Inflation and Investment Controls in China: The Political Economy of Central-Local Relations During the Reform Era , and: Productive Performance in Chinese Enterprises: An Empirical Study (review)

Abstract

148 China Review International: Vol. 5, No. 1, Spring 1998© 1998 by University ofHawai'i Press People's Principles Youth Corps, bore the stamp of Jiang's military style, with its emphasis on discipline and organization. Equally important, Huang fails to consider adequately die implicit role that the communists played in GMD policy of depoliticization. After all, the only reason tiiat the GMD sponsored student organizations was to counter and undermine the appeal of the communists, who were quite willing to endorse and encourage student participation. In other words, without communist efforts to radicalize students, there would have been no GMD strategy to control student activism. In describing and documenting the GMD's strategy toward student political activism, Huang Jianli has filled a lacuna in our knowledge of student movements in modern Chinese history, a subject of continual interest to us all. William Wei University of Colorado at Boulder William Wei is a professor ofhistory specializing in modern Chinese history and Asian American history. mm Yasheng Huang. Inflation and Investment Controls in China: The Political Economy ofCentral-Local Relations During the Reform Era. Cambridge and New York: Cambridge University Press, 1996. xviii, 371 pp. Hardcover $59.95, isbn 0-521-55483-7. Yanrui Wu. Productive Performance in Chinese Enterprises: An Empirical Study. New York: St. Martin's Press; London: Macmillan, 1996. xiii, 188 pp. Hardcover $69.95, isbn 0-333-83385-7. Inflation and Investment Controls in China and Productive Performance in Chinese Enterprises are written by a political scientist and an economist, respectively. Reviewing both at the same time presents a challenge. However, I might be uniquely qualified to do this, since I have published in both of these areas (i.e., central-local relations [Peng 1996] and firm behavior in China [Peng 1997; Peng and Heath 1996] ). As a management specialist, I was trained to believe that "stealing" from other disciplines is a virtue called "interdisciplinary research," and I am interested in both topics. I think that these two books together help to contribute to our understanding of an important relationship in China, namely the linkage between the state, the firm, and economic performance. As I will demonstrate, there are Reviews 149 common linkages connecting these two books. Therefore, I will review them from a disciplinary midpoint, and will not fall into the trap ofinterdisciplinary rivalry so common in social science research. Moreover, since these two China-born authors now live and work in Michigan and Australia, it is also appropriate to review their works from Hawai'i, the geographic midpoint between the two. Yasheng Huang is an assistant professor ofpolitical science at the University ofMichigan. His book is based on his doctoral dissertation, completed at Harvard. It focuses on the key question, "Why has China been able to avoid the crippling hyperinflation that has bedeviled so many developing and reforming centrally planned economies?" This is puzzling because the potential for inflation in the Chinese economy is enormous, the fiscal control by the central government is weak, and China's tax and monetary policies are still passive. Huang offers an answer to this puzzle by examining how die central government has been able to tame inflationary investment demand and to impose investment reduction policies that go against the interests of Chinese local officials. The book has nine chapters, which are divided into three parts. Part 1 is about the economic and political roles oflocal government officials. Part 2 is on macroeconomic policies during the reform era, focusing on the activities ofthe central government in curbing local investment "overheating." Part 3 analyzes local investment behavior using a principal-agent framework treating local officials as agents ofthe state. One ofthe hallmarks ofHuang's book is that it borrows ideas from "institutional economics," especially the agency-dieory perspective, and applies them in a Chinese setting. From this perspective, principals and agents have an inherent conflict ofinterest, since principals and agents each have a different set ofagendas and goals. The book does very well in exploring China's central-local relations in depth. Huang argues that the central government (the principal) is interested in macroeconomic stability, especially low inflation, while local officials (acting as agents ofthe state) are mostly interested in promoting...