institutional reforms

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Institutional Reforms

� Increased provincial autonomy

� Fiscal Reform

� Currency Reforms

� Granted Provincial governments increased autonomy with regards

to taxation and Industrial development in 1984.

� Local governments were granted significant tax collectionauthority- Tax Contract System.

� Local govt. collected taxes and turned over a tax quota to the

Central govt. retaining high proportion of any above-quota tax

revenue.� Sharp decline in Central govt. revenue, which fell from 9.6% to

6.0% of GDP between 1986-1992.



Extensive Tax Reform 1994

�

1994- Central govt. implemented an extensive tax reform.

� Established a National tax service that was responsible for direct

collection of national taxes, making Central Tax collection largely

independent of local officials.

� 1994 reforms also reduced the no. of taxes from 32 to 18 &

introduced a value added tax.

� Finally it moved the system toward more uniform treatment for

domestic and foreign investment firms.



� Prior to reforms Income tax rated had varied by ownership

types & because of bargaining between firm and various tax

collection authorities.

� New system reversed fiscal contraction, & the Central govt.

share of consolidated revenue rose dramatically from 22% in1993 to 50% in 1996.

� Although main thrust of institutional reforms- to recentralize

fiscal and monetary controls, its a move away from Chineserigid political Centralization.



� As Commune system dismantled- the reformist leaders began to fear

that a political vacuum was forming in the countryside.

� To fill this void-competitive elections for the village level officials inthe late 1980s.

� Areas where village elections were held- more compliance with tax

collection and population control.

Currency Convertibility

� Prior to 1986- Yuan was largely inconvertible.

� Domestic exporters were allowed to retain only a small percentage

of their export earnings.



� Importers had to petition the Bank of China for currency.

� Dual exchange rate Central bank fixed the official exchange ratebut allowed limited free exchange on a parallel- Market Force.

� 1994- Dual exchange rate abolished & merged the market andofficial rates at the market rate.

� Devaluation of Yuan at about 50%.

� Boost to Chinese exports.

Reference: China: facing the 21st century- Prof.Robert E. Kennedy &Research Associate-Katherine Marquis- Harvard Business School



New China OLD CHINA

NEW CHINA



OLD CHINANEW CHINA



Discussion Questions

� Differences and Similarities between Chinaand South Korea's growth pattern.

�

Differences and similarities between India andChinas growth pattern.

� After studying S. Korea and Chinas growth

pattern, do you think something could bedragged for India also. If yes what it could be.If No why not?



Roots of Chinese Culture

Four threads of Chinese Culture

Agrarianism� 2/3 of Chinese people still lives in villages.

� Laboring primarily in Rice/ wheat Cultivation,

� Chinese philosopher- Fung Yu Han

� Chinese sages historically distinguished between the root(agriculture )and the branch( commerce)

� Social and Economic theories and policies tended to favor the root andslight the branch.

� People who dealt with the branch i.e. merchants were looked down

upon.



Morality� Writings of Confucius served as the foundations of the Chinese

education for some 2000 years.

� Confucius maintained- Society organized under a benevolent

moral code would be prosperous & politically stable & hence

saved from attack.

� Confucius defined 5 relations.

1. Ruler and ruled

2. Husband and Wife

3. Parents and Children

4. Older and Younger brother

5. Friend and Friend

Concept of Yin and Yang

1. Yin- feminine

2. Yang-

M

asculine

Hierarchical

Oppose and

complement oneanother

YinYang



Chinese Pictographic language

� Chinese children learn to memorize thousands of pictorial

characters. In Chinese words are pictures rather than sequence of letters. Chinese thinking tend towards more holistic processing of

information.

Chinese People Wariness of Foreigners

Long and violent history of attacks from all points of compass. It can

be said that Chinese trust in only 2 things.

Their families

Their Bank account

institutional reforms

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