Table Of ContentInstitutions and Chinese Economic
Development
China’s rise as an economic power has posed some challenging questions: how
did China achieve GDP growth that was even faster than the Four Asian Tigers?
Is the “Chinese model” superior? Why hasn’t the rapid economic growth lead
to democracy in the country as many observers expected? And can China
sustain its rapid economic growth with its existing social system?
Institutions and Chinese Economic Development: A Comparative Historical Approach
explores these questions by studying the historical relationship between
institutions and economic development in China, drawing comparisons with
England, Japan and other Asian economies as appropriate. The investigation
focuses on several junctures in China’s economic development: the starting
point of the divergence between China and the West; the externally- provoked
industrial development in the late 19th century; and the contemporary Chinese
Miracle. The analysis foregrounds the role played by Chinese institutions and
examines their effects on both the country’s failure to industrialize in the past
and its economic achievements in recent times. The book also asks whether,
without reform to the existing state institutions, China might still be subject to
the historical dynastic cycles today, despite its recent economic success.
This work is of great interest to students and scholars of the Chinese
economy, economic history and institutional economics, as well as comparative
history and Chinese studies more broadly.
Li Tan is a retired economist and former senior research analyst at a large
financial company in New York. Holding a Ph.D. in economics, she has also
worked at economic forecasting firms and taught economics at universities in
the USA.
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Institutions and Chinese Economic Development
A Comparative Historical Approach
Li Tan
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Institutions and Chinese
Economic Development
A Comparative Historical Approach
Li Tan
First published 2022
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A catalogue record for this book is available from the British Library
Library of Congress Cataloging- in- Publication Data
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ISBN: 978- 1- 032- 06390- 4 (hbk)
ISBN: 978- 1- 032- 06391- 1 (pbk)
ISBN: 978- 1- 003- 20204- 2 (ebk)
DOI: 10.4324/ 9781003202042
Typeset in Bembo
by Newgen Publishing UK
Contents
Preface vii
1 Introduction 1
Interpreting the Chinese Miracle 2
The analytical framework 5
2 Core institutions in China and England before the
Industrial Revolution 18
Core institutions as the ultimate cause of the divergence 18
The evolution of the core institutions in pre- 1750 England 24
The evolution of the core institutions in pre- 1750 China 32
3 Core institutions and the first Industrial Revolution 49
The Industrial Revolution in Britain 49
Lack of techno- economic breakthrough in pre- 1750 China 61
4 The Chinese and Japanese states in the 19th century 78
The role of the state for latecomers’ economic catch- up 78
The Chinese state institutions and the dynastic cycles 85
The development of the Japanese state institutions 97
5 Externally- induced industrial developments in
Qing China and Meiji Japan 107
The success of industrialization in Meiji Japan 108
The failure of industrialization in late Qing China 118
Institutional changes in Meiji Japan and late Qing China 130
6 The Chinese Miracle: Economic growth in
contemporary China 138
Strong state leadership for economic modernization 138
Improvements in economic liberty 155
Favorable external conditions 160
vi Contents
7 Prospects of the Chinese economic development 170
The differences in the state- led developments 170
State institutions at the root of the differences 174
Sustainable growth in doubt 185
Institutional changes and the dynastic cycles 192
Index 202
Preface
I have been working on this book, part-t ime or full time, in the past ten years
or so. It is an effort to explain China’s economic development from institutional
perspectives. The associated goal is to gain a better understanding of the Chinese
institutions, particularly the Chinese state institutions. Also, it is my long-t ime
interest to compare China with other societies as political economies. The
writing of this book involved extensive reading on a range of literature in both
English and Chinese. I’m deeply indebted to the scholars whose works were
cited in this book. Their works provided theoretical guidance and/o r empirical
basis for my study.
This book investigates several key junctures in China’s economic development
and employs the concepts of “core institutions” and “state institutions” to
structure the analysis. A major challenge is to find consistent explanations for
the country’s failure to industrialize in the past and its recent economic success,
given the continuity of societies’ institutions. This study recognizes that the
institutional requirements for a country’s success in industrialization are related
to its relative position in the world’s economic development. The Chinese
core institutions, though incompatible with pioneering the modern economic
growth in the world, could be effectual for achieving latecomers’ catch-u p
industrialization. However, having narrowed the gaps with the technological
leaders in the world, the country runs into ever- increasing difficulties to sustain
economic growth with the existing institutions.
The Chinese state institutions, which determined the characteristics and
quality of the Chinese state, are examined in detail in the book. Different from
the views that regard the Chinese state as either “developmental” or “predatory”,
this book proposes that the Chinese state has highly variable quality, as reflected
by the dynastic cycles in Chinese history. Also different from the theories that
emphasize the role of the middle class in the transition to democracy, this
book considers the autonomy of the state critical for introducing pluralistic
institutions in authoritarian societies.
For the publication of this book, I wish to thank Andy Humphries at
Routledge Press for his invaluable support for this project and his suggestion
for the succinct title of this book, as well as the two reviewers whose comments
and critiques were essential for improving the original manuscript. In addition,
newgenprepdf
viii Preface
I am grateful to Professor Stephen Morgan, the then Editor- in- Chief at
Australian Economic History Review who made important suggestions and
recommended reference literature for an article I published in the journal in
2013. I expanded some ideas that originated in this article and merged them
into the comparative analysis on China and England in Chapter 2 and 3 of
this book. I am also grateful to Professor Bai Gao at Duke University for his
valuable comments on Japan’s industrial development in Chapter 5 of this book
and his recommendation of reference sources. Nevertheless, the shortcomings
of this book are by no means a reflection of their advice. I am solely responsible
for the viewpoints expressed and errors made in this book. Last not least, my
thanks go to Emma Morley for her great help in the editorial process and
Bronwyn Hemus, whose copy editing has improved the book’s prose.
1 I ntroduction
China’s rise as an economic power in the 21st century posed some challenging
questions for intellectual thinking. First, what accounted for the super- rapid
growth of the Chinese economy in the past few decades? A popular view
attributed the Chinese high growth to the introduction of free markets in
1978. Yet this view cannot quite explain why China remained a low- income
agrarian society until the end of the 20th century, even though it had developed
markets and private ownership since an early time in history. Why did the re-
introduction of markets in our day lead to rapid industrialization? Next, why
hasn’t the rapid economic growth brought forth democracy in China? By the
theory of modernization, economic growth will lead to democracy as a middle
class emerge in the industrialization process. People in the middle-c lass, with
material affluence and good education, will demand civil rights and democracy
will follow. But, in the case of China, despite the huge increases in the Chinese
GDP, the authoritarian institutions remain largely intact. What impeded the
introduction of the pluralistic institutions in the Chinese society? Finally, could
China sustain the economic growth and move onto high-i ncome levels with
the existing social system?
The last question is actually similar to an old one raised about the Soviet
Union in the 1950s and 1960s, amid the competition between the capitalist and
communist systems in the Cold War period. Nevertheless, contemporary China
is not the Soviet Union. Unlike the latter, the contemporary Chinese economy
has a large market- driven content and is closely integrated with the world’s
capitalist economies, although the party-s tate has retained its control over the
society. Then, allowing for these differences, could the Chinese authoritarian
system sustain the economic growth and outperform the Western democracies?
This question carries profound implications for the world, as it concerns
whether a country could achieve long- term economic prosperity by social
systems other than modern democracy.
To explore these questions in depth, one must turn to the historical
developments of Chinese society. As Douglass North (1990) put it, “[h]i story
matters. It matters not just because we can learn from the past, but because the
present and the future are connected to the past by the continuity of a society’s
DOI: 10.4324/9781003202042-1
