January 11, 2016 Print

China’s economy began to thrive in the 1980s and ’90s when the government started to abandon central market planning, allow private shareholding in state-owned enterprises, and dismantle international trade barriers. A recent profile in the Economist celebrates the work of three groundbreaking economists who helped provide the intellectual foundations and the practical pathway for market reform in China. One of them, Mao Yushi, founded Atlas Network partner the Unirule Institute of Economics in 1993 along with five other economists. Unirule is an independent Chinese think tank committed to the growth of a market economy and to reforming Chinese government policies.

“Atlas Network is not a major supporter of Unirule, but its continuous encouragement has been precious, as has its foresight,” Mao wrote in a 2015 Atlas Network analysis. “We have been invited to activities held by Atlas Network in Asia, and have had the opportunity to participate in training courses in the United States and India. That enables Unirule to avoid estrangement from worldwide trends, and provides the institute a global audience. For instance, Unirule’s research findings on China’s state-owned enterprises, China’s food security, the influence of China’s public policies on income disparity, etc., were widely cited by international academic circles as a consequence.”

Unirule’s work on China’s state-owned enterprises (SOEs) explains how public-sector incentives lead to a regulatory system that favors SOEs over market competitors, fosters the inefficient use of resources, and effectively grants SOEs monopolistic powers.

“Today’s economic situation has given us more direct consequences,” Unirule Director Sheng Hong wrote in “Whom Do Chinese State-Owned Enterprises Serve?” “China’s economy embraced a big slowdown this year. In the first half of 2015, the eight provinces and cities with a GDP growth rate at or below 7% are those with the most SOEs, especially Heilongjiang, Jilin, and Liaoning Provinces, as well as Shanxi Province. As we know, SOE industries have been a bigger proportion to the economy in Northeast China than the national average, and Shanxi Province has the most SOEs in the country. SOEs do not only drag down economic growth with their low efficiency and unfair competition, but also poison the social environment by their very existence. They show that unfair competition can win the game, and favours and partiality can gain profits. However, this growth pattern is unsustainable. It shows that the SOE reform is not only a theoretical issue, but also a pressing problem.”

The Economist profile also explores the influence of economist Wu Jinglian, who “advised the government from the earliest years of China’s ‘reform and opening’ in the 1980s, through the 1990s when the great China boom got under way”; and economist Li Yining, whose “big idea in the 1980s was that selling partial stakes in state-owned companies to the public would improve their performance.” Their work, although not as firmly rooted in a classical liberal perspective as comprehensive as Mao’s, was crucial in aiding China to open its markets and spur substantial growth.

 “Wu Jinglian, Li Yining and Mao Yushi—their real names—were born within two years of each other in 1929 and 1930 in Nanjing, then China’s capital,” the Economist profile explains. “Whether it was that or pure coincidence, all three grew up to demand an end to Soviet-style central planning and to propose, to varying degrees, capitalism in its place. Their influence has waned with age, but their powers of analysis remain sharp. And they do not much like what they see.”