Considering China’s Future

FOR MORE THAN a quarter of a century, China and its vast economic potential have captivated the world. Some predict that by 2020 the Chinese economy will be second only to the United States and by 2050 will possibly surpass it.

But, as coeditors Kennedy School Professor Anthony Saich and Yasheng Huang and Edward Steinfeld, both of the Massachusetts Institute of Technology, write in the introduction to Financial Sector Reform in China, “China has experienced phenomenal growth in conjunction with a dysfunctional financial system.” Many experts would agree, they note, that China’s sustained growth depends on economic reform and development of its financial sector.

Many of the issues surrounding China’s financial reform, however, have yet to be fully raised or examined, according to Saich, who directs Harvard’s Asia Center. What is the effect of nonperforming loans in China’s banking system? Should China’s financial problems be viewed as an obstacle to future growth, or should future growth be understood as the solution to China’s financial problems? What are the ramifications of China’s financial sector problems for social development and the provision of public goods and services?

In September 2001, a group of scholars convened at the Kennedy School to consider some of these issues at a conference on financial sector reform. The papers presented at the conference, which since then have gone through several iterations, make up the new volume, which was published by the Harvard University Asia Center earlier this year.

Financial Sector Reform in China is organized around three conceptual themes. The first section looks at issues surrounding the functioning of China’s financial system, the second at the implications of the sector’s functioning on the rest of the Chinese economy, and finally, the broader linkages between financial sector reforms and social issues.

While the contributors to Financial Sector Reform in China do not offer definite answers to the issues raised, the editors write, they do reveal the complexity of the problems, propose
a variety of solutions, and suggest a number of approaches for future research. And a common theme that runs throughout the papers, they write, is the “distortions emanating from the financial system in China.”

Given the entrenched nature of the current state-operated system, a complete overhaul of the financial system is not likely to occur anytime soon. There are, however, smaller policy changes — in health care access and schooling in rural areas, greater advocacy of the nonstate sector, and better targeting for revenue collection — that could
“ameliorate the most egregious aspects of the current system,” they write. “Failure to address many of the issues raised in this volume could well produce the kind of social instability that the Chinese Communist Party is so keen to avoid.” — SA

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Glass Half Full

There’s a general consensus that if there’s an Achilles heel in the Chinese system it’s the financial sector,” says Tony Saich, coeditor of the recently published Financial Sector Reform in China. Where the experts who contribute to this volume differ from others who write on finance issues in China, explains Saich, is they interpret the financial sector in a much broader sense.

“We try to say that the way China has used its banking system in the past to substitute for a proper financial sector has had a deep impact on Chinese society that goes well beyond that narrow band — it affects the way people’s savings are spent and the way welfare is underinvested.”

The other difference, says Saich, is how they view whether the problem can be fixed. “What our book tries to say is, ‘Yes, it’s serious, but it can be fixed with rational policy measures.’”

Innovation: Applying Knowledge in Development
Achieving the Millennium Development Goals
Calestous Juma and Lee Yee-Cheong

In 2000, the United Nations Millennium Summit created a set of goals to reduce extreme poverty, which attempt to address income poverty, hunger, disease, exclusion, lack of infrastructure, and shelter. Ten task forces were created to help carry out the goals by 2015. In this report, one of the task forces, coordinated by Professor Calestous Juma, looks at how science, technology, and innovation can and should help meet the goals.

Laguna
Michael Putegnat S&L 1989, MPA 1994

Lies, power, greed, oil drilling, vengeance, a con man, and ties to Congress — author Michael Putegnat’s first novel has all the makings of a can’t-put-down political thriller. Set in South Texas on Laguna Madre, a real-life bay that Putegnat often sails, Laguna is loosely based on real-life events. His second novel is due out in 2007.

Governing by Network
The New Shape of the Public Sector
Stephen Goldsmith and William Eggers

Government has come to rely heavily on private contractors and nongovernmental partners. On the positive side, this reliance allows for more flexibility and better customer-driven service. On the negative side, as Professor Stephen Goldsmith argues in this book, government hasn’t quite figured out how to manage these partners or hold them accountable when something goes wrong. This book gives real-life examples and provides lessons on how to “govern by network.”

Ceremony of Innocence
Roger Sharpe MPA 1980

In this memoir, Roger Sharpe, a former North Carolina state senator and lobbyist to the White House on behalf of elected school board members, who now tends a Japanese maple grove in his tiny town of Harmony, North Carolina, discusses what he thinks society owes the next generation. His recommendations include enhanced public education, the rebuilding of American communities that defies economic and social class lines, and the planting of trees, not tobacco.