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The Importance of Political Institutions on the Economic Development of China (1992—2004): Why the Present Political Institutions of China Require Fundamental Change

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posted on 2012-07-12, 08:52 authored by Yanan Jiang
This research investigates the relationship between political institutions and economic development and highlights the impact of political institutions on the economic development in China from 1992 to 2004 by discussing the reasons why the present political institutions in China require change. It is argued that political institutions could influence economic progress if the effect and role of political institutions - both positive and negative – is recognised. Two case studies are employed as examples of how the absence of appropriate political institutions affects the positive performance of the economy and how this is associated with China‘s history and the way in which economic reforms have been conducted. It is concluded that under the political monopoly of the single party, economic progress and development will be blocked and hijacked by the authorities and interest groups in China. Since its reform and opening up to the outside world, China‘s economy has so far seen an enormous growth, but these achievements are impressive merely in the short-term, and give a false impression of the economy‘s development. The free market economy system requires political reform but the Chinese Communist Party monopolizes all social resources and engages only in economic reform without political reform. This is what could be termed the “curse of the latecomer”: the long-term interests of the nation have been sacrificed and this may result in many hidden risks or even the failure of long-term development. This research identifies the major factors affecting the development of a country‘s society and economy. Political science theories about property rights and the State, and Institutional Change of New Institutional Economics are used to explain and support the standpoint of this thesis. Two case studies will be used in order to show how these theories are occurring in practice, which are the incidents concerning Yang Rong and Sun Dawu. The former will prove that it is necessary for property rights to be specified and enforced, and it is harmful to economic development when the government uses its political power to intervene in the economy. The latter case study will illustrate that the unfair monopoly and interventionist behaviour of government and a relatively defective legal system are not apt in facilitating the performance of China‘s economy. The conclusions of this study stress that institutions are the determinant of economic performance and that institutional changes are likely to occur when the existing institutions fail to satisfy people‘s demands. Such a development appears essential for China to progress further.



Henderson, Karen

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University of Leicester

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