Paradigm Shifts and Time-lags? The Politics of Financial Reform in the People's Republic of China
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Paradigm Shifts and Time-lags? The Politics of Financial Reform in the People’s Republic of China Shaun Breslin Department of Politics and International Studies, University of Warwick, CV4 7AL, UK Email: [email protected]
This paper assesses the political implications of financial reform in the People’s Republic of China from the key reforms of 1994 to China’s entry into the World Trade Organisation. It argues that the reforms implemented after 1994 in China shows a watershed in the evolution of economic reform. While the period before 1994 was dominated by dismantling the old system, subsequent reforms represent the attempt to build a new structure. But while the incomplete nature of reform provides the rationale for reform, it also provides the main obstacle to successful reform. Financial reform provides a case study of how the old and new economic systems are clashing with each other — and how the political interests associated with the old economic system are conflicting with those interests associated with the emerging new system. Asian Business & Management (2003) 2, 143–166. doi:10.1057/palgrave.abm.9200031 Keywords: China; financial reform; liberalization; transitional economies
This paper focuses on the politics of financial reform between 1994 and China’s entry into the World Trade Organization (WTO). An important area for study in its own right, financial reform also provides an excellent case study of the political consequences of economic reform, and the relationship between political and economic paradigms. The reforms implemented since 1994 represent a deliberate attempt to make a final break with the old state-planned political economy. They were also designed to deal with two almost defining features of the post-Mao Chinese political economy — the growth of local economic autonomy and government support for the residual state-owned sector. But in effect, I argue that there is a lag between the introduction of new economic paradigms, and the adoption of new political paradigms by key political actors. Thus, while economic reforms might create a more marketoriented system, many political leaders, particularly at the local level, continue to operate under an old paradigm more associated with a state-planned system. In short, many political leaders use the new financial system to fulfil the old functions of the plan such as providing subsidies for key producers in an
Shaun Breslin Paradigm Shifts and Time-lags
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attempt to maintain social stability through employment. As a result, while the reforms have had some success in meeting their targets, this success has only been partial, and large sections of the financial system are effectively bankrupt. In this respect, Chinese policy represents a compromise between the embedded residual socialist system, and the dictates of economic reform. In many ways, the technical financial reforms are less significant for the financial system than wider political and economic choices and strategies. Financial reform is intended to reduce the financial
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