its particular region
•5 Customization of economic institutions. China chose its own institutions recognizing its unique
case and its particularities
31

32. D 4 BENEFITS FROM GLOBALIZATION
The poverty rates in China are falling since the reform and the
open up of Chinese economy to globalization dynamics…
400 million people had abandoned poverty in China since 1978
People living with less than $2 a day [%] Key facts
There is a strong correlation between
100
globalization and reduction on poverty
More globalized economies, such as China,
80 Sub-Saharan had reduced its poverty rate more than other
Africa regions which are far less connected with the
60 world economy
World Opening its economy, China enter in the
40 China internationalization of the value chain,
attracting low add value activities
20
China had benefit from the technology of other
countries, while increasing its internal wealth
Today, World Bank estimated that Chinese
0
poverty rate is close to 8%
1981 1984 1987 1990 1993 1996 1999 2000
Source: World Bank 32

33. D 5 CHINA AND THE GLOBAL ECONOMY
China is been the country that has benefit the most form global
economy developing region-states
Main Chinese economic clusters
Beijing / Tianjin Area Liaoning Area
• R&D • Heavy industry, aircraft
• IT bio space and defense
IT, bio, • S ft
Software
• Government services • Japanese BPO
Shandong Area
Beijing Chang Jiang Delta
• Heavy industry, aircraft
Tianjin Dalian • Textiles
• Software
• Automobiles
• Japanese BPO Tsingtao
• Laptops, mobile phones
Zhu Jiang Delta Suzhou • Financial institutions
• LCD panels
• IT Shanghai
• Electronics components
• Chemicals
Fuzhou Xiamen / Fuzhou Area
• Automobiles Xiamen • Agricultural products
• Textiles
Guangzhou Shenzhen • Taiwanese companies
Dongguang Hong Kong • Tea
Source: BBT Research Institute 33

34. D 6 MAIN CHALLENGES
Among the main challenges that China is facing today, there is the
migration pressures issue
Migration pressures are due to inequalities between urban and rural areas
Rural vs. urban income [USD per capita] Key facts
There are important differences between urban
Rural CAGR 4.3%
and rural areas:
1000 Urban CAGR 7.7%
In
I rural areas school period i three years
l h l i d is h
shorter
800
Child mortality is 5 times higher in rural
areas
600
Personal income: $355 in rural areas vs.
400
$1,140 in urban
Job creation is focus on urban areas
200 Since 1990, around 80-150 million people have
moved to cities
0 In 1990, 74% of the population live in rural areas,
1996 1997 1998 1999 2000 2001 2002 in 2004 just the 58% live in rural areas
Rural Urban
Source: China Statistical Yearbook 2006 34

35. D 7 ECONOMIC FREEDOM
There is a strong correlation between freedom and economic
growth
China ranks 126, with as score of 52.8%, in the 2006 Index of Economic Freedom
GDP per capita1) vs. Economic Freedom [USD] Key facts
GDP per capita China has improve its economic
100,000 freedom score during the last 30
years (from near 0 in 1978 to 52
U.S. in 2006)
Spain
The improve on economic
Hong Kong freedom has bring economic
10,000
development as well
China China still have reforms pending,
the most important is to improve
and ensure property rights
1,000 (develop an institutional
framework)
The objective of the reform
must remain the same:
100 transform Chinese economy into
20 40 60 80 100 a true free-market economy
Economic Freedom Score
1) GDP per capita is measured using an exponential scale; data from 157 countries
Source: 2006 Index of Economic Freedom 35

36. D 8 ECONOMIC PERSPECTIVES
Chinese economic model has still road ahead and potential for
growth
There are some facts that may let us think that China will continue its economic
development
Key issues Forecast for Chinese economy
There are still 700 million people living in “with the current trends China will surpass U.S.
the country side ensuring cheap labour cost
side,
economy within two decades” Odded Shenkar
at least in poor Chinese provinces
Region-state model, new regions will appear EIU estimates that Chinese economy will be
in the inside provinces that will continue the biggest economy in 2020 with a GDP at
creating wealth in the future PPP of USD 29.6 Bn
China has still a long road ahead to
complete its reforms. Economic growth will According to Di Ruipeng, China would be the
continue, if China continues to improve its second largest long-term contributor to
economic freedom and ensures consistent incremental of world’s GDP
institutional framework
Jeffrey Sachs advice Americans to be prepared
for a world in which Chinese economy will
double US economy
36

37. D 9 POLITICAL PERSPECTIVES
Hayek’s road to serfdom may be a two way road as well…
Friedrich Hayek wisely explains how socialism, and the abolition of private property
and the free market endangers political freedom as well
Abolition of Central planned Political
The Road to private property economy dictatorship
Serfdom Concentration of all Economic collapse due to
property in the government the impossibility of economic
calculus
We tend to agree that economic freedom is linked to economic growth, therefore if
China want to continue with its prosperity will have to embrace political reforms as well…
Private property Free-market Democracy
The Road to
economy
Freedom
Source: Hayek (1966) 37

38. D 10 IDEAS MATTER
Ideas matter, and China’s example of how bad ideas are always the
main risk for freedom and prosperity
Collectivist ideas were extremely harmful for Chinese population
To solve world problems, such as poverty, we do not need huge amounts of money, but to apply
the good ideas (i.e. private property, freedom, free entrepreneurship, rule of law, limited
government, consistent institutional framework,…).
China is a good example of that, and can be a valuable lesson in order to help Africa to develop
economic 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 many
forms of collectivist ideas we must combat to ensure peace and freedom
“The price of freedom is eternal vigilance”. Thomas Jefferson (1743-1826)
38

39. Q&A
Thank you!
39