Econ 370 China’s Economic Development;

Homework 3
1. The Fundamental Institutions of China’s Reform and Development
1) What are the key elements of China’s regional decentralized authoritarian (RDA)? List and explain.
2) Recall the industrial development of China. When did the TVEs arise? What roles did the local government play in the rise of the TVEs?
3) Did the rise of the TVEs relate to China’s RDA regime? Use the RDA regime to explain the rise of the TVEs.
(Hint: Read Xu, Chenggang (2011), “The Fundamental Institutions of China’s Reform and Development”, section 5.1.)

2. Environmental issues in China
Read the following news reports about the “APEC blue” and answer the following questions.
The articles are “How Did Beijing Achieve ‘APEC Blue’?” from Bloomberg BusinessWeek and “APEC Blue Has Chinese Factories Bleeding Red, Economists Say” from The Wall

Street Journal.
1) According to the two articles, what is the “APEC blue”?
2) How does the APEC blue relate to the trade-off between economic growth and a clean environment? List some of the costs of the “APEC blue”.
3) Suppose that you were a local governor. Under China’s current RDA regime, would you choose economic growth or a clean environment? Explain.
4) Use your answer in question 2) and 3) and explain how China’s RDA regime relates to its current environmental issues.

3. China’s Exchange Rate Reform and the Chinese Economy
China is currently facing pressure to liberalize its currency. If China liberalizes its Yuan, it would be a major exchange rate reform in China and it is very likely

that the Chinese Yuan would rise against the US dollars and other currencies. How would this reform affect other aspects of the Chinese economy? Let’s conduct a simple

analysis.
1) Would Chinese products become cheaper or more expensive in the world market after the liberalization of the Chinese Yuan? Would this affect global demand for the

Chinese products?
2) Use your answer to question 1) and explain what would happen to the Chinese factories and China’s labor demand if China liberalizes its currency.
3) Migration has been a major factor in absorbing excess farm laborers. Use your answer to question 2) and explain what would happen to rural migrants if China

liberalizes its currency.
4) Income from migration has become an important source of rural income in China today. Use your answer to previous questions and explain how China’s exchange rate

reform affects its rural income.

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