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China's economic development needs to incorporate both a competent government and an efficient market.
China's economy has grown at a rate of nearly 10 per cent each year for the past two decades, making it the world's fastest growing economy. Despite the many undesirable by-products of the country's economic development, such as pollution, unbalanced resource distribution and regional income differences, China has undergone a successful economic transition.
Behind the economic miracle are two development models that have been practised by vanguard local governments.
Since China adopted its reform and opening-up policy two decades ago, there have emerged many economic development styles in this country. Among them, the so-called Suzhou model of East China's Jiangsu Province and the Wenzhou model of East China's Zhejiang Province are the most successful.
The Suzhou model is one in which the government plays a major role in invigorating the local economy. It is similar to the government-directed economic development models adopted by Japan and South Korea when their economies took off.
Using this system, the local government not only acts in accordance with market economy rules, such as providing guarantees and an inviting environment for outside investment, but lays out an explicit development blueprint and strategy to attract investors.
The Wenzhou model relies more on the market. The local economy is developed mainly through the innovation of entrepreneurs. The government plays a relatively small role.
Both models are successful. Last year, Suzhou replaced Shenzhen, in South China's Guangdong Province, as the country's fourth largest city in terms of gross domestic product (GDP). And it topped all others in terms of the value of overseas investment it attracted.
Wenzhou, on the other hand, has risen from a poor, small city to become a place with a prosperous private economy. It does not depend on foreign investment, but local entrepreneurship.
Although private enterprises are important for a region's development, it must be acknowledged that most of China's localities lack a long-standing commercial culture and abundant private funds, two factors that have led to Wenzhou's economic success.
This means it is hard for most of these places to duplicate the Wenzhou model.
In comparison, it is easier to copy the Suzhou model, which is centred on attracting foreign investment and bringing into play an efficient and strong government.
The experience of East China's Jiangxi Province is a case in point.
The local governments there first mapped out feasible development strategies and blueprints and fostered a friendly investment environment to attract overseas money. Despite its disadvantages in capital and entrepreneurship resources, Jiangxi has seen its GDP and income grow by 202 per cent and 175 per cent respectively during the 2001-04 period.
In last October, Chen Deming and Wang Min, two former secretaries of the municipal committee of the Communist Party of China in Suzhou, were appointed respectively as Party deputy-secretaries of Northwest China's Shaanxi Province and Northeast China's Jilin Province. The appointments are, on the surface, a transfer of cadres from Suzhou. In essence, it can be seen as a spread of the Suzhou model of economic management to the rest of the country.
Entrepreneurs are the most important factor in pushing forward economic development.
During the transitional period when the market economy is immature, one possible option is to enhance the role of a strong government to accelerate the development of a local economy.
Such a development model is more effective than a simple fiscal "blood injection" or preferential policies from the central government.
The Baiyun District of Guiyang, in Southwest China's Guizhou Province, is another example of the Suzhou model.
Local transportation and other infrastructure facilities are poor there. But thanks to efficient work of the local government, the per capita GDP of the district has reached US$3,500, much higher than the national average, let alone that of the economically-backward western regions.
In the long run, the Suzhou model and the Wenzhou model both have unavoidable problems. Unilateral dependence on either government or market will not sustain development.
Sound economic development demands the help of both the "invisible" and "visible" hands, namely, the market and the government.
In Suzhou, the lack of adequate land has made it impossible to merely depend on attracting foreign investment for local development. This has meant that many places learn from the Wenzhou model and the Suzhou experience at the same time.
In Wenzhou, the government is becoming more aggressive in attracting foreign investment. It is working on new development blueprints and updating its infrastructure.
The key to a successful Wenzhou model is to encourage the development of private enterprises, foster entrepreneurs, and give more room to the market. While the key to a successful Suzhou model is to put more emphasis on a strong government that can devise rational development strategies.
The Suzhou and Wenzhou experiences show that during the country's economic transition, the advantages of both market regime and government direction should be brought into play to seek the most efficient way to develop.
The author is the director of the Macro-Economy Department of the Economic Research Centre under the State Assets Regulatory and Management Commission.
(China Daily May 13, 2005)
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