China's economy and its economic reforms after the 18 th National Congress of the Communist Party of China

The Unirule Institute of Economics released its Macroeconomic Analysis Report for the fourth Quarter of 2012 at a conference held on January 23 th , 2013. Prof. Zhuang Shuguang introduced the report.

According to the report, China's GDP grew 7.8%, industrial value-added output grew 10% and CPI increased by 2.6%. Throughout the period of analysis, the Chinese economy first presented a descending trend, which changed into an ascending trajectory later on. Accordingly, most experts and institutions have optimistic views on economic growth in 2013 and predict that GDP growth rate will be about 8.5%, with some predictions even reaching a growth rate of 9.3%. Desire for adjustment and transformation, probability of potential economic growth as well as the margin for policy operations and conditions of the international environment, do not support economic growth at such high rates. It is rather appropriate that the economic growth will stay between 7% and 8%. In order to fulfill the task of promoting new urbanization, achieving double increase of income, making our country more beautiful and promoting political reform, we should strengthen economic restructuring and rebalance the economy.

Zhang Shuguang
Chairman of Academic Committee, Unirule Institute of Economics

Highlights

Feng Xingyuan: Long Live the Constitutional Rules - Mourning the Loss of James M. Buchanan

James M. Buchanan is one of the founders of Public Choice School as well as the father of Constitutional Economics. The great scholar died on January 9 th , 2013 in Blacksburg, Virginia, at the age of 93. Buchanan got famous for his theories of Public Choice and Constitutional Economics. In 1986 he won the Nobel Memorial Prize in Economic Sciences for his contribution to the development of the contractual and constitutional bases for the theory of economic and political decision-making .

The strongest power in the world may be the power of the mind, as it can transform people. Before entering the University of Chicago in 1946, Buchanan was a sincere socialist. He said that he thought of himself as a libertarian socialist but soon became a staunch supporter of market economy after being influenced by his tutor Prof. Knight in the early period of his studies at the University of Chicago. He remained a libertarian and a constitutionalist for all his life. Coincidentally, another Nobel Prize-winning economist Hayek had similar experience as Buchanan. Hayek used to be a Fabian Socialist in his early age, hoping to solve problems in the market by state intervention. However, later he turned away and became a libertarian and a constitutionalist after being influenced by his teacher Mises.

Public Choice mainly involves non-market decision-making. Research tools and methods utilized by this theory are those of economics, including price theory. Public choice theory regards politics as a market, namely the political market. Voters, interest groups, bureaucrats, politicians and other actors are interpreted as economic men ( homo economicus ) in a political market, who are self interest-oriented utility maximizers. Public choice theories regard the votes of voters in the political market as being similar to the consumers' money in the economic market, both serving as means of exchange.

Since the Great Depression in the 20th century, most economists were content with busily blaming “market failures”. On the contrary, Buchanan directly attacked “government failure s”. Buchanan once claimed in 1972 that what we ought to do is to use the methods of inspecting defects and deficiencies of a market economy, which were used in the past 40 years, to inspect problems in all the departments of state as well as in the public economy . Represented by Buchanan, the Virginia School of Public Choice adopts the hypothesis of economic man as one of its core hypotheses. Before the birth of public choice theory, economics and politics were regarded as two separate domains, suitable for different hypotheses. This implies that social beings have a " dissociative identity disorder" : in the economic field, people are thought to be self interest oriented while in the political field, they are regarded as being altruistic. Let's take a fictional example . There was a powerful tycoon in the real estate market, we may call him Mr. Ren. Economists say that Mr. Ren, in his position as real estate tycoon, could be regarded as homo economicus , a self interest oriented utility maximizer. However, if Mr. Ren decides to step into the political circle and becomes president, economists, especially public finance economists, will say that he should be regarded as being altruistic. It seems that Mr. Ren became a patient suffering from "dissociative identity disorder". He is thought to be self-interested orientated in the economic field but altruistic in the political field. However, I would like to draw attention to the fact that instead of Mr. Ren it is the economists who are suffering from such a disease. This is because economists take a person as being sometimes evil minded but sometimes good minded in their methodology. Mr Ren is still Mr Ren, no matter in the economic or in the political field.

After the birth of the theory of public choice, along with public choice economists, more and more people accepted that economy and politics are not two separate domains. Whether in the economic or in the political field, all actors can be assumed to be economic men, self interest oriented utility maximizers. Economic man hypothesis does not mean that human nature is only self interest oriented, without having any altruistic side. But economic man hypothesis is quite powerful. Based on this hypothesis, public choice economists derive basic rules, which constrain the behavioral agents. The basic rules are called "constitutions" by Buchanan, or “constitutional rules” here.

The analysis of constitutions in Public Choice laid foundation for constitutional economics that Buchanan founded and paid special attention to. Constitutional economics involves economic analysis of basic rules. It is to some extent a higher level of public choice theory. Constitutional economics mainly deals with two stages of collective decision-making, i.e. constitutional stage and post-constitutional stage. The former is the stage of rule making, involving choices among rules; the latter is the stage after rule making, involving choices within a given set of rules.

Looking at the situation in China, it is required to distinguish between the above two different stages, namely the stage of choices among rules and the stage of choices within a given set of rules. A reform often involves choices among different rules, not just choices within a given set of rules. A well-functioning society should follow some basic rules. It reads "In Compliance with the Constitutional Rules" in the ancient history book ‘Discourses on the States' (Guo Yu) or “Long Live the Constitutional Rules" in the ancient history book ‘Old History of Tang Dynasty' (Jiu Tang Shu). Those are true imperatives we have to follow. Many of the so-called “reforms” in current China are just some tiny repairs of the existing rules while vested interests are being preserved. Real reforms often need to break with the existing rules and constellations of vested interests. We should establish and maintain a constitutional order rather than obey a privileged order.

The great scholar Buchanan passed away, but he left us with an invaluable treasure of thought which empowers and benefits the people. Many of Buchanan's works have been translated and introduced to Mainland China. I was personally lucky to participate in the organization of the translation and publishing of Buchanan's book ‘Constitutional Economics' in 2004. This book actually consists of two books: ‘ The Power to Tax : Analytical Foundations of a Fiscal Constitution' written by Brennan and Buchanan in 1980 and ‘The Reason of Rules: Constitutional Political Economy' written by the same authors in 1985. In the beginning of ‘The Power to Tax,' Buchanan quotes the Chief of Justice John Marshall's famous dictum: "The power to tax involves the power to destroy" (McCulloch v. Maryland). No wonder, Buchanan spared no effort to analyze and deduce the basic rules of limiting the government's power to tax in the book. In the Unirule New Year Wishes of Goodwill Meeting held on January 10 th , 2013 Madame Hu Shuli pointed out that next stage would be the era of the constitutional economists. In other words, it would be the time for Buchanan's “resurrection”. The great intellectual heritage of Buchanan will always be remembered and praised. Long live the constitutional rules!

Feng Xingyuan
Vice Director, Unirule Institute of Economics

Current Events

Education Forum 2012 was successfully held in Beijing

Education Forum 2012 was successfully held by the Unirule, in Beijing Jade Palace Hotel on November 23 th , 2012. The Forum focused on “Inappropriate Allocation of Educational Resources”. Prof. Yang Dongping, Dean of Beijing Institute of Technology and President of 21 st Century Education Research Institute, Prof. Yan Fengqiao, Vice Dean of Graduate School of Education, Beijing Normal University, Dr. Liu Yejin, Associated Professor of Capital University of Economics, Dr. Wanhuan, Associated Professor of Capital Normal University, Ms. Lu Ke, Doctor of Beijing Academy Educational Sciences, Prof. Sheng Hong, Director of the Unirule of Institute of Economics, Prof. Zhao Nong, Researcher of Chinese Academy of Social Sciences , CASS, attended the forum and delivered keynote speeches. Among the audience were students and teachers from relevant educational organizations, reporters, people from the privately-run educational organizations as well as relevant governmental officials.

For more details

The first Unirule's Learned-Members Salon

The Unirule Institute of Economics organized The first Unirule's Learned-Members Salon from December 1 st to 2 nd , 2012 in Beijing Dajue Temple. This forum focused on uncovering four secrets, including “uncovering state-owned-enterprises reform”, “uncovering administrative monopoly” and “uncovering land finance”. All these topics are the priority research areas of Unirule and topics of high interest for the whole society. Prof. Sheng Hong, Prof. Zhang Shuguang, Prof. Yao Zhongqiu, Prof. Zhao Nong, Prof. Li Xueyuan and Prof. He Chengqing were invited to attend the meeting.

The Seminar on “Play Fair or Conserve Privileges”

The seminar on “Play Fair or Conserve Privileges” was held in Beijing on December 6 th , 2012. It was co-hosted by Unirule and China-Review.com.

At the start of the meeting, Prof Sheng Hong saluted Prof. Zhang Qianfan for his tireless efforts in promoting fairness of educational resources, including an eloquent appeal for accepting people to take part in the College Entrance Examination in their non-birthplace. Prof. Zhang Qianfan, Prof. Zhang Shuguang, Mr. Xu Xin, Dr. Yang Junfeng, Prof. Liu Yejin, Dr. Wang Zhengyu and Mr. Tian Feinong, experts from the fields of law and economics, were invited to attend the seminar. This forum focused on different positions on the preparation of migrant workers' children taking part in the College Entrance Examination in the same areas, in which they received compulsory education, including the Regional Discrimination Status in the Higher Education System and the improper allocation of educational resources between large and medium-sized cities as well as between urban and rural regions.

The seminar “Reflecting on ‘Chongqing model': system and thought”

The Unirule Institute of Economics held the Seminar “Reflecting on ‘Chongqing model': system and thought” jointly with Sina Blog in Beijing on December 26 th , 2012.

Prof. Sheng Hong, Prof. Yao Zhongqiu, Prof Xu Youyu, Prof. Hu Xingdou, Prof. Yang Fan, Dr. Yang Junfeng and Mr. Zhang Xiang were invited to the seminar and reached the following consensus: Reflecting on the "Chongqing model" means a reflection on the Chinese model.

We should reflect on how the "Chongqing model" came about, make clear the historical significance of the Cultural Revolution behind political events in Chongqing, and analyze the potential mechanisms for its occurrence from a more widely and deeply historical perspective, rather than criticizing the "Chongqing model" from a narrow perspective. Experts and scholars, who attended the seminar reckoned that those so-called democratic practices are still used with operational logic of populism and trample on law's dignity. Furthermore it was mentioned that there is still much room for discussion, which should be held in depth as well as in a rational and dispassionately manner.

Forum on 2013 New Year's Expectations held in Beijing

The Forum on 2013 New Year's Expectations was successfully held by the Unirule Institute of Economics in Beijing on January 10 th , 2013.

There were roughly 80 guests in attendance, including academics, business professionals and media. Experts attending the forum discussed and expressed their expectations on political leaders, reforms in the economic and political structures, social and cultural developments and Chinese orientation in the world as well as international relations from different perspectives, such as law, economics, sociology, journalism, political science and so on.

News

Prof. Li Weiguang and Prof. Xu Zhangrun were co-opted onto the board of Unirule

In order to enrich the Unirule Board and impel Unirule's business, the Unirule standing board moved that Unirule co-opted Prof. Li Weiguang and Prof. Xu Zhangrun onto the board at the standing board meeting on October 12 th 2012, under rule 7.4 of the Unirule's statutes. The resolution was passed unanimously at the board meeting which was organized by Present Yao Zhongqiu. 13 members voted by email from December 1 st to December 5 th , 2012.

Prof. Li Weiguang and Prof. Xu Zhangrun, are authorities in relevant fields with strong public spirit, and commitment for marketization, legalization and constitution. As two new members of the board, they will inject new life into Unirule's development.

Prof.Sheng Hong was invited to attend The 9 th China International Finance Forum (CIFF)

Prof. Sheng Hong was invited to attend The 9 th China International Finance Forum (CIFF) on October 28 th and 29 th in Shanghai with the theme "Financial Service and Real Economy Development". He made a speech entitled ”China's Reform and Breaking Monopoly”.

Prof. Feng Xinyuan was invited to attend EU - China Research Colloquium: China's Changing Finance Industry

Prof. Feng Xinyuan was invited to attend EU - China Research Colloquium: China's Changing Finance Industry, which was held on December 14 th , 2012 at the CEIBS Lujiazui International Finance Research Centre (CLIIF). As the last activity of the EU - China Research Fellowship Programme (BMT project), the Colloquium focused on China's Changing Finance Industry.

In his speech, “Towards a competitive rural finance market in China”, Prof. Feng Xingyuan, discussed rural financing. Prof. Feng described the local knowledge paradigm, in which local authorities, rather than the central government, deal with problems. He explained that the three phases of rural finance are formal, semi formal, and informal, with formal financing having the greatest incorporation into government regulations. In rural areas, argued Prof. Feng, the informal sector is important and frequently used, even though the formal sector is more fully developed nationally. He pointed out some areas for improvement, noting that there needs to be a change in mindset to achieve rural financing autonomy. China can learn from the U.S.A., he asserted, explaining that the American local government can often approve policies without receiving the approval of the central government, and private property rights are highly valued.

The Unirule Institute of Economics Delegation successfully visited Copenhagen Business School

The Unirule Institute of Economics Delegation, which was led by Prof. Zhang Shuguang, with Prof. Feng Xingyuan, Prof. Gao Yan, Prof. Zhao Nong and Ms. Qian Pu accompanying, visited the Asian Research Center of Copenhagen Business School from December 16 th to 19 th .

The delegation attended the international seminar on Chinese state-owned enterprise, organized by the Asian Research Center of Copenhagen Business School, from December 17 th to 18 th , 2012. About 20 scholars, from China, Sweden, Denmark, Britain, the United States, Germany, the Netherlands and other countries, attended the conference. Before the end of the meeting, the Asian Research Center, International Economics and Management Department and Unirule achieved a series of initial cooperation intentions, including co-publishing conference papers, exchanging visits, co-organizing conferences and co-publishing quarterly microeconomic reports in English.

Prof. Sheng Hong attended the Seminar on ”The Harmonious Development of Political Reform and Economic Reform”

Prof. Sheng Hong was invited to attend the Seminar on “The Harmonious Development of Political Reform and Economic Reform” which was held by Fudan Institute for Advanced Study in Social Sciences. He gave a lecture entitled “China Model: One with Short-term Effect but not Sustainable” on December 22 nd , 2012.

“Humanities Economics Society” Founded

On December 29 th , 2012, Humanities Economics Society, initially inspired by Prof. Mao Yushi, was formally founded in the report hall of the Chinese Museum of Finance. There were about 500 people at the meeting. Mr. Wang Wei, curator of the Chinese Museum of Finance, chaired the meeting. Prof. Mao Yushi made a speech entitled “Why we need Humanities Economics?”. Besides, Prof. Zhang Weiying explained the function of Humanities Economics Society and hoped to start enlightening people again by popularizing economics. Prof. Yu Yongding was invited to attend the meeting and answered questions posed by the audience on the topic of financial problems. Prof. Chen Haowu was highly motivated to support the Humanities Economics Society, and served as a member of its council.

What is Humanities Economics? Everyone can explain it by himself or herself, there is no exact definition of Humanities Economics. In Prof. Mao Yushi 's opinion, Humanities Economics is a subject that discusses wealth and life. Formal Economics only discusses the production of wealth, without regard to life.The Humanities Economics is a supplement to Mathematical Economics, for it expounds the profound principles from Mathematical Economics in common language, without using maths. So, “Humanities Economics Society” is a general public academic society, not in the style of an academic school.

President Yao Zhongqiu paid a visit to Prof. Deng Zhenglai

Unirule President Yao Zhongqiu went to Shanghai specially to see Prof. Deng Zhenglai at Fudan University Shanghai Cancer Center on January 12 th , 2013.

Prof. Deng Zhenglai, Dean of Fudan - IAS and a member of the Unirule Council, has long been concerned about the development of Unirule and participated in a variety of academic activities organized by Unirule. Recently ， he was diagnosed with gastric cancer and admitted to the hospital for treatment. The Unirule Council and staff were much concerned about the illness of Prof. Deng Zhenglai. At the same time, Unirule instructed Prof. Yao Zhongqiu to pay a visit and give everyone's regards and concerns to Prof. Deng Zhenglai. We wish him a speedy recovery.

Current Researches/Consultings

The Research on the Efficiency of Resource Allocation by Administrative Departments in China
The management system of China’s administrative departments is basically still government-dominated, and the functions and powers of some administrative departments involve various aspects of economic activities, such as industry planning, administrative examination and approval, distribution of fiscal resources, manning quotas, etc. These administrative departments possess great power over the control and allocation of various resources and rely mainly on administrative means rather than market mechanism for resource allocation. To a large extent, this equals to the direct allocation of resources by administrative departments. Without sufficient constraints provided by a constitutional framework, officials at administrative departments are likely to abuse their power, thus leading to unreasonable allocation and waste of limited resources. With the establishment of the market economy, this sort of highly centralized mode of resource allocation and supply is unable meet the demand of social development any more.

This research aims at making a thorough analysis of what sort of resources administrative departments have monopolized, how these departments allocate these resources by making use of power in their hands, as well as the efficiency and results of this kind of allocation so as to give certain suggestions on institutional solutions and policy basis which will improve resource allocation in these fields.

The Research on Land Law Systems
The frequent occurrence of local governments encroaching on the land rights of farmers has now pushed Chinese society to the brink of social unrest. The causes not only lie in local governments’ fiscal problems but more importantly, in the major defects existing in China’s current legal system regarding land issues. One of the major problems is that China has not formulated any basic land laws except for the Land Administration Law, which is similar to regulations made by an administrative department. Aimed at pursuing benefits or convenience for administrative departments, the Land Administration Law has many problems. Moreover, the most recent Amendment Draft of the Land Administration Law proposed by the Ministry of Land and Resources actually further strengthens the power of land administration departments and other administrative organizations and further reduces the land rights of rural collectives and farmers.

Due to the drawbacks of "department legislation" and weak points of the People's Congress caused by China’s constitutional defects, a fair land law draft should be proposed by a neutral social organization rather than an administrative department. Since Unirule is qualified for this mission both in terms of motives and capacity, we’ve launched a research program aiming to provide a reference scheme of China’s land law system in order to fundamentally solve China’s land problems.

Research on Large Enterprises in the Marketization Reform
During the process of China’s transformation from a planned economy to a market economy, the interaction of various economic subjects exerted a significant impact on China’s economic and political system and policies. As one of the major economic subjects of huge scale, large enterprises possess a strategic industrial position. Large state-owned enterprises, in particular, have a historical relationship with the government and have exerted much influence on China’s social structure and developmental direction. This research aims at making a thorough investigation on various kinds of large enterprises, sorting out their position and influence on China’s economic operation and political activities, exploring the mechanism of this process and giving suggestions on better institutional plans and policy suggestions so that the government could work out better systems and policies which will benefit the adjustment and growth of large enterprises in the future.

Research on the Development of Social Organizations in Zhongguancun from the Perspective of Constructing World-class Scientific Innovation Centers
The State Council has approved the construction of the Zhongguancun National Innovation Demonstration Zone and requested that Zhongguancun should be built into a world-class scientific innovation center. Zhongguancun has the opportunity to enjoy a new round of leapfrog development. As an organic part of the innovation activities in Zhongguancun, social organizations play a positive role in promoting the formation of innovation clusters and the supply of public services. Under the new historical circumstances, it’s of great significance to make a thorough analysis of the current development status and direction of social organizations in Zhongguancun by learning from the development experiences of social organizations in Silicon Valley so as to make suggestions on the direction and relevant measures of governmental control. Entrusted by the Administrative Committee of Zhongguancun National Innovation Demonstration Zone, this research will analyze the current status of and existing problems with social organizations in Zhongguancun, propose certain targeted, prospective and operative ideas, institutions and procedures, and give answers to a series of questions.

Upcoming Events

Prof. Mao Yushi 's Academic Thinking Training

Application period: January 15 th to April 8 th
Opening Date: April 13 th , 2013
Contact Person: Li Yunzhe; Liu Qian
Tel: 010-82571544-8000
E-mail: liyunzhe@unirule.org.cn ; Liu Qian@unirule.org.cn

Chinese reform is in a crucial period. China is crying for calm and rational thoughts, to face new emerging problems in the period of transition. As an outstanding representative of “public intellectuals”, Prof. Mao Yushi goes carefully into human rights, freedom and ethical questions from the view of humanities economics and has his original ideas on matters of great public interest.

Prof. Mao dedicated his life to academic research. He cares for the younger generation and is quite willing to develop and pass the knowledge and thoughts he acquired through his research. Hence, in order to meet the demand of the market, Unirule will offer Prof. Mao Yushi 's Academic Thinking Training, agreed to by Prof. Mao Yushi.

Unirule Biweekly Symposiums
Unirule’s Biweekly Symposiums are known in China and throughout the world for their long history of open and in-depth discussions and exchanges of ideas in economics and other social sciences. Over 470 sessions have been held and over 15,000 scholars, policy makers, and students, as well as countless readers on the web, have directly and indirectly, and participated in the Biweekly Symposium for close to 20 years.

Biweekly Symposiums begin at 2 p.m. every other Friday and are free and open to the public.

Schedule
Biweekly Symposium No. 471: March 1 st , 2013
Biweekly Symposium No. 472:March 15 th , 2013

Previous Biweekly Symposiums

Biweekly Symposium No. 464
Time: October 26 th , 2012
Topic: Welfare Accountability and the Road to Constitution
Lecturer: Prof. Qin Hui

Prof. Qin Hui reckoned many Pe ople often had incorrect information about welfare . He also stressed that welfare is a positive regulation, a civil right as well as a government's obligation. Thus, in his opinion a welfare state must become a democratic country first and establishing the constitutional system is the necessary basis of establishing a welfare system. In order to build up a constitutional system, we should confine government power on one hand and hold the government accountable on the other hand, thereby walking towards constitutional government under welfare pressure. At the same time, Prof. Qin Hui pointed out that our country's finance is a big obstacle on the path towards a constitutional system.

Biweekly Symposium No. 466
Time: November 19 th , 2012
Topic: The Reform Direction of China's Re-Education through Labor System
Lecturer: Liu Renwen

The Biweekly Symposium No. 466 on the topic "The Reform Direction of China's Re-Education through Labor System” was held on November 19 th , 2012. The keynote speaker was Prof. Liu Renwen, from Chinese Academy of Social Sciences, CASS.

In this forum, Prof. Liu Renwen looked back at the process of China's Re-Education through Labor System reform and pointed out the main existing problems. He reckoned the road to China's Re-Education through Labor System Reform is a system of security measures. At last, he proposed some contents of the reform.

Editor: Liu Qian
Revisor: Hannah Luftensteiner