Understanding corporate China and its future dynamics is the key to understanding the Chinese economy and its undergoing transformation. The intellectual framework proposed in this work can be summarized by a simple identity: Growth Rate = Return on Invested Capital (ROIC) X Investment Rate. To successfully achieve China’s economic transition without losing a lot of growth at the same time, China needs to improve ROIC at the aggregate level.
With over twenty years of experience at the frontline of China’s monetary policy operations and with two decades of academic research experience, I provide a unique, first-hand perspective on a number of facets dealing with China’s monetary policy and theory. The book opens with an introduction of monetary theories, including my credit monetary theory, followed by a review of some focal issues regarding China’s monetary policy and a discussion of the RMB exchange rate regime and international balance. The book presents China as a country at a crossroads, forced to choose between the free flow of capital and monetary policy independence.
This book argues that China’s rapid industrialization since 1978 can be attributed to its rediscovery of the secret recipe of the original Industrial Revolution. The secret recipe is not based on institutional changes per se but rather the sequential creation of mass markets to support mass production. Market creation requires a strong state and appropriate industrial policies because mass markets are a public good that is extremely costly to create and can only be created through stages and under enormous political stability and social trust.
It seems necessary that one gains some deeper understanding of the sources of China’s phenomenal economic growth. Apart from all well-founded extant explanations, my recent book Guaranteed Bubble argues for another important yet previously overlooked source: the guarantees provided by the Chinese government.
Using a longitudinal survey conducted by the authors in Shanghai since 2010, we empirically examine the differences between migrant schools and public schools. We find that migrant students in migrant schools performed substantially worse than their counterparts in public schools in 2010, but the difference decreased by half in 2012, thanks to financial subsidies to migrant schools. We also show that even fortunate migrant students who are able to enroll in public schools tend to go to poorer quality schools; however, there is no evidence on negative peer effects of migrant children in public schools.
The general lesson from this book is this: for a reform to be successful, it is important to use the universal principles, even if they are not enough by themselves, and it is equally important to find specific ways to implement the reform by fully incorporating the initial historical conditions as well as contemporary constraints. The perspective of reform provided by this book’s analysis on China can also be useful beyond China, precisely because it emphasizes that to make reform work, it is not enough to understand why reform works, but also how reform works.