Challenges Facing Chinese Political Development

ieries Editor: Sujian Guo, Ph.D.San Francisco State University

In an atten'tpt to retlect the rapidly changing political environment of the Peo-ple's Republic of China, editor Sujian Guo has assembled a book series to pre-sent specialized areas of research in current Chinese political studies. Incorpo-rating theoretical, empirical, and policy research on contemporary Chinesepolitics both domestically and internationally, this series contemplates the Chi-nese past, present, and tuture by utilizing interdisciplinary perspectives to ap-proach issues related to Chinese politics, economy, culture, social development,retbrm, the military, legal system, and fbreign relations. Aimed at bringing agreater understanding of the current Chinese political climate to Western audi-ences, this series is focused on the emerging voices ofChinese scholars and theirperspectives on the ever-changing Chinese diaspora.

Recent titles in the series are:

The Chinese Labyrinth

Exploring China's Model ofDevelopment

The Dtupn's Hi&te Winss: How Chi,n Rises with bs SotPor€^ by ShengDins Edited by Baogang Guo and He Li

''Hamoniout Worl.i and Chnn's New Fo,eisn Policy,by Sujian cuo andJeln'Matc F. Blanchard

China in Search oJ a ltan'onlols Jocinl, edired by Sujian cuo and BaogangCuo

Grcater Chnu ii .1n E.a oJ Globalization, edir€xl by Sttjian Cuo and BaogangGuo

Tot^'ar.l Better Govemance tu Cri'ta, edited by Baogang Guo and DennisHickey

Drnanics ol lrcal Gove arce in Chinr durinS ,he Relonn tra, edit€d by Tse-Kang l-eng and Yun-h.an Chu

DancinS wnh E Drap : Chint's Enargerce nt the Dei'eloping Wo d,edibdby t)ennis Hickey and Baogarg Cuo

O'tlilte Chinese Natio@lisn dtd Chbn r Eilote.al Rehltioro, edft€d by simonSh€n and Shaun Bfeslio

Muhidn^e8ional Diplo'nacy oJ Cotuenw.a.! Chnn, edited by Sirrlon Sherad Jean-Marc F. Blanch.ord

TIti y veo$ oJ Chins-U.S. Relations: AMlrtical Approachd a'td Contenporury1srr.rr, ediled by Sujian Guo and Baogaog clxr

EnrimMlf^tal Prctection Policy and E periace in the U.S. and Chiw's West-em Rdsrba. edit€d by Sujian Cuo, ,oel J. Kassiola, and Zhang Jijiao

China's Quest Jot Political lagi.inncy: The New Equiry-Enharcin8 Politics,byBdogmg cuo

New Fmttiers i Chi'n s Forcigr Relatiot'-t,(/'iredhy Allen Cartson and ReoXiao LExlNomN Boo(s

The Faiture Chnta\ .DeDtacrutic" Reformt,by Zaijuryrfla lanlnn' Bouaet' New votk "Ioronto'

Plynoutlt' UK

184 Lacet' Bradlev-Storev

ll2. "Upset China Petitioners Stage Risky Protest," MSNBC (March ll, 2009)http://www.msnbc.msn.com/id/29639623/ (Accessed July I 7, 2010).

I13. "Beijing Petition Village Demolished," Deatscle l{elle (September 19,2007).I14. Shirong Chen, "China Bans Petitioners in Beijing," BBC News (August 19,

2009), http://news.bbc.co.ulJ2/hi/8210047.stm (accessed November I l, 2010).I I 5. Ivlinmer, China's Citizen Complaint, 4.I16. Li, Pol i t ical Trust,2l8.| 17. Minzrer, China's Citi:en Complaint,3.I18. Minzner, China's Citizen Complaint,3.| 19. As quoted in: "Chincse Dissidents Committed ro Mental Hospitals," PBS News

.F/olr, (September l l, 2009), hnp://www.pbs.org/newshour/bb/asia/july-dec09/china 09-I l .html (accessed July 6,2010).

120. As quoted in: Wa$1 China l/oices.l2l. As quoted in: Chen, lr l of Troublemaking,4445.122. Li, Polilical Trust, 218 and 221.123. Li, Political Trust,2l9.124. O'Brien, Boundary-Spanning, 58.

Chapter 9Globalization and Transformation of

China's Welfare RegimeHuisheng Shou

For many observers, China is different from the rest of the world in ahnost everyaspect. The Maoist socialist welfare system, for instance, was considered to beone of the best models in the world. This once highly-acclairned system, howev-er, seems to be collapsing almost overnight as the country began integrating intothe world market, leaving many observers concemed about the n.,r.utiu.

"onr"-quences of economic and social reforms, particularly to the weli-being of theordinary citizens.rFor both its establishment and alleged collapse, the?hineseweffare system has been puzzlingand an easy answer ii: '.china is exceptional!',A more sophisticated explanation would draw our attention to its poiitical re-gime that successfully suppressed its labor in order to pursue globalization.2 Forothers, china's approach has had a larger impact-it is aenning a new ..bottom"in a way that forces other countries to drivi down their socia'i protection evenfurther.3

Such claims, however, are unfounded. The Maoist socialist welfare systemis not collapsing for two reasons. First, it r"4s'ot a strong welfare rrur..u, *.commonly believe; second, it is not following a so-called i.ruc. to the bottorn,"in which goverrrments lower their labor stand;ds and give up social agentlas inorder to compere for the "footloose" foreign capiral.{ Lr roi the pastjthe chi-nese government only mandated urban work units and rural conrmunes to pro-vide welfare protection to their employees and members but the state itself-tooklittle financial responsibility. As evidence, the share of govemment spending onsocial security and welfare in total government expenditures lvas considerablylower than that in most developing countries-whereas the spending level inchina was 1.7 percent in 1978, rhe average spending lever in d.u.lop"ing cuun-tries was I l'5 percent. In addition, as discussed lateiin detail, onry a ver! smallportion of china's populace, mostly the urban dwellers in formil ,..torr, .n-joyed generous welfare benefits.

- Regarding what it is today, the welfare rransformation in the post-197g

china isnot defining a new bottom. lnstead, it is a restructuring of social protec-tion, which does not constitute collapse but, rather, a .'move to the middre,'-overall spending on welfare is less, more segments of the populace are covered.whereas pension and employment insuranci programs hive ueen targeted for

:

{t

185

187186 Huisheng Shou

enhenchnent, programs such as social assistance and poverb" relief that weretraditionally downplayed have made significant progress.

This chapter aims to explain the mechanism underpinning this shift of socialprotection and place China into a broader context ofthe developing world. Chi-na's leaders may have enjoyed a better position than other countries to promotethis process of policy adjustment. However, the time and trajectory of China'swelfare transition over the past three decades hardly suggest that this processwas determined by its particular regime or specific political leaders. The timingof China's refonn, in fact, suggests that its post-1978 social welfare transforma-tion follows a general trend of economic and social transformation that tookplace in the developing world around the late 1980s and early 1990s. That is,govemments in the developing world began undertaking policy adjusfments toaccommodate the new developments in the context of globalization. More spe-cifically, economic integration into the world market in these countries has fun-damentally reshaped their industrial sffucture in a way that narrows the risk gapbetween different social groups. As the structure of social preferences with re-gard to state protection has been fi.ndamentally changed, the government is ableto readjust its strategy for maximizing political support by protecting its citizenswith a more balanced structure, thus a "move to the middle."

The remainder of this chapter is organized as follows. Section 2 will firstpresent empirical evidence to demonstrate that a similar trend of social protec-tion that has happened in China is taking place in most developing countries,around almost the sarne period since the late 1980s, suggesting that China hasbeen following an overall historical movernent influenced by the world economy.It then provides a theoretical model to explain the mechanism underpinning thistrend. Sections 3-5 demonstrate that this model applies in China's specific con-text. Section 3 introduces the pre-1978 social protection system and describesthe overall social and welfare spending since 1978. Section 4 analyzes the inte-raction between globalization and indusnial structure and the impact on thestructure of social preferences regarding state protection among major socialgroups. Section 5 describes the resulting new social protection regirne in a glo-balizing economy. Section 6 concludes with a discussion of the future change ofChina's social protection system.

Changing Trend of Government Spending in theDeveloping World

Across the globe, government expenditures have experienced significant changein the past decades. Figure 9.1 below shows the changing trend ofthe averagesocial spending in fifty+hree developing countries from the early 1970s to thelate 1990s, a critical period when globalization began emerging. Three catego-ries of social spending are presented in this figure: social security and welfare,education, and health.

Globalization and Transformation of China's Welfare System

0.19

4.14

0.09

' f t -0.04 t- _-^ - i -

1977 1975 1978 1981 1984 1987 1990 1993 1996

-Social Security&Welfare ---- Education r -Health

Figure 9.1 Governrnent Spending (oh) in the Developing World: 1972-1995

Sourccs: lMF, various years.Countries included: Argentin4 Bangladesh, Bolivia" Botswan4 Brazil, Cameroon, Chile,Colombia, Costa Rica C1'prus, Dominican Republic, Ecuador, Egypt" El Salvador, Fiji,Ghan4 Greece, Guatemal4 Cuyan4 Honduras, Indi4 Indonesi4 lran, Israel, Jordan,Keny4 South Korc4 Kuwait, Lesotho, Liberia, Malawi, Malaysia, Mali, Mauritius, Mex-ico, Morocco, Ncpal, Niczragu4 Pakistan, Panam4 Paragual', Philippines, Singapore, SriLmka, Syri4 Tanzail4 Thailand, Trinidad and 1'obago, TunisiE Turkey, Uruguay, Ve-nezuela and Zimbabwe.5

Two things are noticeable. First, the overall trend of social security and wel-fare spending among developing counfries has decreased from the 1970s to the1990s, despite a slight increase since the late 1980s. The dilference between thehighest spending (19 percent in 1974) and the lowest (9.4 in l98l) is a signifi-cant 3 I percent. Second, whereas the spending on social security and welfarehas been declining overall during the period, education and health care spendinghas been largely constant. In fact, health care spending has increased since thelate 1980s.

These differences suggest that globalization has multifaceted impacts ongovernment functions, which are reflected in different categories of govemmentexpenditures. Spending on social securify and welfare-which are commonlyused to measure the size of the welfare state-refer to transfers to individualpersons and households. In contrast, expenditures on education and health caretarget the general population. Beneficiaries of these three categories may over-lap. Nevertheless, the difference between social security and welfare vs. educa-tion and health is significant and reflects the different political weight of socialgroups in policy choices.

For example, social securify and welfare spending in the developing worldis considered to be regressive in the sense that it benefits only a narrow group ofindividuals rvho can afford social securify contributions, because these programs,for instance, pensions and employment insurance, are employment-based and

. - r--- --_ -- - - - ' - - --- ' -

Globctlization and Transformation of China's IVelfare System

0.28

, o.)7;r0.25

s0 -;-=-1970 rg73 1976 1979 1982 1985 1988 1-991 1994 1997

-f laslgQpenness ---- Ski l l Level {r ight}

189r88 Huisheng Shou

0.3earnings-related. Only a very small amount of the expenditures under this cate-

gory g; to the programs that are non-contributory, such as programs^that en-

Ioutu!. school ;$e;dance and primary health care visits of children. Contrast-

ing to-social security and welftue, education and health care programs axe less

focused on individuals and households but more on the general population,

therefore having wider beneficial effects than social securify and welfare pro-

grarns do.b

Equalization Effect of Globalization

To explain such different impacts of globalization on government spending, the

key m'echanism is that globalization has an equalization effect on the demand for

state protection among major social groups in the developing world. Following

the basic logic of the Stolper-Samuelson theorem, since most developing coun-

tries are endowed with abundant unskilled labor, workers in low-skilled sectors

gain from greater trade openness as a result of their comparative advantages in

ih.r. ..onJries.7 ln the long-run, international trade induces skilled workers to

migrate into low-skill dependent sectors, therefore repressing wage differentials

beiveen high-skilled and low-skilled sectors. Since wages are skill premium for

social insurance, the wider the wage differentials between different sectors, the

more risks are for high-skilled workers. The narrowed wage differentials re-

sulted from intemational nade therefore diminish risk gaps among different sec-

tors.To conhrm this assumption, Figure 9.2 below shows the average level of

trade openness and skill dependence in developing counfries during-the period

from the 1970s to the 1990s. While trade openness increased significantly' the

skill dependence level decreased, particularly since the early 1990s. The reduc-

tion from 0.29 percent in 1992 to 0.25 percent in 1995-a 14 percent dro5is

significant, given the low skill level for the most part of the period in the devel-

op-ing world-. This change suggests that developing countries in general have

strerftthened their low-skilled manufacturing sectors, which are more in line

with their factor endowments.As market competition encourages fluid labor markets and represses waBe

differentials among different sectors' international trade reduces uncertainty for

high skilled labor, because job opportunities will hcrease in low-skilled manu-

faituring sectors. As a result, the employment losses in high-skilled sectors can

be absoibed by low-skilled manufacturing and informal sectors. In principle, this

could reduce uncertainty among formal sector workers.t The structural change

of the economy introduced by globalization therefore alters the structure of so-

cial preferences among major social groups with regards to the demand for state

protection.

80

t l t

60

55

i- *"" o.zg

t , " , i ,r , I f ! lv I l l r

t , r I. r f ! . . . . . l

$r:r t :III

t. . . - - . t . - . . . ._. . . .

I

Figure 9.2 Trade Openness and Skill Dependence in the Developing World:

r972-1995

Sourcesl. Trade openness from Penn World Table 6'0;

2. Skill level from United Nations Indusrrial Development organization (LJNIDO)'

Datubase of lndustrial Statrstics, various years'

3. Sampled countries are the sanle for Figure 9'l'

Note:l. Trade openness is measured by the sum of import and export as the share of

GDP;2. Skill level is measured by the ratio between the number olemployees in high-

skillcd export_manufacturing sectois and the number of employecs in low-skilled export-

man ut'acturing scctors.

As globalization reduces the incentives for state protection al the demand

side by ieducing the risk gap between different sectors, it also discourages in-

centivis of govirnments-Iai ttre supply side-to maintain traditional welfare

benefits. The fiscal discipline imposed by market competition makes gcnerous

benefits enjoyed by ttre trigh-waged workers increasingly unbearable-for gov-

ernments. Most importantly, trade openness and market competition also equa-

lize political support u*ottg variousiocial groups' The previously marginalized

sociil groups, ru.tr ^

ruraiworkers, women, urban workers in informal sectors,

and th6se under the povefiy line, become increasingly important for a healthy

economy and long-term development. Governments have become increasingly

aware that leaving any major soiial groups behind will backfire on their nations'

survival in intemational markets. It therefore becomes increasingly critical for

governments to spread benefits around arnong ditferent social groups.

190 Huisheng Shou

While traditional social security programs are under retrenchmenl pressure,globalization induces governments to expand social safety net programs such asminimum wage guarantees, social assistance, poverty relief, education, andhealth care. These programs previously were downplayed in most developingcounffies but have become increasingly important for countries to improve hu-man capital infrastructure and pursue sustainable development. In doing so,states that are compelled to remodel their role from "welfare state" to "competi-tion state," in which, welfare effort is refocused toward a more Schumpeterian"competitor" or "work-fare" st'ate.e

Thanks to this enabling effect, globalization, rather than producing a "raceto the boftom," creates more of a "move to the middle" in which governmentspursue a moderate level of spending and a balanced distribution of benefitsamong their citizens. ln most cash-strapped developing countries, this move-ment to the middle produces a "miserly" social protection system in terms ofbenefit level, which may have tremendous difficulties fully serving the purposesof protection. However, it nevertheless serves the right purposes of sustainabledevelopment.

Social Protection in the Post-Mao China

Prior to 1978, the Chinese welfare system was characterized by the followingfeatures. First, it provided comprehensive welfare protection with benefits in-cluding social security, education, housing, health care, maternity benefits, el-derly care, and childcare.r0 Although socialist sffategies ofpolitical confrol rein-forced the generosity of welfare protection in terms of comprehensive welfarebenefits and rigid labor market institutions, the main dynamic for welfare pro-tection was indusfrialization beginning in the 1950s, as happened elsewhere inthe developing world.r I

Second, urban work units and rural communes took primary financial re-sponsibilities while the government functioned primarily as a regulator and onlyused a very small portion of its budget for welfare protection.

Third, the socialist ideology did not obscure the fact that protection washighly stratified and biased in favor of high-skilled labor that took only a verysmall proponion of the labor force. Firms were classified into three categories ofownership: l) state-owned enterprises (SOEs), which could be further classifiedinto different levels based on administrative hierarchy across sectors and re-gions; 2) collective-owned enterprises, where the assets were owned collectivelyby employees; 3) others, including everything other than state-owned and col-lectives. The categories of ownership were closely associated with skill levels ofthese firms. Large SOEs concentrated on heavy industries, which are skill andcapital-intensive. Most firms in the non-state sectors were in light industries andnon-manufacturing sectors such as construction and agriculture with lower skilland capital inputs. There was a close association between the ownership of firmsand welfare benefits. The SOE employers enjoyed much more benefits thanthose in other sectors. For example, pensions and employment insurance wereonly available tbr SOE workers.

Globalization and Transfornation of Chira's ll/elfare System l9l

Fourth, the price for enjoying such a highly protected welfare system wasnot trivial. The welfare system was maintained on the basis of a low level ofliving standards and lack of freedom of mobility. The life-long ernployment inSOEs, though giving the employees high job stability, rnade labor mobiliryacross regions and sectors extremely diflicult. Once reforms took place, bothfinancial and political fi'eedorns became strong incentives for abandoning the oldsystem.

Figure 9.3 below shows the different trends ofgovernment expenditures ontwo programs-pension insurance and welfare assistance programs-between1978 and 2005.t2 Pension insurance was the key component of the traditionalwelfare programs and only covered a small proportion of the labor force; mostof which was employers of urban SOEs that were concentrated in high skill de-pendent sectors. Figure 9.3 shows that 1992 marked a turning point for govern-ment spending on pension insurance. Before 1992, the spending trend was up-ward from 1984, with some minor fluctuation in the early 1980s. Since 1992, thegovemment's spending on pension insurance has experienced a consistent de-cline in a relatively rapid speed in the entire 1990s, and only increased mod-erately since 2002.

0.010

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^r$ ^c.1' ^qA ^o,1 ^o,O ^o1 ^ob ^q ^1 ^c.!gr- lgt- \gb- \gD' \g?- lgr- !gr' \gY', ?$u- .Lou'

Pensions ---- $ssi6l Assitance

Figure 9.3 Structure of Social Spending (7" of Total Covernment Expendi-tures): 1978-2005

Source: China Statistics l'earboolc various vcars

The upward trend from 1984 up to 199 I can be partially attributed to theslow reform in urban sectors in the early stage of the reform. As Naughronpoints out, China did not privatize significant numbers of state firms until theearly 1990s. "lndeed, it did not even systematically separate SOEs out from thehierarchical state bureaucracy in which they were ernbedded."" As state firmswere still overprotected, the reforms instead affracted more individuals to getinto SOEs for shelter and welfare benefits.

t92 Iluisheng Shou

The priorities of government spending have been under significant changeas well, as shown in the contrast between pension spending and the spending onsocial assistance programs. Social assistance programs target poor individualsand families that are at the low end of skill distribution. These programs are crit-ical for human capital infrastructure and long-term development, therefore thekey component of social safety nets in a rnarket econorny. It is striking to seethat govemment spending on the latter category, after the slight decrease for theentire 1980s and the most 1990s, has increased dramatically in the early 2000s.This contrast clearly demonstrates a significant shift of focus from traditionalwelfare protection to long-term development in a new market environment.

Globalization and Changing Industrial Structure

What mechanisms have underpinned the declining trend of China's welfare re-gime? Following the discussion in the previous section, this section examinesthe interaction between China's changing industrial structure and its trade re-gime. The findings presented below suggest that trade liberalization since theearly 1980s, in particular since 1992, has fundamentally reshaped the industrialstructure and closed the income gap between low and high skilled workers. Thatchange has had significant impacts on the structure ofsocial preferences amongdifferent social groups and has consequently affected the strategies adopted bypoliticians in policy choices.

Trade Liberalization and Changing Industrial Structure

Figure 9.4 below shows the trend of trade openness and foreign direct invest-ment (FDI) in China since 1978. Before 1978, China's total trade/GDP rationever significantly exceeded l0 percent. And FDI did not exist. Since 1984when the government set up export-processing zones in southern China, the newtrade regime began taliing off. The trade/GDP ratio experienced a steady andrapid increase, then becoming stabilized around 40 percent after 1992, beforetaliing another leap after China entered the WTO in the late 2001 .

For most of the period since 1978, China's trade openness has mainly beensustained by foreign direct investment (FDI). However, 1992 was a particularlyimportant moment for China's tade regime. That year, FDI volurne jumpedfrom $35 million in the previous year to $l l0 million, a growth rate of 152 per-cent. The volume funher increased to $275 million in 1993, making China thesecond largest FDI recipient country next to the United States.14 The year 2002marked another significant point, when both FDI volume and trade/GDP ratioincreased substantially.

What has made this rapid transition of trade regime possible is China's ab-undant and low-skilled labor. The labor force in Chinese official statistics isdistributed into three sectors based on skill dependence: l) agriculture as prima-

ry enterprises, at the low end of skill distribution; 2) manufacturing the second;and 3) services the third with high skill dependence. At the beginning of the

Globalization and Transfornration of China's ll'elfare Systen 193

reform, over 70 percent of the total labor force was concentrated in the lowskilled primary sector, and that number only decreased to 50 percent in 2000.'5

1"- * - --.-.. -----"-*- ----- *"- *-- - -,

i F---- ' - : i - - .a:- . : '1

,t*rtd"o*"t-^"t"t""--rgeoro*"eoArt"t"""-"a-tr$ro$1p$

---- FDlVolume{US5 l0bi l l ion){r ieht) -Trade/GDP{?s)

Figure 9.4 Trade Openness and FDI in China: 197&-.2007

Sources: Trade openness from Penn World Tables (PWT) 6.3 (current price: 2005 bascyear); l'DI from UNCTAD, Foreign Direct Investment Database

Note : Trade openness is measured b1' trade volume (the sum of imports and cxports) as ashare of GDP.

It must be noted that the secondary sector are manufacturing industries,most of which are still heavily low-skill and low-capital intensive. Taken to-gether, the primary and secondary sectors took 87.8 percent oftotal labor forceat the beginning ofreforms, and still 73.1 percent in 1999, a significant part ofwhich is low-skilled labor. Table 9.1 below further demonstrates that the Chi-nese export manufacturing since the reforms has become increasingly low-skilled and labor intensive, a shili that is rnore cornpatible with China's compar-ative advantage in abundant low-skilled labor. The values ofexport manufactur-ing goods are grouped into three categories of export-labor intensive manufac-turing (line l), capital intensive manufacturing (line 2), and raw material-based(line 3). The first two categories can be further classified according to the levelof skill being used.

Most noticeable in this table is the rapid increase of the share of labor-intensive manufacturing goods (line l), fiom 33 percent in 1965 to 74 percent in1990, while the share of capital-intensive manufacturing goods (line 2) de-creased fiom 65 percent to l9 percent during the sarne period. Notice that whilethe share of capital intensive manufacturing goods has decreased, the growth

9080

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Table 9.1 Export values (mil l ions in US dol lars) of Manufacturing Goods: l96s-1999

I 990I 985I 965 t975 I 980 Gro*'th rate (7o)

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Total exports

l. Labor-intensive

l . l . Non-ski l llabor-intensive

2. Capital-intensive

2.'1 . Laborintensive

3. Rau' materi-al-based

3. I Coal , o i l .natural gap

g g$ig;Rr 3&Es3E:E

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Source: Yin Xiangshuo. Enrpirical Anall'sis of China's Foreign 7'rade Structural Adjustntent (Taiyuan: Shanxi Economics press. 2003),| 15.

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196 Huisheng Shou

The new trade regime centered on low-skilled and labor intensive manufac-turing has fundamentally transformed China's industrial strucfue. The mostimportant indicator is the downsizing of SOEs, which is accompanied by theexpansion of non-state sectors that rely on low-skill factors. This change sug-gests that firms with high-skill dependence have become less suitable to newmarket structure. lnstead, frms with low-skill dependence quickly grasped theopporfuniry of operness. For instance, township-village enterprises (TVEs) thatexclusively depended on labor-intensive manufacturing quickly became thebackbone of the new trade regime in the early years, later followed by urbanprivate firms. The growth of TVEs and urban private sectors presented mountingcompetition for SOEs rhat relied on high skill and intensive capital inputs.Naughton (2007) notes that "SOE monopoly profits were competed away asaggressive TVEs drove price relationships into line with underlying costs. SOEshad to implernent new incentive programs and improve efficiency in order tosurvive in the face of the TVE competitive onslaught."rT

Under such pressures, the new "contract system" emerged in 1983 as an ef-fort to change the labor-management relationship in SOEs in order to accommo-date the new industrial structure. ln 1993, the boom ofprivate sectors followingthe surge of FDI inflow forced the govemment to further relax labor nrarket in-stitutions in order to free SOEs from traditional welfare burdens. Laid-offwork-ers became a new phenomenon from 1993. The downsizing of high-skilledSOEs can be seen clearly in comparing the number of employees in SOEs andnon-state hrms, as shown in Table 9.2. The employees in non-state firms in-creased by 90 percent from 1992 (1.9 percent oftotal employees) to 1993 (4.0percent of total ernployees). At the same time the growth rate for the empioyeesin SOEs decreased drastically fiom 2.1 I percent in 1992 to 0.28 percent in 1993.Notice that "non-state firms" in this table does not include private enterprisesand self-employed. Ifthese categories are taken into account, the non-SOE sharecan be much higher. ln 1998, the number of employees in SOEs and non-statefirms experienced another significant change. The share of SOE employeesdropped by I 8 percent, while that of non-state firms increased by 50 percent.

Changing Structure of Social ppefspsxps5-Low Level of protection as aSocial Choice

Diminishing Risks for Skilled ll'orkers

To understand why the new trade regime and industrial structure have helpedease the demand for social protection, it is critical to urderstand that the neweconomic structure has nanowed not only the income gap among social groups,but also the risk gap experienced across different sectors. A crucial factor thatdetermines this possibility is the risk exposed to urban workers, particularly ur-ban skilled workers because they had more stakes to loss in the reduction oftraditional social welfare benefits. At the early stage of reform, urban SOEworkers were the group that felt most strongly the uncertainry from openness.

Globali:ation and Transformation of China's Welfure Systenr 197

For exanrple, the breakdown of the "iron rice bowl" since the early 1980s and

lay-offs from 1993 produced ffemendous pressures on urban workers and man-

agers. Thus it is critical to explain why the risks facing urban skilled workersactually decreased during this period.

First, skilled workers, particularly those at a higher level of the hierarchy'for example, large-scale SOEs and public sectors, were less th,reatened for the

most part of the reform, because the government deliberately avoided putting

these sectors at the front line of reforms. The government could atTord to do sobecause employees from this group took a very small pottion of entire SOEs.Thus generous protection on them is relatively easy to maintain. Instead, em-ployees from small-scaled SOEs and other urban sectors were the first ones toface the challenge of reform. And yet, since these sectors previously enjoyed amuch lower level of protection and fewer benefits, the gains frorn the new op-portunities have far more compensated the new risks they are exposed 1o them.More importantly, however, the booming private sectors, particularly in the ser-vice sector, provided bountiful job opportunities for urban dwellers who, in ad-dition to continuing enjoying at least partial benefits from their work units,could have a so-called "secondary job"-a popular term in the 1980s---outsidetheir regular jobs in formal sectors, and the benefits from their second job couldbe substantial. As many scholars have noted,ls the reform in the early stage wasthe one "without losers" because, as the outcome of a gradualist strategy of tran-sition, state jobs were carefully protected so that marketization began with prod-uct markets and only slowly extended to labor markets.le

FDI and Decreasing Wage Diferentials

Second, openness has decreased wage differentials and the risk gap across sec-tors. This explains why high-skilled workers find the reforms less threatening tothem. This point, however, must be understood within the context of China'sparticular trade regime, which is sustained by low-skill biased FDI. Accordingto trade theories, FDI has significant impact on income distribution betweenskilled and unskilled labor because of the technology change induced by FDI.The impact of FDI thus can go either way-increase or decrease income distri-bution across sectors, depending on whether FDI is relatively labor or skill bi-ased.2u

Studies have found that China's FDI has been low-skill biased. China's FDIprimarily comes from the newly developed East Asian regions such as HongKong, Taiwan, Singapore, and South Korea. Huang, Xie and Chen (1994) re-ported in their survey that 54.1 percent of FDI in the manufacturing sector camefrom these countries.2r These findings echo the findings in previous section thatthe type of FDI from these countries is relatively labor biased rather than skillbiased. because industries in these countries are at the lower-end of manufactur-ing chains in the world market. This type of FDI aims at taking advantage ofChina's cheap unskilled labor and is mostly concentrated in China's exportoriented sectors. Precisely because of this logic, the Chinese government has

198 Huisheng Shou

utilized favorable policies such as tax breaks to attract foreign direct investmentwith labor biased technology.

Many other empirical studies have confumed that FDI and trade liberaliza-tion in general have had equalizing impacts on wage and skill differentials inChina. For instance, based on their analysis of the characteristics of FDI acrossdifferent provinces, Owen and Yu (2008) tbund that the effect of FDI on re-gional ditl'erences in wage inequality across industries in China hinges on thetype of FDl-whether it is export or import-oriented. Export-oriented FDI tendsto raise the wages of workers in industries that rely more on unskilled workersand therefore tends to lower the wages of workers in industries that rely more onskilled workers.22

Efficient Allocution of Skills

Thil'd, trade openness not only reduces the wage gap between high-skilled andlow-skilled sectors. It also induces efficient allocation of skills. Skilled workerscan voluntarily migrate from state sectors to private sectors, while unskilledworkers can also find jobs in SOEs which are trying to lower their costs bydowngrading the skill level of their products and reducing the proportion ofhigh-skilled workers. Prior to the reform, skilled workers were concentrated inthe SOEs. Since FDI inflow increases the job opportunities in the private sector,

Table 9.3 Average Wage of Staff and Workers by Ownership: 1990-2fi)l(Yuan)

Globalization and Transformation of China's ll/elJbre System 199

workers with higher productivity tend to move to private sectors for better wag-es, even though the social welfare benehts in these firms are much lower andthey need to purchase health insurance out of their own pockets. For exarnple,Wu found that since 1994 the percentage of engineers and technicians in non-state"sectors has begun surpassing that in state-owned and collective-owned sec-tors.--

To further confirm this trend of efficient allocation of skills, Table 9.3presents data on average wage of employees by ownership. lt demonstrates thatthe average wage in the non-state sector is higher than that in the state sector,suggesting that workers in the non-state sector, on average, are more productivethan those in the state sector. Since 1984, the average wage ofenrployees in thestate sector was higher than the national average, but lower than that in privatehrms. This average wage gap between the state and private sector firms reachedits highest peak in 1993 when FDI more than doubled. The trend only begandecreasing after SOEs began to increase their productivity and colnpetitivenesssince 1998.

ln sum, the new trade regime centered on labor-biased FDI has not only in-creased the size of the pie, but also increases the quality to divide the pie, be-cause the wage and risk gaps between high-skilled and low-skilled workers arenarrowed by labor mobilify. Many studies demonstrate that there has been a raceto the top in terms of income equaliry because individuals in all areas in Chinahave experienced gains in average income.2a These findings echo well the argu-ment in this study, which is derived from the standard ffade theory: as economicreforms deepen, labor market works more efticiently by balancing the demandand supply of skills. While the skilled labor commands a higher premium tocompensate for state protection they previously enjoyed, the low-skilled workersfind new opportunities created by openness to substitute for public welfare pro-tection. The free flow of skilled and un-skilled labor across different sectorsdecreases the attraction ofstate welfare benefits. That is, the low level ofsocialprotection is a social choice made by major social actors.

Changing Strategy for Political Support

The new industrial structure and the changing social preferences that followedprovide politicians with oppornrnities to adjust their strategy to mariimize theirpolitical support across the social spectnrm. Since the reforms began, particular-ly after 1992, China's political leaders have found their core constituencies un-der significant change. Previously, the core constituencies for the regime wereurban employees from formal sectors, which were critical for maintaining eco-nomic autarky. After 1978, however, the shift of the focus on competition ininternational markets has weakened that sector. When the barriers to labor mo-biliry across sectors are removed as the result ofthe changing industrial structure,the strategic alliance between formal sectors and skilled labor began to loosen.At the same time, the low-skilled labor that prirnarily concentrates in non-statesectors became increasingly critical for the economy that relies on low-skilledfactors to enhance its comparative advantage. As evidence, by the end of2004,

Year NationalAverage

2t10234027 t l337 |453E550062t06470't47983.16917 |

10870

soE Private

1990199 It9921993t9941995l 9961997t998t99920002001

Wage

22811 i11

287835324'197562562806747766885439552

l l l78

Wage

298't346839664966630374638261878989'129829

10984t2t40

% of nationalavg.6.735.856. l64.785.7 |2.27r. t34.282.532.361.932.83

% ofSOE

| 30.78140.01137.80140.60l3 1.39132.68l3 1.54t30.2'lI t7.01I15.05tt4.99l08.61

Sources: Modified from Xiaodong Wu. "Foreign Direct Investment and Dissemination ofJob Opening Infonnation in China," in William T. Kosanovich, ed., Intproving lnborMarket Opportunities and Security for Workers in Developing Countries, (Bureau ofIntemational Aflairs, U.S. Department of Labor, Washington D.C., 2003), 14l-l?0.

200 Huisheng Shou

the urban private sector, without counting foreign-invested ftrms, employedabout twice as many workers as the traditional state sector: 55 million, com-pared with less than 30 million in SOEs.25

The demand for a level playing field between private sectors and SOEs be-came intensified along with economic reforms since the early 1990s. By the late1990s, discrimination that had been levied on private sectors largely disappeared.Following Deng's South China tour in 1992, ideological barriers against thegrowth of private economies were dismantled in the following ye^rs, accumu-lated into the acceptance of private businessmen into the Chinese CommunistParty in 2001 and the full legal protection for private propeffy in 2004 Constitu-tion and 2007 Property Rights Law.26 These changes reflect a far-reaching shiftof policy orientation that has significant impact in many areas, in which welfaretransformation is part of the broad scheme. New policies since the late 1990shave begun to address issues that are considered to hinder the long-term devel-opment, for example, the regional disparity between the western hinterlands andthe east coastal regions,2T policy biases against agriculture and rural residents,and equal rights for rural migrant workers.2s

It is interesting to note that, despite the rapid policy adjustment since thelate 1990s, the political dynamics underlying the relationship between the gov-errunent and its citizens have remained the same, as the political influence ofworkers in both state and private sectors has not changed fundamentally since1978. Similarly, westem regions have, if anything, not gained more influence inpolicy making in Beijing than they were betbre, due to the strong economicpower of the coastal regions. Neither has any new policy given rural residentsmore political cloud, even though the political control in the countryside hasbeen relaxed.

It is puzzling, therefore, to see that the authoritarian regime has been wil-lingly extending the benefits to those workers, sectors, and regions that still pos-sess less political influence than the traditional constituencies. The leadenhiptransition in 2002, for many observers, motivated the new leaders to drasticallydepart the previous pro-business approach during the most part ofthe 1990s andadopted instead a pro-poor approach in order to accumulate their own politicalcapital. This argument, however, fails to explain that the shift of policy had al-ready occurred before 2002. ln fact, maintaining a balance between differentsocial groups in terms of distribution of economic benefits and social protectionhas been the tenet ofthe reform from the very early stage, as reflected in DengXiaoping's grand scheme regarding regional dispariry between coastal regionsand hinterlands---one region needed to contribute to the development of anotherregion at different stage of development.t'The idea was expressed by Deng asearly as the 1980s and was implemented by both Jiang and Hu administrations.

It is not the political leaders but globalization-intensified since 1992 andfurther accelerated after 2001-that has determined the shift of economic andindustrial structures. The economic integration incurs pressures of sustainingfuture economic development and maintaining political support for market-oriented reforms. Without fundamental restmcture, it would be unimaginable forChina to sustain its fragile economy under intemational competition. ln doing so,

Globalization arul Transformation of China's ll'el"fare System 201

the govemment cannot afford leaving any sector behind. By the late 1990s,therefore, in both offrcial rhetoric and academic research, "integration" or "con-solidation"-which is similar in Chinese-became a popular term, referring tothe need of synergizing domestic institutions, policies, social interests in order toenhance the competiveness of China's economy. Responding to this consensus,the guiding principle for the future development, under the new leadership, is toestablish a "harmonious society" based on "balanced and people-oriented devel-opment," with an "emphasis on social equity so that entire population can enjoythe fruits of reforms and development."3o

The "Move to the Middle:'n New Welfare Regimeunder Globalization

As Wang points out, the changing rhetoric reflects the change of policy agenda,which is responding to the reshuffle of social interests.3l As a result, the conceptof "public goods," which was widely discussed in media and academia, enteredthe official language and began to guide the new social welfare policies. Theprocess ofconstructing lhe new social welfare regime as public goods, however,requires two different efforrs of policy adjustment, which took place at differentstages: the fust stage befween 1992 and the late 1990s, during which the maintask was to reduce the excessive welfare benefits in SOEs and state sectors; thesecond stage since the late 1990s, in which the policies have targeted the entirepopulation, but with more emphasis on the low-skilled and low-income sectorsthat are outside the state sector. The balancing of policy adjustment is illustratedby opposite frends of government spending on social security and on social as-sistance in Figure 9.3. Whereas the spending on social security was reducedconsiderable after 1996, the rapid increase of government spending on socialassistance programs since 2001 suggests more emphasis on the individuals inthe low-skilled sectors. In the process of interaction between these two trends, abalanced structure of social welfare spending is emerging to cover the entirepopulation with a low level of govemment hnancial burden.

Reducing Welfare Benefits in State Sectors

As the barriers between state and private sectors began breaking down since theearly 1990s, it became evident that the costly and inefficient traditional welfaresystem was no longer sustainable. Laid-off workers became a phenomenon since1993. By the late 1990s, however, lay-offs became a nornl for everyone. Sincethe early 2000s, "lay-off'and "unemployment"-which is associated with non-state sectors-began to be used interchangeably, suggesting that the line be-tween state and non-state sectors is no longer discernable. As a result, the em-ployees from large-scale SOEs and other public sectors found their benefitsshrinking quickly, best illustrated in three categories oftraditional welfare bene-fits: pension, housing, and medical care.

202 Huisheng Shou

Previously, workers in state sectors did not pay contributions for theirpension benefits. The new scheme initiated in the early 1990s required individu-af connibution for the new pension fund. Since 1994, privatbztion of housinghas begun taking significant steps. A Housing Provident Fund (HPF) with thecontribution from both workers and employers was established. In the late 1990s,SOEs were no longer allowed to build housing and had to gradually sell offtheirapartment blocks. The housing reform disentangled SOEs from social welfareresponsibilities and also significantly reduced the financial burden of the gov-emment. Befween l98l and 1997, the states' contributions to invesfinent infixed assets dropped dramatically from 28.1 percent to 2.8 percent.32 Similarreforms have also taken place in medical care. In 1994 the govemment an-nounced that a social pooling fund based on an individual accounts replace tradi-tional almost-free rnedical care benefits.

Expanding Welfare Coverage to Non-state Sectors

As the government reduces traditional welfare benefits in the state sector, it alsoexpands the coverage of these programs to the entire population. Since the late1990s, government policies towards welfare distribution have become moreequiry oriented. The govemment has begun establishing universal schemes inthe early and mid-2000s in pension, housing, and medical care that cover allurban residents across sectors, including self-employed and temporary workers.These programs cover all work forces and also standardize the management offunds across regions so that individuals can transfer their welfare benefits acrossregions.

The more striking policy change, however, has been the establishment ofvarious social assistance programs that target the population who were previous-ly deprived ofwelfare benefits. These groups include urban informal sectors and,particularly, the rural population. The prograrns include minimum standard liv-ing system, social assistance programs for the urban and rural poor, and povertyrelief prograrus that primarily target poor population in countryside.

In urban areas, the most noticeable new program is unemployment insur-ance that is designed to cope with the problem of unemployment caused by re-dundant workers released from the state sector and the huge size ofthe new la-bor force. The universal unemployment insumnce scheme in 1999 broadened thecoverage of the unemployment insurance scheme to employees in all categoriesof urban firms. Aimed at both unemployment and urban poverfy, the MinimumStandard of Living System (MSLS) was infroduced in the 1990s. The targetedpopulation includes unemployed workers, low-income and disabled individuals.Initially local govemments were expected to bear all expenditure of the MSLS.In 1999, cenffal government resunred its role as the last resort.

ln addition, the government has also set up new social assistance progr.rmsin education, rnedical care, housing, and poverty relief, to assist poor fanriliesand individuals in urban and rural areas. ln education, for example, new initia-tives were proposed in 2004 to target poor children in both urban and rural areas,such as free prinrary and secondary education, education subsidies and exemp-

Globalization and Transformation of China's l{elfare System

tion. ln housing, the Low Rental Housing program (LRH) was implemented inthe early 2000s to assist poor households in urban areas. ln health care, an areathat is widely seen to be neglected by the government in the most part of the1990s, a New Rural Cooperative Medical Scheme INRCMS) was initiated in2002 and established in 2004 to provide furancial support for poor families. Pub-lic health care programs were reestablished and "all urban and rural residentsshould be entitled to basic public health services."33 Finally, the most successfulprogress in the area ofsocial assistance is the poverty reliefprogram. From 1978to 20M, the number in poverry reduced frorn 250 to 29 million, reducing thepoverty rate from 64 percent at the beginning ofreform to l0 percent in 2004.34The amount of investment put into poverty reduction work increased flom 9.8bil l ion in 1994 to 30 bil l ion in 2003.35

Market Dependence as the Principle of Welfare Reform

One remaining question is that why the govemment under the new policy guide-line would be able to expand the coverage of welfare programs to the massivelow-skilled workers outside the SOEs without incurring the financial burdens onthe government. This can be explained by two factors. First is China's low levelofskill dependence. Under current industrial structure, the financial pressure forthe government is low because the new regime requires individuals to providethe substantial part of the connibution. Although social assistance programsrequire the government to provide primary financial responsibiliry, the overalllow level of income associated with China's labor force reduces that pressureconsiderably.

More importantly, however, the pressures fi'om international market compe-tition and from the level playing field at the domestic market make it difficultfor the govemment to use welfare benehts to cater any single social group as thebase of political support as it did before. lnstead, market competition providesstrong incentives for the government to resist the attempt, fiom both old andnew social groups, to make welfare benefits a luxury good rather than a safetynet. ln reforming the welfare system, the Chinese government strictly follows aprinciple ofmarket dependence, which ensures that the expansion ofthe cover-age of welfare protection does not impose welfare burdens on the state but in-stead serves to promote market competition and labor mobility. Efficiency isboth the principle that guides the design and implementation of the new welfaresystem and a goal the new system aims to achieve. This is best illustrated by the"social-pooling-plus-individual-accounts scheme" that has been applied in mostwelfare programs, such as the old age pension scheme, medical care, unem-ployment insurance, and Minimum Standard of Living scheme.

The government makes it explicit in its statement that this scheme is an in-novation and is suitable to China's parficular conditiori as a low-income society-this approach simultaneously "reflects the merit of traditional welfare schemeas risk-pooling and also emphasizes the mechanism for indiVidual workers' self-reliance and self-motivation." The sfrength for this scheme. accordine to the

203

204 Huisheng Shou

govemment, is that it not only ensures higher living standards and social stabili-ty, but also enhances productivity under varying economic conditions.s6

In most of these programs, the financial burden essentially is on individualsand firms, while the cenFal and local governments pay only part of the premium.For instance, the government provides only basic pension insurance. Employersand individuals contribute the rest. Medical insurance in urban areas requiresthat employers contribute 6 percent of their total wage bills while employees pay2 percent of their wages as premiums. All connibutions from workers, togetherwith 30 percent of the premium tom their employer, go to the individual ac-count. The remaining 70 percent of the contibution from the employer goes tothe social pooling account. ln order to address the issue that most programs areunderfunded, the government encourages and mobilizes multiple channels andresources to raise the fund and reduce the costs. Local governments, firms, so-cial organizations-such as urban neighborhoods and other non-governmentalorganizations-and individuals are encouraged to participate in managementand contribute to the programs."

Conclusions

China's case has illusfrated that globalization has produced a strong detrimentaleffect on traditional stratified and hierarchical distibution of welfare benefitsonce the country began opening up. At the same time, globalization has alsoinduced the Chinese government to expand the coverage of social protection toaccommodate previously marginalized social groups in non-state sectors. Thecase demonstrated that this process is not determined by any particular factorsthat make China exceptional, such as its regime, leadership, or its culture. In-stead, it is an active response ofthe government to the pressures and oppornrni-ties introduced by openness. In the new welfare regime, the government finds itin its interests to maintain a balanced welfare structure that compensates moresocial groups and is nevertheless efficiency-oriented and market-friendly so thataggregate well-being can be sustained in a competitive market. A sustainableeconomy, in turn, can serye as the base for the government to survive over thelong run.

Most imponantly, this process of "moving to the middle" is taking place notonly in China but also in many other de-veloping counries, even though the vari-ations persist due to various factors.'o The Chinese welfare regime has beenmoving toward this balanced structure of welfare distribution in a relativelyquick pace and yet without incurring excessive financial burdens on the gov-ernment. The low skill dependence of the Chinese economy prior to 1978 hasplayed a critical role in this process. The high-skilled sectors were relativelysmall, concentrated in large-scale SOEs, which are still shrinking as reformshave been deepening. And high-skilled workers now find new better-payingjobopportunities. Their resistance to the welfare reforms has, therefore, been mi-nimal. In other counfries, such as Brazil, where the size of skilled sectors has

Globalization and Transforntation of China's l{elfare Systen 205

been much higher, the process of welfare transfonnation has been much slower

and protracted.3eSuch an advantage, however, may be undermined. Many signs suggest that

China currently is in a critical stage to move towards a more skill-dependenteconomy in its urban sectors after three decades of development, which will fuel

the demand for more government protection. This is illustrated by the shortageof skilled labor and the increasing labor costs in many urban areas in recentyears.no Civen the fact that the current welfare system is still underfunded, it canbe predicted that the public social welfare spending will experience an upwardtrend once the govemment takes more ltnancial responsibilities and more popu-lation is covered in the new welfare system. The strong increase of social assis-tance expenditures since 2001 and the slight increase ofthe spending on socialsecurity since 2003 in Figure 9.3 indicate that such a trend is undergoing.

At the same time, however, other forces work against this expansionarytrend. The industrial structure still remains heavily low-skill based so far. In2007, the employees in the agricultural sector still counted 40.8 percent andmanufacturing 26.8 percent, compared to the service sectors 32.4 percent.at Chi-na's huge rural labor surplus malies the wage growth largely an urban phenome-non. The loosened rules on ruraVurban migration will not only strengthen Chi-na's advantage in labor and low-skill-intensive manufacturing, but will also fur-ther narrow the wage gap and lower the incentives for welfare expansion. Themost important factor, however, is China's integration into the world economy.Joining the WTO has further locked the economy in a competitive market andtied the hands of political leaders. As a result, the principle of market depen-dence may be sfenglhened rather than weakened. Though these changes haveyet fully developed, it can be speculated that, the expansionary pressures onChina's welfare system, though inevitable as the result of skill upgrading, willdiminish over the long run under the pressure of globalization.

These two conflicting forces-the demand for low-skilled labor and thedemand for high-skilled labor-may produce fluctuation in China's welfare re-gime in the future. The welfare policy choice will be a delicate game of balanc-ing, highly contingent on politicians' strategic choices. However, as long asChina maintains a strong commitment to openness, it is safe to say that China'swelfare regime, for a considerable time in the future, will not deviate too farfrom its equilibrium, in which a low level of welfare expenditures and a ba-lanced sFucture are maintained to accommodate both social protection and mar-ket competition.

Notes

l. For example, see Anita Chn, China's l(orkers under Assault: the Exploitation ofLabor in a Globalizing Econonry (New York and London: M.E. Sharpe, 2001) and ChalKwan Chan, King Lun Ngok and David Phillis, Social Polic-v in China: Developnent andl* ell-being (Bristol, UK: Policl, Press, 2008).

206 Huisheng Shou

2. Globalization here is narrowly dcfined to refer to economic integration. The mostcommonly used indicators are trade openness and capital liberalization. In this study Ifocus exclusively on trade openness, under the assumption that trade openness and capitalliberalization havc different impacts on developing countries. Trade openness is meas-ured by thc sum ol export and import as the share of GDP.

3. William Greider, "A New Giant Sucking Sound," The Nation (December 13,200r ).

4. For instance, see William Greider, ibid. Kenichi Ohmae, The Borderless lYorld(New York: Harper, 1990).

5. The countries included in the sample were the only developing countries thatsubmittcd their data ro the International Monetarl, Fund (lMF) on a regular basis duringthis period.

6. Quentin Wodon, ed., "Public Spending, Poverty, and lnequality in Latin Ameri-ca" (Washington DC, World Banl', 2003); Kathy Lindert, Emmanuel Skoufias and Jo-seph Shapiro, "Redistributing Income to the Poor and the Rich: Public Transfers in LatinAmerica and the Caribbean," Discussion Draft lWorld Bank, October 24,2005).

7. See e.g., Douglas kwin, Free Trade under Frre (Ewing, NJ: Princeton UniversityPress, 2002); Jagdish Bhagwati, In Defense of Globalization (New Yorli: Oxford Unrver-sity Press, 200't) for theoretical discussion. For developing countries, see Jagdish Bhag-wati, "The Global Age: From a Skeptical South to a Fearful Nonh," World Economy 20,no.5 (1997): 259-83; Jagdish Bhagwati, "Outward Orientation: Trade Issues," IMF-World Bank Symposium on Growth Oriented Adjustment Strategies, Washingron DC,1987; and David Bigman. "The Pros and Cons of Globalization for Developing Coun-tries," ln David Bigman, ed., Globalization and the Developing Counties: EmergrngStrategies for Rural Developntent and Poverty Alleviation (Oxtbrdshire, UK: CABI pub-lisher, 2002),27-80.

8. lsabela Mares, "The Great Divergence in Social Protection," Unpublished manu-script, 2006.

9. Ilob Jessop, "Towards a Schumpeterian Workfare State? Preliminary Remarks onPost-Fordist I'olitical Economy," Studies in Political Economy 40 (Spring 1993): 7-39;Philip Cemey, "Globalization and Changing Logic of Collective Action," InterrutionalOrganizatiott 49, no.4 (1995): 595-{25; J. Zysman, "The Myth of a'Global'Economy:Enduring National Foundations and Emerging Regional Realities," New political Econ-orry | (January 1996):157-184.

10. For early literature revicw, see Mark Selden and Laiyin Yort' "The reform of so-cial welfare in Chin4" World Development 25, no. l0 ( 1997): 1657-1668; Xinping Guan,"china's Social Policy: Refonn and Developmenr in the context of Marketization andGlobaliiration," Social Policy & Administration 34,no. I (2002): I l5-130.

ll. lan Little, Tibor Scitovsky and Maurice Scott, Industry andTrade in Some De-veloping Countries: a Comparative Study (London and New York: Oxford UniversityPress'1970).

I 2. The data here srop in 2005 because, since 2006, the national Bureau of Statisticsof China dramaticalll' changcd its measure on social security and welfare expendituresunder the section of "governmcnt finance." The data in the recent yearbooks are no long-er compatible u,ith thosc prior to 2006.

13. Barry Naughton. The Chinese Economl, Transitions and Growth (Cambridge,MA: The lr4lT Press, 2007), 298.

14. United Nations Conference on Trade and Development /LINCTAD). ForeignDirect Investntent database. Geneva. various years.

Globalization and Tratrformation of China's ll'elfare System

15. China Statistics Bureau, Chinese Starisrics Yearbook 200l (Beijing: China Sra-tistics Press, 200 I ).

16. Xiaoguang Zhurg, China's Trading Pailerns and International ConparativeAdvantage (Basingstoke, Hants.: Palgrave Macmillan, 2000).

17. Barry Naughton, The Chinese Economy Transitions antl Crowlh (Cambridge,MA: l'he MIT Press, 2007),275.

18. Lawrence Lau, Yingyi Qian and Gerard Roland, "Relbrm without Losers: An In-terprelation of china's Dual-Track Approach to Transition," The Jowna! of politicalEconomy 108, no. I (2000): 120-143; Yingyi Qian and Jinglirur Wu,..Chinns Transitionto a Market Economy: How Far across the River?" in Nicholas C. Hopc, Dennis TaoYang and Mu Yang Li, eds., How Far Across the River: Chinese Policy Rejbrm at theItlillenniunr (Palo Alto, CA: Stanford University Press, 2003),31-63.

19. Barry Naughton, The Chinese Economy Transitions and Growth (Cambridge,MA: The MIT Press, 2007), 183.

20. Robert Feenstram and Gordon Hanson, *Foreign Direct Investmcnt and Relativewages: Evidence from Mexico's Maquilaoras," Journal of Interrutional Econontics,42,no.3-4 (199'l),3'71-93; Fan Zhang zrnd Jingping Zh:rng, "The trnpact of MultinarionalEnterprises on Economic Structure and Efficiency in china" working paper, china ccn-ter for Economic Rescarch, August 1998.

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207

208 Huisheng Shou

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2008 Beijing Olympic Games, 134,t50, 176

absolutist state, 7 | -7 2, 7 4Adam Smith. l3-15.25, 123Administrative Litigation Law, l 70Aliica" 69. 72, 83All{hina Fcderation of Trade Unions,n1All-China Youth Federation, I l7Amcrican model, 33, 47,61,l13Americanization, 6lanalytica.l paradigms, l, 3, 5, 29-30,33, 43anarchy of exchange, 69Anne Krueger, 37-38Anthony Ciddens. 7 1, 83Anthony Yu, 133, 137Anti-Spiritual Pollution, 142Asia, 30-3 1, 67, 69, 73, 80Asian Financial Crisis, 67, '73,79Asian values, 7, ll0, 123, 124

sinicization, 1 27Sinocentric orientation, I l3

authoritarian state, 3-4, 9-10, 73, 82,f 08-109, t22, t27. 147, 152, 159, 164-t65. 178.200authoritative pluralism, 76

baidu.com, 48Barack Obama, 50Barry Naughton,44Beatrice Leung, 133, l,1t)Beijing Consensus, l, 3, 10, 29, 43, 41

Joshua Ramo. 3, 10, 29, ,+4

Berl in Wall , 47Bil l Cl inton, 50

C. Anthony, 72, 83C. Wolf .83Cao Hong, 103Cao Siyuan, 51,53

Indexcapitalisrn, 3, 33,47-49' 52' 5'1-59' 78'

122-t23. t27Chinese Communist Pafly (CCP)' l' 3'4, 6, 13, 34, 37-48, 50-51,53-5.1. 58-59, 60-61, 67-'77, 78- 80, I l0-122,133. 135. 139, 140-l ' t2' 114-l '15' l6l '163.165-166.170-17lcentralization. 6, 54,'l l-'12, 74-80' 82't22Chen Weiyi, 103China Christian Council (CCC), 153China Foundation for Human Rights'l l7China t-egal Assistance Fund, I l7China modcl. 3-6. 30, 33,68, I l5 ' 128

China paradox, 2,75,94-95' 178China overtakes the U.S., 3China Society for Hurnan RightsStudies. I l7- l l8China Society of Education, I l7China Society of Law, I l7

China's charnr ofl'ensive, 126the China debatc, 30China's demise,4,49China's victim nrentality, I l8Chinese Academy ol' Social Scicnces,168, l7 l ,173,175Chinese Catholic Bishop College(ccBc), l5 lChinese economy, 2- 5, 13-15, 19-22'25-27 .29. 34-35, 42,47, 50, 60, 73,77.79.81-82,91,93-94, I l3- l 15,152. 169, 192-193,195-196, 200, 205Chincse exceplional ism, l-2, 125, 185Chinese labyrinth, 2-3, 5, | 5, 13, 78Chinese Patriotic Catholic Association(CPCA), r5lChinese Socialist Puty, 49civ i l r ights, 6, 15, 5G57, 58, 61, 71,74.76. '79, I17, I 19, 123civi l society, 2, 6' l , 69,7O-7 | , ' tJ-7 4,76,78-79,8l-82, I 19, 144, 165

activism, 9, 159

209