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Redesigning the Dragon Financial Reform in the Peoples Republic of China

Redesigning the Dragon Financial Reform in the Peoples Republic of China

Redesigning the Dragon

Financial Reform in the Peoples Republic of China

Duncan Marsh dmarsh@indiana.edu

Anna Pawul apawul@indiana.edu

Dmitri Maslitchenko dmitri@mailroom.com

V550, Government Finance in the Transitional Economies

21 November, 1996

In 1978, the People’s Republic of China (PRC) embarked on the

enormous undertaking of opening its doors to the outside world. Until this

point in time, the PRC had relied on a centralized economic system much

like that of the former Soviet Union[1]. However, the PRC’s situation

differed with the former Soviet Union in three substantial ways[2] 1)

although reforms followed the Cultural Revolution (which did exact its

toll on the Chinese economy) there was an absence of severe macroeconomic

crises when reforms were begun 2) agricultural infrastructure was good,

although the incentives were poor and 3) China had a strong presence of

overseas Chinese and Hong Kong that influence its economic development and

over the years supplied capital and human resources.

The industrialization strategy adopted by the PRC has been

characterized by gradualism and experimentation. Its focus has been to

introduce market forces, reduce mandatory planning, decentralize, and open

the economy to foreign investment and trade[3]. This strategy had three

main stages. The first (1979-1983) established four “Special Economic

Zones” (areas awarded special freedoms to conduct business relatively free

of the authorities intervention) in Guangdong and Fujian provinces, the

second (1984-1987) added 14 port cities creating the “Economic Development

Zones”, and finally the third stage (1988-present) which opened most of the

country to foreign trade and created “tariff free zones”[4]. In the rural

areas, land reforms spearheaded further reforms and also the establishment

of Township and Village Enterprises (TVEs). These enterprises were able to

capitalize on the abundant cheap labor in rural areas and to operate

without the burden of providing social spending. They also provided a

training ground for the learning of market skills and concepts. Today,

production of manufactured goods by rural and township enterprise is

estimated to account for more than 40% of the GDP.

In many respects, China’s process of economic reform has been highly

successful.

Since its inception, the average GDP growth has been a world-leading

9.3% year, the poverty rate has declined 60%, and 170 million Chinese

living in absolute poverty have seen their standard of living raised above

the minimum poverty level. Export growth was 7.8% in 1993, 29% in 1994 and

34.7% in 1995.[5] Government measures to control inflation, which had

threatened to overheat the economy in the early 1990s, seem to have taken

effect: inflation was under 15% in 1995. (See Tables 1 and 2.)

Table 1.

Source: EIU Country Report, China/Mongolia, 3rd Quarter 1996. The Economist

Intelligence Unit.

Table 2.

Source: EIU Country Report, China/Mongolia, 3rd Quarter 1996. The Economist

Intelligence Unit.

Chinese economic reform has one other characteristic that sets it

apart from that of the former Soviet Union, the absence of democratic

reforms. The current transition is being carried out within the “socialist

framework” and for the most part is centrally controlled. Much of the

world waited to see whether the economic transition would derail after the

Tiananmen incident in 1989; it did not. However China did seem to be

looking for a way of separating itself from reforms and democratic upheaval

that were happening in the former Soviet Union[6]. In 1992, Deng Xiao Ping

toured the southern economic zones - a journey significant for its highly

symbolic approval of the reform and investment efforts he witnessed - and

coined the phrase “socialist market economy”. Deng emphasized that this

transition must promote the development of productivity, strengthen the

national power and improve people’s standard of living, stating that,

“..with all these achievements secure, our socialist foundation is greatly

strengthened..”[7].

Within this backdrop, we will take a closer look at the system of

reforms currently underway in the People’s Republic of China. This year

marks the beginning of the Ninth Five-Year Plan (1996-2000). Examining the

individual parts (the budget process, public expenditure, taxes, banking,

the interaction between central and provincial governments, and the

emerging need to transform the social safety net) will present a clearer

picture of what has been accomplished by the macroeconomic reforms put in

place in 1976 as well as what still needs to be done.

Revenue, Expenditure and the Budget

One problem of major proportion facing the Chinese government is that

central government revenues are growing at a much slower rate than the

overall economy, and a growing budget deficit has resulted (see Table 3 in

Appendix, page 20).[8] This is especially debilitating in the face of

increasing demands from the surging economy for investment in

infrastructure and with the need for investment in a reformed social

insurance system that will come with economic disruptions caused by

continuing liberalization. Expenditures have also been falling as a

percentage of GDP, but are growing faster than revenue.

Several factors have been identified in the shrinking revenue-to-

expenditures ratio problem:

Revenue

Tax arrears on the industrial and commercial tax (CICT) from enterprises,

which are growing as state-owned enterprises (SOEs) become more

unprofitable in the face of increasing competition. At the end of 1994,

these arrears amounted to 8.2 billion yuan (¥), and just seven months

later, the figure had grown to ¥17.9 bn.[9]

Tax exemptions granted by local governments to state-owned and private

enterprises.

Expenditures

Subsidies to the loss-making SOEs, in the form of loans or direct subsidies

(see Table 4). China’s 1995 budget deficit was around a mere 1.5% of GDP.

If policy lending by centrally controlled banks - most of which is,

effectively, transfers to SOEs which can never afford to pay back these

loans - is taken into account, the central government’s true deficit is 6%

of GDP or higher.[10]

Price subsidies. (Most of these were for urban food, and adjustments made

in 1992 have reduced this drain on the budget.)

Higher than expected increases in expenditures (in 1995, these were 18%

higher than planned on the central level, with local government

expenditures over 30% higher than in 1994.)[11]

A drop of 10.7% in customs revenue from 1994 to 1995.

Inflation-indexed interest subsidies on bank deposits and treasury bonds,

which have been kept high by high inflation rates.

Table 4.

Source: Wong, Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal

Management and Economic Reform in the People’s Republic of China. Oxford

University Press. Hong Kong: 1995.

For a country controlled by a Communist party, the government’s

proportion of economic activity has been remarkably small, even before

implementation of reform. In 1995, official government spending was just

11.6% of GDP. Off-the-books revenue raising schemes by local governments

may mean the state’s total revenue is two times the official level.

The extra-budgetary revenue investment was dispersed, uncoordinated

and did not fulfill the central government’s investment priorities. The

central government faced growing infrastructure demands, but with shrinking

(in proportionate terms) assets available, has been forced to reduce

capital construction spending substantially. Also, expenditures on

administration, culture, education, and welfare increased over the reform

period, and reduced the government’s ability to spend on

infrastructure.[12] (See Table 5 in Appendix, page 22.) The increases in

administration spending are particularly troubling, because of government

policies to reduce control of the economy and shrink some government

bureaus.

One of the stated goals of the Ninth Five-Year Plan is to eliminate

the budget deficit by year 2000. But this goal is highly unlikely to be

achieved due to other conflicting goals, like spurring employment, which

may mean increasing subsidies to unprofitable SOEs; reducing regional

income disparities; and strengthening agriculture, which is seen as a key

to controlling inflation.

Christine Wong, an expert on the Chinese financial system, identifies

three necessary changes to restore the health of the budget: First, the

tax administration must be strengthened. Second, the tax structure must be

reformed so that it is neutral across products and sectors. Third, the

revenue-sharing system between local, provincial and national levels of

government must be revamped, with clearer tax assignments in line with each

levels set of responsibilities. The central government’s control over the

tax system and share of total revenues will likely have to be increased.

The next two sections will address these proposed changes.[13]

Taxation

The Pre-Reform Tax System

Prior to economic reforms, China’s tax structure was based on the

Soviet model. Enterprises remitted their profit to the government,

retaining only what was necessary to pay expenses. Revenues were collected

by local governments, and a certain amount was filtered up to the central

government. In 1984, this was replaced by a system of enterprise income

taxation reform, in which companies were taxed on their profits, as the

government tried to respond to economic imbalances created by the emerging

private sector. The turnover tax (the Consolidated Industrial and

Commercial Tax, or CICT), which had been the largest contributor to the

government’s annual revenue, was replaced with a business tax, a product

tax, and a value-added tax (VAT). These featured highly differentiated tax

rates across sectors, types of good and service, and form of firm

ownership. Most private firms paid a base tax rate of 33%, while most state-

owned enterprises (SOEs) were nominally taxed at 55%.[14] In practice,

however, taxes paid were governed by a contract responsibility system

(CRS), in which enterprises negotiated individually with local government

units. This system created conflict of interest because often the local

government was both tax collector and enterprise owner. Not only were

there differentiated rates which distort economic activity, there was

little incentive for full tax remittance back to the central government

under this system. (See Table 6 in Appendix, page 23, for a description of

the tax structure from 1985-1991.)

1994 Reforms

In 1994, the Chinese government began to respond to these problems by

enacting a series of reforms. The CICT was abolished and the following

taxes were created or modified:

Enterprise Income Tax. This unified corporation tax taxes companies at a

single 33% rate. Foreign enterprises and joint ventures are still enjoying

lighter tax burdens, because of the fierce competition between regions to

attract foreign investment, but these privileges are to be gradually

eliminated.

Personal Income Tax. Operates on a sliding scale, with a maximum of 45%.

Not yet comprehensively-implemented.

Value-Added Tax (VAT). Replaces the product tax of the CICT. Most goods

taxed at 17%, but agricultural and food products will be taxed at 13%, and

small-scale businesses will pay flat rate of 6%.

Consumption (Excise). Focuses narrowly on “luxury goods:” tobacco,

alcohol, gasoline, and a few others.

Business tax for services. Service industries will face a business tax of

3% to 20% on sales in place of the VAT. This tax also will apply to

transfer of intangible assets and the sale of real estate.[15]

Capital Gains. A capital gains tax was to be introduced in 1994, but its

implementation was postponed because of concern over its adverse impact on

China’s fledgling stock markets.

1996 Reforms

In 1996, China announced plans to reduce its import tariff rate from

35.9% to 23%, while abolishing preferences for certain goods and,

importantly, eliminating exemptions from import tariffs (currently, over

80% of imports are exempt from import duties for various reasons). [16]

This step alone should help to reduce the recent losses in customs revenue.

The Ninth Five-Year Plan also includes provisions to introduce taxes on

interest earnings and inheritances, policies designed to reduce income

disparity.

Revision of Tax Collection Structure

In order to make the above tax policy changes effective, the tax

collection system must be revamped and greatly improved. The current

structure is based on a system of revenue contracts between enterprise and

government unit, and between local and central governments. One of the

necessary reforms involves tax exemptions, which local governments often

have the authority to grant to enterprises who for one reason or another

are unable to pay their taxes. This is a fundamental weakness in the

Chinese fiscal system: local government has decision-making authority to

grant exemptions on a tax the proceeds of which may in large part be

assigned to governments above. Numerous conflicts of interest can appear

to reduce incentives to enforce the tax at the local level.[17]

To address these changes, China in 1994 initiated the setting up of a

centrally-managed National Tax Service. This would replace the contract

system with a national “tax system,” based on uniform rules of tax

assignment and tax sharing. Certain assignments will be assigned to local

governments, and others to central government; others will be shared

according to predetermined formulas. Interestingly, in 1995, a special

police unit was set up to protect tax collectors under this new

program.[18]

A potential obstacle to tax reform comes from local governments.

Local governments have traditionally supported reforms. But this is

because the reforms have usually given them greater autonomy. The tax

system reforms need to restore some control over investment and spending

back to the central government, which could encounter local opposition.

Allowing local governments some discretion over local tax rates can give

them some of the autonomy they desire, and provide greater incentive for

intergovernmental cooperation.

Few reports exist at present on the implementation of these reforms.

Certainly, the spirit and scope of the reforms has been well-received by

analysts, though more changes are advocated. But it will take several more

years to determine the success of the reform of tax collection structures

at the local level.

Intergovernmental Fiscal Relationships

A product of economic reforms in transitional economies is often a

shift in intergovernmental fiscal relationships. In the transition from

centralized economy to market economy it is often from a relationship where

the local or provincial government is the receiver of the “plan” to the

local or provincial government proceeds with a greater autonomy. The

evolution of this relationship in the PRC has been very similar. However,

the provincial or local governments were at an advantage over many other

transitional economies because the Chinese system had the following

characteristics 1)local implementation capacity was already established in

the rural areas 2)China in most areas has a high ethnic homogeneity and 3)

there was much to gain by inter-province trading[19]

The very nature of Chinese economic reforms, gradual and incremental,

allowed “scaffolding” of behavior. Partial reforms provided the environment

to learn behaviors that could then be applied to the next level of reform.

Chinese economic reform was also structured on the idea of

decentralization. The establishment of Special Economic Zones (SEZs)

encouraged the local areas to develop their own strategies to attract

business and allowed them the freedom to implement the strategies. The

very earliest reforms, breaking up of farm communes, were also carried out

at the local level.

Many of the SEZs are doing very well and people living in these areas

are enjoying a higher standard of living than they had previously enjoyed.

However, tax collection still remains a difficult endeavor with compliance

at only 70%. In order to improve the poorest areas in China, policies and

programs that are able to move this revenue to the poorer areas will be

needed. This can take the form of a better accounting system to ensure that

all taxes due the central government for infrastructure development

actually arrive there.

Banking Reforms, State Owned Enterprises and the Social Safety Net

In order to put current economic reforms in perspective, understand

the recommendations made by the international economic community, and fully

address the quagmire of State Owned Enterprises (SOEs), a more in depth

look at the interconnectedness of the SOEs and the banking system must be

taken. We will attempt to do just that using the context of bank

development in the PRC, monetary policy, and ongoing reforms to SOEs.

Reform of the banking system in the PRC has taken on similar

characteristics to reform in other areas: i.e., gradual and experimental.

At the beginning of reforms the financial sector in the PRC could hardly be

called a financial sector[20]. Financial sector development and

implementation is a complex undertaking which should include the

development of institutions, instruments and markets[21]. Currently in the

PRC, banking reform lags behind other areas of reform[22]. This is due to

a complex array of policy decisions. No discussion of banking reform in the

PRC would be complete without an examination of the current state of SOEs

restructuring. Many macroeconomic initiatives are being put on hold in

order to bolster a failing state sector and postpone the social upheavals

that may be associated with the needed reforms of this sector.

Background

The Central Bank was established in 1984. In 1987 two additional

universal banks were formed and non-bank financial institutions were

started. In 1988 new capital markets were formed and the secondary trade of

government bonds was allowed. In 1990 the Shanghai and Shenzhen stock

exchanges were opened. In 1992 all treasury bonds were issued through

underwriters[23]. At the end of 1994, the PRC had a total of 13 banks (of

which 3 were specialized banks and 3 were comprehensive banks). The new

“financial system” contained 20 insurance companies, 391 trust and

investment companies and greater than 60,000 credit cooperatives that

operate in local areas[24].

During the summer of 1995 the central government announced a series

of new banking laws would be established. These laws were the People’s Bank

of China Law, the Commercial Banking Law, the Negotiable Instruments Law

and the Guarantee Law. Up until this time the roles of each party in the

framework of financial transaction hadn’t been clearly defined. These

laws begin to lay the comprehensive groundwork for financial

transactions[25]. The People’s Bank of China Law which was established in

the summer of 1995 addresses the internal organization of the People’s Bank

of China, its monetary policy, its supervision and tries to establish its

autonomy from provincial and local governments (it is still under the

control of the State Council). This law has provisions in it for setting

the prime lending rate, rediscount window, amount of funds to be lent to

commercial banks, and the trade of treasury bonds, government securities

and foreign exchange. It also bars the People’s Bank of China from

financing the budget deficits of the central government and local

governments. The Commercial Banking Law addresses the mission of

commercial banks. These are still under the guidance of the State Council

and still must issue policy loans (although the law also states that any

losses due to defaults on these loans will be compensated by the State

Council).

The Negotiable Instruments Law is similar to the United States’

Uniform Commercial Code. The Guarantee Law deals with mortgages, pledges,

and liens. Both of these laws are hoped to standardize and regulate credit

transactions in the PRC[26].

Monetary Policy

Monetary policy in the PRC is currently administered through a

central “credit plan”. This plan, which is administered by the State

Council, sets credit quotas for each bank and also facilitates direct bank

financing of enterprises. In the current system the major objectives of the

specialized banks is to provide loans for various projects, agriculture and

foreign trade. The main recipients of these loans are the state owned

enterprises (SOEs). The terms and rates of these loans are very favorable

(usually 12%[27]). Therefore the demand for these loans is higher than the

supply and private companies have to rely on other sources. This can take

on various means and can often lead to underground lending operations.

The convertibility of RMB has also been undergoing changes. Prior to

January 1, 1994, there were two money systems in China. One for local use,

the other for foreigners. These Foreign Exchange Certificates (FEC’s) were

redeemable only in state operated stores and restaurants. Only higher level

officials were able to use these and most imported goods required the use

of FEC’s. Since doing away with FEC’s , RMB convertibility was relegated to

official “swap shops”[28]. Now, with the correct permit businesses can use

any large bank to exchange money. However, the government has also begun to

establish hard currency audits as well as trying to force businesses to use

the same bank for all of their transactions (a way of tracking how much

money is being exchanged). The new convertibility does meet IMF

requirements[29].

State Owned Enterprises and the Social Safety Net

As illustrated above, the banking system and state owned enterprises

are closely linked (see Table 7 in Appendix, page 24, for financing of

SOEs). According to Chinese government statistics, up to 20% of the debt of

state banks is bad debt. International estimates place this figure at

almost double that amount[30]. Recently in Jiangsu province, 30 SOEs

declared bankruptcy telling the banks they were not going to pay their

debts. If all the banks in China did this it would lead to bankruptcy of

the banks[31]. SOEs account for only 34% of industrial output but consume

73.5% of government investment[32]. Most have an average debt equal to 75%

of total assets[33]. According to an Oxford Analytica study, in the first

eight months of 1995, SOE industrial output expanded by only 8.3% compared

with a 13.7% increase for all industry. And according to estimates, non-

SOEs, on average, required less than a third as much investment to achieve

equivalent industrial output.[34]

These are serious problems. The ninth five year economic plan (1996-

2000) places priority on their eradication, calling for SOEs to lay off

workers to boost efficiency, and encouraging SOEs to “declare bankruptcy if

their liabilities outstrip assets, if they make long-term losses and if

they lose out in market competition.”[35] Up until now current reforms and

lessening of government controls have not only not reigned in this problem

but have also created new ones such as asset stripping of the SOE by

management, workers and local governments[36].

However, the central and local governments are still hesitant to shut

down even the most inefficient SOE. Currently, 7 out of 10 industrial

workers work in a SOE. The SOE provides not only a job but housing,

education, pensions, insurance and often energy sources and commodity shops

on site. The World Bank estimates that only 56% of total expenditure by

SOEs is actually on wages, the rest is on “social spending”[37].

Therefore, any reform involving the SOEs must also involve reform and

development of a social safety net. Pilot programs have been started where

local governments create pension pools and are putting aside payroll taxes

for education, health and unemployment benefits. It is also important to

note that the question of “social security” reform is being worsened by

additional factors. Population in the PRC is progressively growing older.

This phenomenon can be attributed to increase in life expectancy due to

better living conditions and the one child per family policy.

How Should Reforms be Implemented?

Due to the interconnectedness of these areas of society, many of

these reforms need to be implemented simultaneously. In May of this year

the World Bank published a Country Study[38] that attempts to address these

issues. The following are proposed reforms from this study.

1) Reduce the role of government in the directing of resources.

This over time would lesson the State Councils role in directing the

day to day functions of the banks and eventually do away with the credit

plan. Banks would be able to allocate resources appropriately and to set

their own interest rates.

2) Improve the Central Bank’s management of monetary aggregates.

This over time would improve the consistency of banking laws by

ensuring that they are used and would also remove policy lending from the

banks and put it into the budget where it should be. This would also allow

for the development of the Central Bank as an institution.

3) Transform state commercial banks into real commercial banks.

This step would help to free the banks from the current crises of bad

debt and allow them to loan money to the newly emerging private sector.

4) Improve governance, diversify ownership and lower subsidies for SOEs.

In the short term this would include implementing an accounting

system and independent audits, give autonomy to the managers, getting rid

of unviable businesses and restructuring those SOEs that can be.

5) Transfer social services to the government.

This would reduce the burden on newly restructured enterprises. Over

time this would allow for a national system to be implemented.

Conclusions

In comparison with other countries undergoing transition from

centrally-planned economic systems, China had the luxury of initiating its

reforms at a time when it faced no macroeconomic or serious political

crisis. It was able to adopt a two-track approach to economic reform:

China continued state control of existing enterprises while loosening

economic controls enough to permit growth of a new, nonstate sector. This

was possible in part because the inefficient state sector was a small share

of the economy, compared to most socialist nations.

China’s reform experience thus far has been one of “enabling” reform,

allowing “marketization” instead of forcing “privatization,” getting

government to “step out of the way” of the flows of commerce. The results

have been good to excellent in the productive sectors, but the reform has

not yet succeeded in the fiscal and monetary sectors, which are the domains

of government. Here the government can’t step out of the way; it must

build the proper tools and structures to manage these sectors.[39] It is

in these areas, and in the efforts to reduce administration, dismantle

SOEs, and provide an adequate social insurance system for displaced workers

and affected citizens that China faces its true reform challenges.

To further evaluate how far China has come down the path of economic

transition, we look to a definition of transition used by the World Bank,

which describes these three components:

Liberalization: freeing prices, trade and entry to markets from state

controls, while stabilizing the economy. Stabilization is an essential

component to liberalization.

Clarifying property rights and privatizing them where necessary. Requires

re-creating the institutions that support market exchange and shape

ownership, and especially the rule of law.

Reshaping social services and the social safety net to ease the pain of

transition while propelling the reform process forward.

Examination of the Chinese experience shows that liberalization has

taken place to some degree, though much reform of prices, trade and markets

is still to be done. However, privatization and the assignment of property

rights are still very undeveloped, and the most difficult parts of

transition ahead are dependent on a still-unachieved transfer of the social

safety net from enterprise-based to government control.[40]

Were China to continue to grow at the rates of the last two decades,

it would surpass the United States as the world’s largest economy in less

than twenty years. Though some tapering off in the growth rate is

expected, China, with its sheer size and dynamism, is emerging as one of

the world’s economic powers. The reform policy choices it makes during

this period of transition thus have not only domestic but international

significance, as China’s domestic economic and social stability will be

felt internationally. The rest of the world has ample reason for assisting

China in seeing these reforms through peacefully. Opening of economic

activity within China and with the rest of the world will assist the

process of political liberalization within the country, and will provide

enhanced regional and global security.

Table 3. The Fiscal Situation in the Reform Period

Source: Wong, Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal

Management and Economic Reform in the People’s Republic of China. Oxford

University Press. Hong Kong: 1995, p.24.

Table 5. Government Budgetary Expenditures

Source: Wong, Christine

P.W., Christopher Heady, and Wing T. Woo. Fiscal

Management and Economic Reform in the People’s

Republic of China. Oxford

University Press. Hong Kong: 1995, p.24.

Table 6. Composition of Tax Revenues

Source: Wong, Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal

Management and Economic Reform in the People’s Republic of China. Oxford

University Press. Hong Kong: 1995, p.24.

Table 7. Changing Role of the State

Source: Harrold, Peter. China’s Reform Experience to Date. World Bank

Discussion Papers #180. The World Bank:Washington, DC. 1992.

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-----------------------

[1] Spence, Jonathan The Search for Modern China. London: W.W. Norton and

Co., 1990.

[2] Harrold, Peter “China’s Reform Experience to Date”, World Bank

Discussion Paper #180, 1992.

[3] Broadman, Harry “Meeting the Challenge of the Chinese Enterprise

Reform”, World Bank Discussion Paper #283, 1995.

[4] Lele and Ofori-Yeboah, Unraveling the Asian Miracle. Brookfield:

Dartmouth Press, 1996.

[5] World Bank Web Page , November 1996

(http://www.worldbank.org/html/extdr/offrep/eap/china.htm)

[6] Lele and Ofori-Yeboah Unraveling the Asian Miracle. Brookfield:

Dartmouth Press, 1996.

[7] Gao, Shangquan China’s Economic Reform. Macmillan Press Ltd: London,

1996.

8 Wong, Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal

Management and Economic Reform in the People’s Republic of China. Oxford

University Press. Hong Kong: 1995.

[8] “China Budget Hurt By Tax Arrears.” Reuters Financial Service, 14

August 95.

[9] “Reform of China’s State-Owned Enterprises: A Progress Report of Oxford

Analytica.” World Bank Web Page, November 16, 1996

(http://www.worldbank.org/html/prddr/trans/dec95/china.htm).

[10] Ibid.

[11] Hodder, Rupert. The Creation of Wealth in China: Domestic Trade and

Material Progress in a Communist State. Belhaven Press. London: 1993, p.

80.

[12] Wong, Christine. “China’s Economy: The Limits of Gradualist Reform.”

in China Briefing, 1994, ed. by William A. Joseph. Westview Press.

Boulder, CO: 1994

[13] Stevenson-Yang, Anne. “New Reforms and Taxes for ‘94,” in The China

Business Review. U.S.-China Business Council. Washington, D.C.: January-

February 1994.

[14] Peck, Joyce, Peter Kung, and Khoon-Ming Ho. “Enter the VAT,” in The

China Business Review. U.S.-China Business Council. Washington, D.C.: March-

April 1994.

[15] “China: Tax Policy Changes May Not Be Welcome to Companies, But Are

Good for China,” in Global Economic Forum. Morgan Stanley & Co. Inc.

1995.

[16] Wong, Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal

Management and Economic Reform in the People’s Republic of China. Oxford

University Press. Hong Kong: 1995.

[17] IWR Daily Update. Vol. 2, No. 104, 25 April 1995.

[18] Harrold, Peter “China’s Reform Experience to Date” World Bank

Discussion Paper #180, 1992.

[19] Mehran and Quintyn, “Financial Sector Reform in China” Finance and

Development, March 1996.

[20] Ibid.

[21] Tseng, W et al. “Economic reform in China: A New Phase” , IMF

Occasional Paper #114, November 1994.

The Chinese Economy: Fighting Inflation, Deepening Reforms World Bank

Country Study Washington, DC, May 1996.

[22] Ibid

[23] Xu, Dianqing “China: Contradictory Measures Frustrate Bank Reform”

Center for International Private Enterprise, Washington DC, 1995.

[24] Mehran and Quintyn, “Financial Sector Reforms in China” Finance and

Development, March 1996.

[25] Ibid.

[26] Xu, Dianqing “China: Contradictory Measures Frustrate Bank Reform”

Center for International Private Enterprise, 1995.

[27] Forney and Sender “Ever So Careful: China cautiously extends the

renminbi’s convertibility” Far Eastern Economic Review, July 4, 1996.

[28] Ibid.

[29] “Passing the Buck” Far Eastern Economic Review, October 10, 1996.

[30] Ibid.

[31] The Chinese Economy: Fighting Inflation, Deepening Reforms. A World

Bank Country Study May, 1996.

[32] Forney, Matt “Trials by Fire” Far Eastern Economic Review, September

12, 1996.

[33] “Reform of China’s State-Owned Enterprises: A Progress Report of

Oxford Analytica.” World Bank Web Page, November 16, 1996

(http://www.worldbank.org/html/prddr/trans/dec95/china.htm)

[34] Macartney, Jane. “Focus - China Unveils 5-Year Plan Low on

Initiative.” Reuters Financial Service. March 5, 1996. Available through

Lexis/Nexis ASIAPC library, China file.

[35] Ibid.

[36] Ibid.

[37] The Chinese Economy: Fighting Inflation, Deepening Reforms. A World

Bank Country Study, May 1996.

[38] Wong, Christine. “China’s Economy: The Limits of Gradualist Reform.”

in China Briefing, 1994, ed. by William A. Joseph. Westview Press.

Boulder, CO: 1994, p. 51.

[39] “World Development Report Stresses Benefits of Sustained, Continued

Reforms.” World Bank News, Vol. XV, No. 25. June 27, 1996.





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