The dynamics of economic reform process in China: The case of reforms of foreign exchange regimes

The dissertation explores the political and economic dynamics of China's reform process from 1979 to mid-1990s, using reforms of foreign exchange regimes as a test case. China's successful gradual economic transition poses several puzzles in light of literatures on transitional economies. Understanding the dynamics of policy choices made by the Chinese central leadership is critical to the understanding of China's “top down” economic reform process.; Much of the literature on Chinese policymaking divides between a focus on policy-preference or on political competition. I examine two representative models in the current literature, and propose an alternative model which builds on theories of institutions and rational choice. The model highlights the critical importance of political institutions of the Chinese communist party and pivotal role of the central leadership under Deng Xiaoping. It emphasizes the desire of the post-Mao central leadership to enhance legitimacy by bringing economic prosperity to people. It draws attention to how the Chinese central leadership managed the gradual transition of economic institutions, the process of which is inherently unstable due to uncertainties about policy outcomes and distributional consequences of reform policies. Propositions are derived from each model based on its explanatory mechanism regarding three key dimensions of central policies: substantive contents, timings and general policy directions, and then subjected to empirical tests.; The dissertation concludes with an evaluation of relative usefulness of competing models in light of test results. The model proposed in this study proves better than alternative models in that its empirical implications are more consistent with facts and it explains more phenomena of interest. This study enhances our understanding of current literature through a systematic evaluation of competing models. It adds to the literature by proposing a new model that offers unique insights on China's economic reform process by underscoring two crucial dimensions of policy decisions made by the central leadership: its concern over economic gains to the central government and its experimental approach. It also suggests answers to puzzles associated with a broader set of literatures. Finally, it makes predictions on how China is likely to make its currency RMB (yuan) fully convertible.