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Textbook adoptions:inspection copies are available to lecturers considering adopting a Chandos Publishing book as a textbook.Please email Hannah Grace-Williams on email [email protected] or telephone number +44 (0) 1993 848726. The Private Sector and China’s Market Development Z W HIKAI ANG Chandos Publishing Oxford · England Chandos Publishing (Oxford) Limited TBAC Business Centre Avenue 4 Station Lane Witney Oxford OX28 4BN UK Tel:+44 (0) 1993 848726Fax:+44 (0) 1865 884448 Email:[email protected] www.chandospublishing.com First published in Great Britain in 2008 ISBN: 978 1 84334 399 8 (hardback) 1 84334 399 1 (hardback) © Z.Wang,2008 British Library Cataloguing-in-Publication Data. A catalogue record for this book is available from the British Library. 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List of figures and tables Figures 3.1 The relationship of firm size to transaction cost 36 3.2 Changes in transaction modes and industrial cluster evolution in the Liushi electrical equipment industry 38 Tables 2.1 Survey on transferred enterprises in Zhejiang (196 selected companies) 18 3.1 Views of institutional innovation sequence stimulated by the private sector 24 3.2 Comparing the Wenzhou and South Jiangsu development models 28–9 3.3 The changing structure of the Chinese private sector 42 8.1 The preferred pension models of migrant workers (n= 319) 103 8.2 Migrant workers’ desire to participate in the basic urban medical insurance scheme (n = 335) 103 8.3 Places where migrant workers wish to participate in social security (n = 337) 104 8.4 The payment capacity of migrant workers (n = 332) 105 vii About the author Zhikai Wang, MSc, PhD, is an associate professor of economics at the Zhejiang University School of Economics, Hangzhou, China. In 1993 he became a civil servant after being granted his MSc from Nanjing Normal University. During more than ten years working as a civil servant, he worked for the Jiangsu provincial government at the Provincial Development and Reform Commission, in Nanjing. In 2000, he received his doctorate from Nanjing University. In November 2002, he moved to Zhejiang University and became a teacher at the School of Economics. He has lectured in public policy analysis, social security policies, principles of economics, macroeconomics, and urban and regional economics. Dr Wang was employed as a visiting scholar at the Norwegian School of Economics and Business Administration in academic year 1998/99, and was a postdoctoral fellow at the Centre for Public Policy at Melbourne University in academic year 2001/02. He was a visiting professor at the Department of Economics at Glasgow University in spring 2006 and the Hertie School of Governance in Berlin in summer 2007. Recent research grants have included a China Reform Foundation grant for examining the migrant population and non- standard employment in China (2004–05); a National 211 Project grant for analysing the development of the private economy and evolution of industrial clusters (2004–06); a Ministry of Education grant for analysis of a labour training system for helping rural labourers move from the agricultural sector into non-agricultural sectors (2004–05); and a National Development and Reform Commission grant for studying the regional coordinative development of the Yangtze River Delta region (2007–08). His books include Comparative Analysis of Welfare Economy (2004), and The Chinese Seafood Industry: Structural Changes and Opportunities for Norwegians (2005) with Knut Bjorn Lindkvist et al. His articles include, among others, ‘Restructuring China’s social security net in a market-based economy’ (2004); ‘Perspectives on Asian welfare economy and social security: an East-West comparison’ (2005); ‘The development of the private economy and evolution of industrial ix The Private Sector and China’s Market Development clusters’ (2005); ‘The growth of China’s private sector: a case study of Zhejiang Province’ (2006); and ‘The private sector and China’s institutional transition: case studies in Zhejiang and Jiangsu’ (2007). The author may be contacted at: School of Economics, Zhejiang University Hangzhou China Tel: +86 571 88362273 Fax: +86 571 87951614 E-mail: [email protected], [email protected] x Preface Over the past nearly 30 years, China has experienced tremendous social changes and rapid economic development. Market transition and economic transformation are the obvious stimuli in this process of development. Market transition in China has undoubtedly been from the bottom up, and while the private sector has been the main driving force for market development in China, the government’s support, protection, and non-intervention at central and local levels have also been indispensable. The growth and development of China’s economy and society have made great contributions to the long-term development of globalisation and the world economy. However, China’s economy is now also facing tough challenges in the globalising world. It is worth looking at the development of China’s economic transition, examining current developments and the projected trend, from both the Asian and global perspective. In particular, as 2008 is the 30th anniversary for the implementation of the reform and open door policy in China, the Chinese government and society will organise commemorative activities to mark the start of the reform process in 1978. In a way, this book could also be regarded as a celebration of 30 years of the reform and open door policy in China. The book contains eight chapters, and looks at the development of the private sector and its effects on market transition in China. The book is based on case studies, and aims to explore the development of the private sector and how it stimulates industrial growth at a regional level in China. It traces the privatisation mechanism and how it facilitates the process of industrialisation and urbanisation in rural and urban China. It looks at the evolution of market transition and rapid growth of the private sector from aspects of both bottom-up and top-down institutional innovation; it discusses future development and innovation in the private sector, including the possibilities of developmental path transplantation based on the experience in the Yangtze River Delta region; it also examines the development of internationalisation in the private sector and evaluates labour rights protection among private xi The Private Sector and China’s Market Development enterprises in the context of sustainable development. In general, the book provides a more informed practical basis for interpreting private sector development and market transition or economic transformation in China according to a historical and regional perspective. The book would not have been possible without support of various kinds. First, I wish to extend my special thanks to Chandos Publishing for supporting the idea of the series of publications on Asian studies. In particular, I want to thank Dr Glyn Jones for his support, encouragement and hard work. Second, I thank the series editor, Professor Chris Rowley. His motivation and hard work have given me this chance to write a book in English. I also express sincere thanks to Neill Johnstone, whose copy-editing has played a key role in the publication of this book. Finally, I thank my wife for her support, which gave me the time needed to finalise this project. xii 1 Introduction As part of the process of market-oriented reform in China, the private sector has grown from almost nothing to a large-scale economy, providing numerous exciting stories for China’s market transition, regional industrialisation and rural urbanisation. The development of China’s private sector includes the fantastic achievements of development models like the Wenzhou model, the South Jiangsu model and the Pearl River Delta model; each one has its own advantages and has contributed to the creation of a vast land of industrial clusters, giving China the reputation of manufacturer for the world. Today, Zhejiang is at the forefront of private sector development in China, developing new industries and eliminating traditional and low- technology industries, thereby upgrading the region’s industrial structure. As technology is constantly advancing, China’s private sector manufacturing industries have started to transfer from low to high-end industries, following the trend for seeking increased competitiveness and economies of scale. In terms of the evolution and innovation of industrial clusters, the development of the private sector in China has always been based on an innovative way of integrating industrial structure, enterprise structure, product composition and market structures, so as to see them well matched with one another. This was and remains the mechanism for the successful development of the private sector. Development of the private sector has also made a great contribution to China’s industrial growth and regional development. Undoubtedly, the private sector’s role in advancing the development of modern industry has been a vital driver of China’s market transition. Private enterprises are the most active elements of China’s market economy; the private sector is one of the fundamental forces for integration of China’s rural–urban development and for maintaining the stable and sustainable development of China’s economy and society. The private sector also provides the resources and inexhaustible power for China’s ongoing innovation in technology. 1