Foundation gives $2M to CU, colleagues to study China's booming economy

By Susan S. Lang

China's economy has been sizzling, growing by leaps and bounds. Yet, economists say such growth in China never should have happened, especially so quickly, given the state-owned banking and all the state-owned businesses as well as the lack of a politically independent legal system.

To gain some understanding into what's driving China's emerging free enterprise economy, the John Templeton Foundation has awarded $2 million over three years to Cornell's Center for the Study of Economy and Society (CSES) to conduct research in collaboration with researchers from Peking University, Stanford University and Lund University in Sweden.

"This is the most rapid wealth accumulation in history, and soon China will have the largest economy in the world," said Victor Nee, the Goldwin Smith Professor of Sociology and director of CSES and the principal investigator for the project. "China lacks many of the conditions economists argue are necessary for private-sector economic growth, yet the private sector is the most dynamic segment in the Chinese economy, surmounting untold barriers and competing successfully with the better-financed state sectors."

In what will be the largest funded project in the field of economic sociology ever undertaken, the researchers will explore, in-depth, 1,600 firms and 800 entrepreneurs in different locations, industries, sizes and ownership forms in China. The researchers also will conduct field research for three years of all the private enterprises in eight districts, which represent four major regions in China and differing stages in the level of private entrepreneurial sector development. These cities are Beijing and Shenyang for northern China, Shanghai and Hangzhou for eastern coastal China, Nanhai for southern China and Xian, Chengdu and Guiyang for central-western China.

The data will allow researchers to make comparative analyses of free enterprise and wealth creation that control for the impact of local development, production type (labor, capital- and skill-intensive), scale of production and organizational form.

"China's entrepreneurial success is an anomaly. We will use all the methods and gains from modern social sciences to uncover what's behind this highly successful emergent free enterprise system," said Nee, who has been conducting research on China's market transition for more than two decades.

China's economy, for example, jumped 9.5 percent in 2004, compared with the United States' economic growth rate of 4 percent. That's not all: Between 1978 and 2002, China's per capita gross domestic product (GDP) grew from $100 to $944, and exports jumped from $39 million to $470 million (constant prices, 1995). In addition, net foreign direct investments grew from $386 million in 1982 to $46.8 billion in 2002.

"In recent years, China has seen a flowering of individual entrepreneurial activity and free enterprise, and this emergent process promises to transform the economic landscape of China and its role in the global economy," Nee said. "This will be the benchmark study into the origins, mechanisms and dynamics of this nascent transformation, which remains largely obscure and poorly understood."

The findings on China's market transition and the emergence of free enterprise will be relevant to the fields of sociology, economics and business administration and will be disseminated through publications and conferences.