ABSTRACT
The postwar developmental experiences of mainland China, Taiwan, and Hong Kong demonstrate that economic institutions matter more than cultural traits and natural resources in fostering growth and raising living standards. China’s record in Shanghai after 1949 provides little comfort to foreigners and Chinese residents in Hong Kong. China’s leading economists are aware of the economic achievements of Taiwan, Hong Kong, Korea, and Singapore, but have had little/no opportunity to observe the success stories firsthand. As China must first pass through a capitalist economy en route to communism, during that passage the laws that govern capitalist development will apply to China as well. In December 1986, China announced a new income tax beginning January 1987 that applied to anyone earning more than 400 yuan a month. Taiwan has a well-equipped, half-million strong military with which to resist China’s blandishments, whereas Hong Kong could have been brought to heel just by a shutting off of its supply of food and water.
