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China 2020:
Development Challenges in the New Century

Washington, DC: The International Bank for
Reconstruction and Development/The World Bank, September 1997.
7 volumes ($30 for main book; $20 each for the other six;
$120 for entire set), softcover

Predicting what China's economy will look like in five years is a daunting and inexact undertaking; projecting more than 20 years into the future requires finely-tuned powers of divination. Absent a crystal ball, The World Bank's seven-volume China 2020 series may be the best alternative. The strength of this volume lies in its wealth of factual and statistical information and its logical, methodical presentation. The authors, recognizing that past growth does not guarantee future success (as many Southeast Asian economies must surely now realize), describe the potential impediments to China's continued growth. This study finds a balance between the alternating rosy and bleak views of China's economy and future development, and should provide a useful foundation for businesspeople wondering what lies ahead.

The first volume of the set, China 2020: Development Challenges in the New Century lays out the fundamental trends that have shaped China's economy over the last two decades and promotes the World Bank's view of the role China's government should play vis-a-vis the market. The book examines areas of utmost importance to China's development: social welfare, agriculture, environment, and integration into the world economy. The concluding chapter contrasts two extreme scenarios: one in which the pace of reform stalls, economic growth moderates, and China plays a decreasingly important role on the world stage (termed "Sinosclerosis" by the authors); and one in which the pace of reform continues to transform China into a modern, middle-income nation with a developed legal system and a strong voice in world political and economic circles. The authors appear optimistic that China will choose reform over retrenchment or stagnation.

Clear Water, Blue Skies

China's environment is the subject of Clear Water, Blue Skies: China's Environment in the New Century. A comprehensive analysis of the "environmental externalities" of China's economic growth, this book is essential reading for anyone working in China's environmental technology field, and an important reference for foreign businesses with operations in the PRC. The book's clean organization and illustrative charts make it a readable, useful addition to office libraries. Among the book's more startling findings are that only 7 percent of China's municipal wastewater is treated; only about 8 percent of the monitored urban river sections in northern China meet the standards for direct human contact; total health and productivity losses associated with urban air pollution are estimated at $20 billion a year; and the largest health and productivity losses stem from urban air pollution--in particular debilitating, chronic bronchitis. The book forecasts the effects of certain environmental conditions under "business as usual" circumstances versus under moderate and high investment scenarios. This approach is an especially effective means of demonstrating to China the importance of addressing its environmental problems sooner rather than later.

At China's Table

At China's Table: Food Security Options offers an in-depth analysis of China's ability to feed its populace in the coming decades, as well as an evaluation of China's current food-storage system and options. The report reviews China's food consumption and demand patterns, past sources of economic growth in agriculture, and China's agricultural research endeavors. The report, moreover, outlines such agriculture-related challenges for China as balancing fertilizer application, developing and reclaiming land, improving water distribution and irrigation, and upgrading the transportation infrastructure. How China copes with these potential impediments to agricultural growth will ultimately determine the country's ability to remain "food secure." Unlike Lester Brown's doomsday forecasts of China's food security, At China's Table offers an astute and realistic projection of China's food security situation.

Financing Health Care

Financing Health Care: Issues and Options for China provides a startling reminder of the successes of Maoism--something that is little mentioned in polite society these days, whether in China or abroad. At the start of the Deng-led reforms in 1978, according to the report, almost 90 percent of the population was covered by some form of health insurance, whereas in 1993, 65 percent of rural people and 15 percent of city dwellers were uninsured--a figure that almost certainly has since grown for the urban population. The shift to a blend of planned and market-driven mechanisms in health care has reaped some benefits but also created serious problems: declining immunization rates; overuse of profitable treatments, especially drugs and diagnostic tests; and rising costs without a concomitant gain in the quality of care. In response, the World Bank recommends more funding for China's Epidemic Prevention Service, subsidies for essential health care in the poorest rural districts, price reform, and measures to reduce smoking.

The volume is strongest in its analysis of public health problems, and less successful in describing current practice and needed reform in health insurance. In China, it is hard to fault researchers for being out of date, because the landscape changes entirely every few months. But because the research was completed in August 1997, it could have taken into account the mixed successes of cities that were among the first localities to reform their health care systems, such as Shanghai, Shenzhen, and Dalian.

Sharing Rising Incomes

The China 2020 series also focuses on inequality in the PRC in Sharing Rising Incomes: Disparities in China. This volume analyzes the policies--and occasionally lack of policies--that have exacerbated the uneven distribution of the benefits of economic growth in China. PRC social policies have favored urban over rural areas, while economic policies give preferences to coastal versus inland regions. China's widening rural-urban income gap--rural incomes average 40 percent of urban incomes--has accounted for more than half of total inequality since 1985. While China's inequality is still moderate relative to other developing countries, the report warns that growing income polarization may impede growth, obstruct poverty alleviation efforts, and spark social tension. Sharing Rising Incomes suggests that boosting rural incomes will go a long way toward reducing poverty, and provides policy guidelines for the three different categories of China's poor. For the "absolute poor," living on less than $64 a year, the study suggests that Beijing should emphasize basic education and health services. For the "near poor," living on less than $1 a day, efforts should concentrate on reforming agricultural policies, improving transportation and distribution networks, and integrating labor markets. And for the small category of "urban poor," whose numbers are expected to rise in coming years, the authors suggest establishing government programs to monitor unemployment and provide unemployment compensation as well as labor training.

Old Age Security

Old Age Security: Pension Reform in China is a masterful examination of the structure of the existing pension scheme as well as an analysis of means to instill greater efficiency. The World Bank report describes an essentially positive scenario: despite heavy, imminent responsibilities for redundant workers, and a population moving quickly toward retirement, China is well able to afford the costs. The key is for policymakers to recognize the urgency of moving now from a pay-as-you-go pension system to a pooled, fully funded one. If steps are not taken soon to extend coverage and increase pooling, standardize the system, raise the retirement age, and make available more financial instruments, the contribution rate required to sustain promised benefits could soon amount to 50 percent of salary. The report cuts quickly to the chase: the central government must standardize the local models that have been in place for as long as a decade; transfer administration to a separate agency and lighten the administrative burden of companies; index benefits to inflation rather than wages; and stop accumulating new debt in the pension system.

Most im pressive is the report's thorough collection of information. Though the report is comprehensive, up to date, and utterly persuasive, it is of greater use to its target readership--government officials and academics--than to business. There is little or no detail provided on the obligations of corporate employers, so companies needing to understand their costs and administrative obligations wherever they operate in China still need to visit local social insurance administrations.

China Engaged

China Engaged: Integration with the Global Economy focuses on trade, investment, and capital flows in the PRC and how trends in these areas will likely change over the next several decades. The report predicts that China's economy will be fueled by rising imports of high-technology, capital-intensive, and knowledge-based products; the diversification and expansion of capital flows, particularly into infrastructure projects and China's interior provinces; the elimination of trade barriers; and entry into the World Trade Organization.

The authors contend that the effects of these and related policies will triple China's share of world trade (to about 10 percent) by 2020, making it second only to the United States in total trade volume. According to the report, China's trade integration should benefit most countries, industrialized and developing alike. Industrialized countries will likely experience accelerated export growth, relative price gains from higher value-added exports, and greater access to the China market, while other developing countries may capitalize on China's diminishing ability over the long term to produce internationally competitive lower value-added products. Compared to other volumes of the China 2020 series, this 40-page report, clearly written and packed with valuable analysis of China's external sector, is a must-read for any strategist or planner looking at China's current and future roles in the global economy.

US-China Business Council staff members Iain K. McDaniels, Kirsten Sylvester, Ann M. Weeks, Anne Stevenson-Yang, Darlene M. Liao, and Meredith Gavin Singer contributed to this review.

The Special Economic Zones of China
and Their Impact on its Economic Development

by Jung-Dong Park. Westport, CT: Praeger Publishers, 1997.
215 pp. $65 hardcover.

The Special Economic Zones of China and Their Impact on Its Economic Development provides readers a thorough evaluation of China's highly successful economic havens. Though not a guide on how to set up a business in the Special Economic Zones (SEZs), the book contains useful information that would benefit any foreign company interested in entering these areas.

In addition to detailing the formation of the zones, Park, of the Korea Development Institute, discusses corporate structures and managerial techniques used by zone firms. Park also looks at the ways fore ign companies invest in SEZs--as wholly foreign-owned enterprises (WFOEs), through mergers, or through processing contracts.

Park examines Beijing's mixed success in achieving some of its original goals for the zones, such as providing a testing ground for market reforms, encouraging development, and generating employment through the introduction of foreign capital. A microeconomic analysis of the zones, he argues, demonstrates that foreign capital did not expand employment in the zones to the level PRC leaders had anticipated, in part because corporations did not reinvest heavily in the zones. Total foreign investment in the SEZs, he notes, also failed to meet expected levels.

Park offers some useful data on the SEZ labor market: SEZ workers tend to be young females performing low-skilled labor who view their employment as temporary. Park maintains that a high turnover rate, the low education levels of most workers, and the lack skilled managers result in labor productivity levels that are 30-50 percent below those in the foreign firms' home countries. Nevertheless, companies continue to invest in the zones.

One of the book's most interesting sections examines SEZ influence on and relations with other regions of China. Park finds that SEZs, by drawing workers and investment from other provinces, have spurred greater use of market mechanisms and economic reforms in these regions of China. Overall, Park finds that SE Zs have been a powerful force behind China's growing international economic role. Though a scholarly account of SEZs, the book provides cases studies and analysis relevant to firms with new or existing operations in the zones.

--Darlene M. Liao

Darlene M. Liao is assistant editor of The CBR.

China, Hong Kong, Taiwan, Inc.:
The Dynamics of a New Empire

by Willem van Kemenade. New York, NY: Alfred A. Knopf, 1997.
444 pp. $30 hardcover.

China, Hong Kong, Taiwan, Inc. is a fascinating examination of economic, social, and political developments in the Greater China region. Although the title suggests another "yellow peril" diatribe on the dangers of ethnic Chinese influence in Southeast Asia, in fact author van Kemenade is more interested in detailing the historical processes and ideological trends that are reshaping China. More than just a primer on regional issues, however, the book provides keen insights on Chinese leaders in all three locales and the often complex policy environments in which they operate.

The book begins with descriptions of the evolution of PRC, Hong Kong, and Taiwan systems over the past few decades. A discussion follows on regional integration, the creation of Hong Kong-like clones in southern China, and the simultaneous disintegration of traditional communist ideology in Beijing. The aut hor highlights the discouraging fact that economic growth has not led to political liberalization in the PRC. He further notes the country's contradictory moves toward greater local autonomy (particularly in the south and west) on the one hand, and pressure from Beijing toward centralization on the other. Finally, van Kemenade suggests that significant political reform is unlikely in the short term, given the watchful eye of the Communist Party and its still formidable gerontocracy.

Van Kemenade's primary focus is on politics, and the book lacks sufficient examination of the economic integration of the region--perhaps the most dynamic of the forces drawing together China, Hong Kong, and Taiwan. And his harsh characterizations of the historical records of Mao Zedong, Deng Xiaoping, and Jiang Zemin, among others, seem out of place in an otherwise balanced and objective analysis.

Overall, China, Hong Kong, Taiwan, Inc. provides a well-documented assessment of the trends that will continue to shape Greater China through the early part of the 21st century. While economic integration will continue to pull the three disparate territories together, cultural and political forces will challenge, in particular, the PRC's internal stability over the short term.

The work is likely to appeal to those interested in the ideological underpinnings of China during the reform era. Though not recommended as a practical business guide, China, Hong Kong, Taiwan, Inc. is nonetheless a lively and enjoyable study.

--Paul Lamb

Paul Lamb is director of programs in the US-China Business Council's Washington, DC office.

Last Updated: 12-Jan-98