Highlights

Why did Marginal Revolution take place in China?

QIU Feng (President of Unirule Institute of Economics)

In recent years, I pay closer attention to Confucianism and Chinese history. So, I’d like to talk about the topic which I have mentioned but not illustrated in the book. That is, why did Marginal Revolution take place in China?

We need to make a transnational comparison when discussing this topic. For example, you may ask whether it occurred in other countries besides China. But now, we have to set aside this question and firstly discuss why Marginal Revolution was able to occur in China. My answer is quite simple: because market economy is essentially the tradition of Chinese economy. In the 1950s, China has set up the market system where private property rights and free trade existed before the planning system was established.

Over these years, domestic and overseas researches on Chinese economic history have proved with more and more materials that China has been running the system of market economy since the warring states period. Of course, there must be some reversals along the way. But it can be absolutely sure that since the mid-Tang Dynasty, after the implementation of the Two-Tax Law, China has been running the system of market economy. Therefore, in the researches on economic history, Japanese scholars have done lots of studies about the economy in Song Dynasty. Some people even put forward the theory of “Economic revolution in Song Dynasty”. Professor Li Bozhong, however, has studied “Early industrialization in Ming and Qing Dynasty”. All in all, the fact has been proved with sufficient materials that China runs the system of market economy traditionally.

That is an essential resource for us as well as the fundamental condition allowing Marginal Revolution to be able to occur in China. Concerning this condition, I want to narrow down the scope by simply discussing two questions. The first one is about Chinese entrepreneurship. The occurrence of such a market system requires the innovative spirit, especially in the mid 20th century when the system of planned economy existed. You need the spirit of innovation and adventure as well as knowledge on the system to create the market system on the edge. You have to know what kind of system you want to create. Daily experience has provided the ordinary Chinese people with these two elements ---- innovative entrepreneurship and the knowledge of the market system. And the experience in living in a market economy for a long time has shaped the entrepreneurship of Chinese people.

Recently I’ve been wondering whether I could put forward a concept called “the market civilized degree”. That Chinese people rank top in the world in terms of a person’s degree of understanding of the market. An ordinary Chinese farmer has the complete understanding of how the market operates and can manage to enter the market network. This phenomenon can not be found in many other civilizations and relates to the tradition of market economy in China for a long time. Edified in such a traditional environment, Chinese people all have the life experience of the market, which shapes the mentality supporting them to own the willingness and ability to create a new system on the edge of or outside the existing system.

Therefore, I lay emphasize on the opinion over and over again that in the past 30 years the establishment of the system of market economy in China, strictly speaking, is reestablishment or recovery. The market system did exist in China before, but it was destroyed in the Mao era. But on the edge, the ordinary people automatically or consciously rebuilt the inherent system of market economy. These efforts can be regarded as “illegal innovation” and gained the admission of central government through political procedure thereby becoming the law and the constitution. And therefore we have reform.

Thus we can see, “reform” as the institutional change, actually is the rejuvenation of Chinese civilization. In my eyes, all kinds of virtuous institutional change, such as the development of market economy and in other fields the development of social autonomy, can be seen as the rejuvenation of Chinese civilization. That is the first argument I would like to put forward.

Now, I try to address the question on people’s common concern about the above logic —how to establish the perfect market order?

We all know that there exist serious problems in social order and the market system in China. The first question is how these problems happened. The second one is how we can solve these problems and find a way out of the current dilemma.

To answer the first question, problems exist in the market system because detuning phenomenon occurs in the market, the society and other areas during the process of rejuvenation. For example, in China, the recovery of the market happens a lot faster than that of values, thus values fail to catch up with the pace of profit-seeking behavior, resulting in various unsatisfactory phenomena in business activities in the market.

It is logical to conclude that we need to form a civilized and cultural consciousness, or the consciousness having values in order to build up a relatively complete order of the market economy in China.

In our time, China’s need to build up the modern order requires a kind of integrating power, because huge changes have been taken place in all areas of Chinese society over the past 30 years, such as marketization, legalization and even constitutional changes. We of course cannot make it as perfect as constitutionalism, but part of a constitutional system has been formed. Now we need the comprehensive force to integrate those scattered and distorted systems and form a whole order.

Professor Coase has come up with a concept called “Chinese market economy” in his book, which is the market economy in Chinese civilization or the one supported by the values of Chinese people. Hence, there can be no complete market order in China without the rejuvenation of Chinese culture and the reconstruction of Chinese values. System matters, and so does culture. We cannot imagine how the rule of laws and the constitutional system function well without the reconstruction of culture.

Professor YAO Zhongqiu 
President of Unirule Institute of Economics

Current Events

The 2nd “MAO Yushi Academic Ideology Course” Started in Beijing

From January 11th to 12th, 2014, the 2nd “Unirule·MAO Yushi academic ideology course” started in Beijing. In view of the great success and good reputation of the first course, the number of applicants had been constantly increasing. The enrollment of the class had also been expanded. This time, the faculty members were the honorary chairman of Unirule Institute of Economics, MAO Yushi; the director of Unirule Institute of Economics, ZHAO Nong; and the director of Unirule Institute of Economics, FENG Xingyuan. There were more than 50 trainees taking part in this course and 10 trainees from the first course were also present to study, interact and exchange ideas.
The themes of this course were “scientific thinking” and “the Review and Prospect of Chinese Economy”. The keynote speaker was Professor Mao Yushi. The courses were arranged in the morning. When explaining scientific thinking, Professor Mao encouraged the students to build the spirit of independent judgment and use scientific thinking to judge things. He took the number of abnormal deaths in all stages of Chinese history as an example to teach trainees on how to get quantitative results and use those results to analyze the importance and meaning of an issue. On the morning of 12th, Professor Mao reviewed the economic, social and political changes since the founding of new China. He analyzed the causes of changes and believed that the recent 30 years have been the best time period for China ever since the Opium War. He also encouraged everyone to work together and make contributions to the further development of China. (For more information)

On February 16th, the 1st Unirule meet-greet of mentors was held by the Unirule western classical book club, which was hosted by the China Entrepreneur Research Center of Unirule Institute of Economics. This event was gracefully supported by the participation of the former distinguished mentors among whom were Professor LIU Junning, famous independent political scientist and researcher from the Cultural Institute of Art Studies in the Ministry of Culture; Mr. MAO Shoulong, Executive Vice President of Public Policy Research Institute of Renmin University of China and Advisory Committee of Experts of China Entrepreneur Research Center of Unirule Institute of Economics; CUPL Associate Professor WANG Jianxun and  Professor FENG Xingyuan, Deputy Director of the Unirule Institute of Economics. (For more information)

The 2nd “Unirule Saloon for Young Scholars from the East and the West” was held at the International Cooperation Department of Unirule Institute of Economics on the evening of February 19th. The theme of this saloon was “The China Dream Deconstructed: A ‘Chinese Model’ or A Universal Model”. This saloon was joined with grace by Professor FENG Xingyuan, the famous researcher from Chinese Academy of Social Sciences and also Deputy Director of the Unirule Institute of Economics, as the keynote speaker. The discussion was proud to be joined by famous economist Professor MAO Yushi, Unirule young project researchers, young diplomats from the Embassy of Sweden to China, liaison officers from GEI, young scholars from Peking University and other universities as well as participants from the media.
Professor FENG Xingyuan argued that the model of realizing the China dream, so-called Chinese model, is not a contradiction to the universal model in its development direction. He stated that the market plays a significant role in continuous economic growth; that there are lots of positive factors in achieving the China dream, for example, the report of the third plenary session of the 18th CPC Central Committee, which presents a considerable number of market-oriented reform goals. Furthermore, the new leaders have stronger knowledge of the market. Professor FENG Xingyuan also pointed out that there are still certain risks and difficulties in the development of Chinese economy, especially in SOE reform, and that the realization of the China dream cannot be inseparable from the innovation and reform in politics.

Unirule Academic Committee Meeting Held in Beijing

On February 23rd, Unirule academic committee meeting was held in Beijing. The academic committee members present included Professor WEI Sen from Fudan University of Shanghai; Professor MAO Shoulong from Renmin University of China; Professor GAO Quanxi from Beihang University; Researcher LI Shi from Chinese Academy of Social Sciences; Professor ZHANG Shuguang, Chairman of the Unirule Academic Committee; Professor SHENG Hong, Director of the Unirule Institute of Economics; Professor Qiu Feng, President of the Unirule Institute of Economics; Professor FENG Xingyuan, Deputy Director of the Unirule Institute of Economics; Professor ZHAO Nong, Vice Chairman of the Unirule Academic Committee and so on. The members absent were Professor FAN Gang, Professor WANG Dingding, Professor MAO Yushi, Professor TANG Shouning, Professor ZHOU Yean, and Professor CHEN Zhiwu.

The meeting was hosted by Professor ZHAO Nong, Vice Chairman of the Unirule Academic Committee. Professor ZHANG Shuguang, Chairman of the Unirule Academic Committee, gave a work report on the past year and put forward some new ideas for the future work. The attendants had discussions about the long-term development of academic career and the training of young scholars, and gave lots of good suggestions on these problems. Mr. Huang Kainan and Mr. CHEN Jingfa were voted Unirule Specially Invited Researchers.

News

Unirule Institute of Economics Awarded the Best Mastermind Alliance for Power of Reform

On December 27th, 2013, Unirule Institute of Economics was awarded "the Best Mastermind Alliance for Power of Reform" on the Phoenix Finance Summit 2013. Professor WU Jinglian, President of Unirule Institute of Economics, was awarded "the Best Economist for Power of Reform".

Professor GAO Yan Spoke at the Brown Bag Seminar at the Office of Science and Innovation of the Embassy of Sweden to China

On February 10th, Professor GAO Yan, Deputy Director of Unirule was invited by Dr. Christer Ljungwall to attend the Brown Bag Seminar at the Office of Science and Innovation of the Embassy of Sweden to China.
Professor GAO Yan spoke on China's energy security issues and the significance of Unirule's research on opening the market for crude oil and petroleum products. The speech was well-received by the audience. After the speech, he joined the audience from the embassy and other foreign organizations in the Q&A session. 
Mr. MA Junjie, project researcher and assistant to the Director of International Cooperation Center at Unirule interpreted for the event.

Current Researches/ Consulting

Theoretical Research and Reforming Solution on Opening the Markets of Crude Oil and Petroleum Products

The present system of petroleum industry in China generally has 3 characteristics —— it focuses on state-owned business, price control and restricted access. Thus China’s petroleum industry has a highly administrative monopoly. A few enterprises have completely monopolized the supply lines from its exploration, mining, refining, wholesale and retail, even to its imports and exports. The research intends to break the administrative monopoly of petroleum industry, stating its objective for the reform and meanwhile figuring out feasibility reforming solution to further liberate the markets of crude oil and product oil.

Strategy of Developing Areas and Planning Studies on Urban Industrialization For Yangcheng County in Jincheng City of Shanxi Province

On the basis of rethinking the strategy of development, the transformation of urban functions and the adjustment to industrial structure for Yangcheng County, Unirule Institute of Economics has developed a unique space-institution mathematical economic model which can reunite three-dimensional space time of cities and regions, their industries and institutions, and their economic policy analysis. The Unirule Institute will put the strategy into practice. Meanwhile, such mathematical model will be used to simulate market mechanism, to predict the final size for the long-term developing balance of cities and regions, the space distribution of population density and other economic density, the development time and process of cities and regions, the industrial distribution and its development track, and to test the flexibility of economic systems and policies. Thus the model can be used for the spatial planning of urban and rural areas in Yangcheng County.

Fairness and Efficiency of Financial Resource Allocation

The first scale problem of the fairness and efficiency of financial resource allocation is whether the overall tax bearing standard falls within the optimal interval, whether the design of tax kinds and the mechanism will harm the development of the economy. The second scale problem is whether the expenditure structure of the existing financial resource allocation, especially transfer payment, obeys the principal of justice, and the efficiency of financial expenditure especially the general administrative costs.
Unirule Institute of Economics is going to undertake research on the fairness and efficiency of financial resource allocation with the emphasis on the second scale problem. In order to fulfill the ideal of justice in a society, the involvement of financial resource allocation is one of the methods, and a universal one. A state can promote justice by implying financial expenditure in two ways: the direct and the indirect way. When applying the direct way of implying financial expenditure measures to promote justice, financial expenditure is directly distributed to individuals to fill the gap of incomes between individuals. Among the financial expenditure items of China are pensions and relief funds for social welfare, rural relief funds as well as social insurance funds. The indirect way is by governments' increase in expenditure used for supporting agriculture and villagers, construction of infrastructure, education and medical treatments. This research is on the justice of financial resource allocation and it deals mainly with whether the transfer payment of financial resources obeys the second rule of Rawls's theory of justice, which states that when violation to the first rule has to be made, resource allocation can be towards the poorest group of people. Besides the justice issue, efficiency is also involved in the financial resource allocation. The administrative costs of China have long been above the average standard of other countries in the world, therefore, a big amount of public financial resources are wasted (trillions of RMB per year as estimated). In regard with the efficiency issue of the financial resource allocation, this research deals mainly with the change of ratio of administrative costs by government agencies (in addition to other costs, such as medical treatments of government officials covered by public budgets, and housing subsidies) of financial income. The reform of the fiscal and taxation system is one of the core issues in China's on-going reforms. This research aims not at a comprehensive examination of the fiscal and taxation system, but a specific aspect which is the "fairness and efficiency of financial resource allocation", and evaluating the status quo of China's financial resource allocation.

Research on China's Urbanization on the Local Level

Urbanization is one of the most essential economic and social policies of the new administration. The emphasis of this policy is posed on medium and small cities as well as townships. As noticed, there are thousands of industrialized townships in China with their social governance lagging far behind their economic development.
Firstly, a big population is located in between the urban and rural level, which can't transform into citizens. Hundreds of millions of people have left their villages and moved to commercialized and industrialized towns. They are in industrial and commercial occupations and it is highly unlikely that they would go back to their villages. However, they are not entitled to local Hukou registration, which further leads to the deprivation of various rights, for example, the right of education. Secondly, public governance in such industrialized and commercialized towns, in general, is at a rudimentary level. The number of officially budgeted posts is asymmetric with the population governed, which leads to the employment of a large number of unofficially budgeted staff and unjustified power to govern. There is a lack of financial resources for the local government to carry out infrastructure construction or to provide public goods sufficiently. Thirdly, the urbanization results in imbalanced development of the structure of society. Since the industrialized and commercialized townships are unable to complete urbanization, urbanization in China has basically become mega-urbanization which is dominated by administrative power. Local governments centralize periphery resources with administrative power and construct cities artificially, which impedes townships and villages from evolving into cities by spontaneous order. Fourthly, industry upgrading can't be undertaken in those industrialized and commercialized townships and the capacity for future economic development is greatly limited. The industry upgrading is, in essence, the upgrading of people. Enterprises ought to draw and maintain technicians, researchers, and investors, to meet their needs for living standards, which cannot be satisfied by townships. Similarly, the lagging urbanization reversely sets back the cultivation and development of the service industry, especially the medium and high-end services.
Unirule Institute of Economics is going to carry out research on urbanization of China on the local level, aiming at improving public governance of the industrialized townships, optimizing the urbanization methodologies, and improving the "citizenization" of migrant workers, therefore further pushing social governance towards self-governance and democracy.

Research on the Public Governance Index of Provincial Capitals

At the beginning of the year 2013, Unirule conducted field survey, including more than 10 thousands of households in 30 local capital cities. According to the field survey, the Public Governance Index was derived. The main conclusions of the PGI report as below:
Three statements summarize the status quo of public governance in provincial capitals. Firstly, public services have generally just gotten a pass. Secondly, protection to civil rights is disturbing. Finally, governance methodologies need improvements. These statements point out the solution: the structure of the society needs to be altered from that with a government monopoly to a civil society with diverse governance subjects. The ranking of provincial capitals in the public governance assessment from the top to the bottom is as follows: Hangzhou, Nanjing, Urumqi, Tianjin, Chengdu, Shanghai, Beijing, Nanchang, Xi'an, Xining, Shijiazhuang, Wuhan, Guangzhou, Yinchuan, Hohhot, Chongqing, Shenyang, Changsha, Jinan, Kunming, Nanning, Haikou, Fuzhou, Guiyang, Harbin, Hefei, Changchun, Zhengzhou, Taiyuan and Lanzhou. Generally speaking, all provincial capitals are graded comparatively low in the three public governance assessments from 2008 to 2012. Even those that ranked the highest in performance have just barely passed the bar of 60 points. Few provincial capitals with poor public governance got over 50 points.
There is a certain amount of correlation between the changes of ranking and improvements in public governance in provincial capitals. In the short term, should the capital cities be willing to raise their rankings, they can achieve this by increasing transparency in government information and civil servants selection, encouraging local non-governmental organizations, or promoting wider participation in local affairs. There is but a weak correlation between public governance and the local GDP level. However, a strong correlation exists between the rankings and the equity of local fiscal transfer payment. That is to say, a region gets a higher ranking in public governance if subsidies to local social security, medical care, education and housing are distributed more to the poorest residents in that region. On the contrary, a region's ranking falls if such resources are distributed with prejudice to the groups with high incomes. This phenomenon shows that equity is of significance in the assessment of the government by the people.
When residents are not satisfied with medical care, elderly support system, water supply and electricity supply, the situation can be improved when they complain to the government. But when similar situations take place in public transportation, environment greening, heating systems, and garbage management, whether by collective actions or filing complaints to government agencies, residents can hardly be satisfied with what the government does.
According to the three public governance assessments carried out from 2008 to2012, we discovered that the Gini coefficient of residents in provincial capitals was decreasing and the income fluidity was improving. From 2010 to 2012, citizens' comments on protection of civil rights are deteriorating, especially in terms of property and personal security. The request for freedom of speech is also increasing. For the moment, citizens in provincial capitals have a low evaluation on the cleanness and honesty of local governments.

Research on Disclosure of Government Information

Room for reforms is getting narrower as the opening-up and reforms deepen. It also leads to a more stabilized vertical mobilization of the demographic structure with the conflicts in the distribution of interests exacerbating. A collaborative system centering the political and law system and involving close cooperation between the police, courts, petition offices, and the city guards (Chengguan) is developed to deal with social unrest. This system is operated by local governments and finalized as a system of maintaining stability (Weiwen). There have been Internet spats over the amount of Weiwen funds. It is unsustainable to maintain such a Weiwen system, and the disclosure of government information is the most significant approach for this end. The essence of public governance is to dissolute conflicts instead of hiding and neglecting them. And one way to achieve this is by sufficient communication. Public and transparent appraisement and supervision cannot be achieved without transparent government information, otherwise the result will be the exclusion of citizens from public governance.
Unirule Institute of Economics has been undertaking research on the disclosure of government information since 2011. This research is carried out not only from the perspective of the regulations for the disclosure of government information which evaluates whether governments of various levels are obeying the regulations and their performances, but also by examining information disclosure laws in developed countries while looking at the status quo in China. There are seven aspects where government information disclosure can be improved, namely, information disclosure of government officials, transparency of finance, transparency in the decision-making mechanism, transparency in administration, transparency in public services, transparency of enterprises owned by local governments, and transparency in civil rights protection.

Upcoming Events

Unirule Reading Club (the 3rd session) ---- A History of China

Unirule Reading Club (the 3rd session)have the honor to invite the author of the works Mr. QIU Feng, distinguished guests Professor GAO Quanxi and Mr.GAO Chaoqun with us. They are going to tell us the evolvement of the governance in Zhonghua civilized history, the reconstruction of the present order in China and the orientation of China’s future.

Guests:
QIU Feng, Professor in Beijing University of Aeronautics and Astronautics and President of Unirule;
GAO Quanxi, Dean in the Humanities and social science higher institutes of Beijing University of Aeronautics and Astronautics;
GAO Chaoqun, researcher in the Institute of Population and Labor Economics

Host:
REN Feng, Vice-Professor in Renmin University of China( politics department), Doctor in Hong Kong University of Science and Technology

ADD:
Unirule Institude of Economics
Zhengren Building,6th Floor, No. 9, Chong Wen Men Wai Street, Dongcheng District, Beijing

Time:
March 15, 2014

Agenda:
13:30-14:00 people signing in, buying the new book with signature
14:00-15:30 host starting and guests discussing
15:30-16:30 interacting
16:30 done

2014 Unirule Education Forum
“2014 Unirule Education Forum” will be held in Beijing in April.This event will focus on the development of private education and social science of higher education.

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 380 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. 495: 28th February, 2014

Biweekly Symposium No. 489: 14th March, 2014

Previous Biweekly Symposiums

Biweekly Symposium No. 495: The current wealth gap in China
Time: February 28th , 2014
Topic: The current wealth gap in China
Lecturer: Professor LI Shi
Host: Professor ZHAO Nong
Commentators: Professor SHI Xiuyin, Professor ZHANG Zhanxin, Professor WEI Zhong, Professor SHENG Hong, Professor LI Renqing

Professor LI Shi presented two aspects of the wealth gap: the income gap and the property disparity. He also talked about the estimation of the current income distribution gap and the controversy over the estimation of the current income distribution gap proposed by SWUFE and the national bureau of statistic. He pointed out that the growth rate of resident property exceeds by far that of income and the property distribution gap is being enlarged rapidly due to the rocketing housing value and the more unequal distribution.

Executive Editor: LIU Qian
Editor: LIAO Fenfang
Revisor: Hannah Luftensteiner