ABSTRACT
Inefficient allocation of money was, in the view of some Chinese economists, the central fault that reforms should correct. Politicians such as Jiang Zemin often sponsored pet investment projects. Shanghai returned invested capital quickly. Nationally from 1972 to 1977, the growth of “extrabudgetary” investment averaged about 10 percent per year – five times as fast as the growth of the central investment budget. Decreases of planned credit were compensated by increases in companies’ “own capital” (ziyou zijin). In Shanghai, some of this offset depreciation. Rates on bank loans differed, depending on the identity of the borrower. Banks followed local politicos, to whom their heads during reforms mainly answered. Mid-1980s loans often went to buy inputs, no matter what their ostensible purposes. Major reform-era banks specialized in functional areas, but nonstate (minjian) banking and insurance became important. The Shanghai stock market revived, step-by-step in striptease fashion. Rural savings rose sharply, going into stocks, bonds, and traditional nonstate credit arrangements. By 1993, Zhu Rongji fired the head of China’s central bank and took the job himself, trying to control the expansion of credit.
