The Move to PrivatizationChina and Russia

Donald Roley

Overview

Brief History of both Countries Economic history Political history Demographic/ Geographic Overview

Countries in transition Economic Outlook

The History of Russia/USSR

Tsarist rule ended with Nicholas II in 1917 The USSR was formerly created in 1922

under Lenin Stalin replaces Lenin

NEP is replaced with “Five Year Plan” Mikhail Gorbachev stepped into a system that

remained virtually unchanged for 60 years!

History of China

Founded in 1949 as the PRC Under Mao Zedong China undergoes several

revolutions Great Leap Forward of the late 50’s Cultural Revolution of the late 60’s

Mao’s death in 1976 marked the period of real transformation

1978 saw the shift from a command economy to a mixed one

Countries in transition: Russia The move from planned to market economy

was abrupt They had to quickly accomplish the move

“If there was no breakthrough…in the near future, the entire process could be stalled…”(Sachs)

There were social/political motives as well Immediately started the voucher program

This successfully privatized 70% of medium and large enterprises and 90% of smaller ones

Countries in transition: Russia Problems with the voucher system

One voucher = one bottle of vodka There was still a distrust of Capitalist institutions

Public auctions were run by the bank Locations changed, phone calls were dropped, etc. Value of the vouchers changed dependent on number of

people at the auctions Self Dealing

Countries in transition: Russia Managers would steal from the company

Use the money to buy vouchers Convinced workers to sell vouchers Would run firm into the ground

They paid a low relative price for the firm Could steal plowback money Default on debts to suppliers

Suppliers would eventually stop dealing with them

Countries in transition: Russia Second Stage July 94

Direct selling of firms for cash After the voucher system, the state still held 15

20% of shares in firms Real GDP Growth -8.2% (US 2000)

Third Stage “Loans for Shares” Government gave banks shares in firms for

collateral on debt

*International Finacncial Statistics Yearbook

Countries in transition: Russia Problems with loans for shares

80 million dollar budget deficit in 96* They defaulted on most loans Rise of the oligarchs

CIA factbook

Russia Today

Population 143 million Growth rate -.37% Life expectancy 67.1 years

GDP (PPP) $1.53 trillion 2005 GDP Growth (real) 5.9% Unemployment Rate 7.6% 2004 FDI (current US dollars) 2 billion (WDI)

History of China

Founded in 1949 as the PRC Under Mao Zedong China undergoes several

revolutions Great Leap Forward of the late 50’s Cultural Revolution of the late 60’s

Mao’s death in 1976 marked the period of real transformation

1978 saw the shift from a command economy to a mixed one

Countries in transition: China China instituted the HRS in 1978

Basic units were production teams 1978-1984 China grain output raised 5%, and

gross value of agriculture by 7.7% From here they went on to the two land

approach Land divided into 3 parts

Food, contract, and contingency

Countries in transition: China Two land system is now widely excepted in

the country Farmers who participate have a 6.7% higher

technical efficiency Problems with HRS

Land Fragmentation Productive inefficiencies

Countries in transition: China Township and Village enterprises

From 28.2 million workers to 135 million in four years time and ¼ of the nation’s total output in 1996 (DaCoasta) Deregulation of monopolies

1993 share holding approach Employment in SOEs dropped 20% 1997-2001

It took the previous 23 years to realize a similar drop

China transition cont.

Rapid Growth without rapid inflation $40 Billion in Direct Foreign Investment

(1996) Shows trust in the rule of law and legitimacy of the

government Problems still exist

State Owned Entities No competition in banking industry

CIA factbook

China Today

Population 1.3 billion Growth rate .58% Life expectancy 72.27 years

GDP (PPP) $8.158 trillion 2005 GDP Growth (real) 9.2% Unemployment Rate 4.2% 2004 FDI (current US dollars) 42 billion (WDI)

Annual Inflation Percentage

-100

0

100

200

300

400

500

600

700

800

900

1000

1980 1985 1990 1995 2000 2005

Per

cen

tag

e Russia

China

USA

-10

-5

0

5

10

15

1985 1986 1990 1993 1996 1999 2000 2001 2002 2003 2004

Annual Real GDP Growth (Percentages)

China

Russia

USA

-100

0

100

200

300

400

500

600

700

1985 1986 1990 1993 1996 1999 2000 2001

Foreign Direct Investment (Billions of US 2000 Dollars)

China

Russia

USA

http://www.worldbank.org/ecspf/PSD-Yearbook/russia.html

State Owned Manufactuing firms in Russia

0

50000

100000

150000

200000

250000

1992 1993 1994 1995 1996

Number of Privatized Manufacturing f irms byyear

Private share of employment

http://www.worldbank.org/ecspf/PSD-Yearbook/russia.html

Private share of employment in Percentage

0

5

10

15

20

25

30

35

40

1992 1993 1994 1995 1996

Private share of employment

http://www.ilo.org/public/english/employment/ent/papers/emd24.htm

Ownership Structure 1978 to 1994

COE = collective

SOE = State owned

IOE = Individual

OOE = Other owned

John Sun - Privatization: P. R. China 2005

Percent GDP Growth

0%

10%

20%

30%

40%

50%

60%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

State Owned

Collective Owned

Private Owned

In Conclusion

Brief History of both Countries Economic history Political history Demographic/ Geographic Overview

Countries in transition Economic Outlook

Questions for the future

How will Russia get a hold of the growing black market and curb corruption?

As China continues to reform, will the Communist government eventually reform with it?

Questions???