Economic Reform in China: Problems and Prospects.

• Author: Cheng Jen-Chi

Edited by James A. Dorn and Wang Xi. Chicago and London: The University of Chicago Press, 1990. Pp. 383. $17.95.

This volume is an important contribution to the study of how China can make the transition from central planning to a free-market system. It addresses the roots of China's crisis, provides a framework for reform, and discusses the future prospects that freedom will bring. Special attention is given to the issues of property rights and privatization, institutional reforms, and market-oriented strategies. This book is comprised of nineteen papers and many commentaries. It is organized in four parts. Many of the papers are reprinted from the Cato Journal. Part I deals with the framework for reform. It begins with Milton Friedman's argument of using the market for social development. The key issue is the speed and degree of reform. As suggested by Friedman, radical reform toward a market system makes sense from a theoretical viewpoint. but is often difficult in practice. The real problem in the transition is the "tyranny of the status quo". This issue is emphasized again in Steven N. S. Cheung's paper. While China made progress over a decade in promoting private property rights in land and in labor, special interests in trade and industry have become the real obstacles to reform. Cheung then suggests the most straightforward way to create private property: For state-owned resources that are salable, sell. The value of property rights to economic reform in China are further illustrated by James A Dorn. He claims that China's leaders have mistakenly perceived their problem as how to introduce markets without establishing effective ownership rights. If China's leaders really want to avoid the chaos of central planning, and desire economic progress, they must learn the linkage among pricing, property, and constitutional choice. Part I is conclude with Don Lavoie's paper. "Economic Chaos or Spontaneous Order?" In this paper it is argued that the most important thing in the process of reform is not control but cultivation.

Part II of this book deals with decentralization and its relation to development in China. Peter Bernholz provides a systematic treatment of the importance of restructuring financial markets, financial institutions, and the monetary regimen when moving toward a market system. His paper draws on the historical record of many other countries under different monetary regimes and relates this to the problems in controlling...