Extended Project

Chloe Tang U6 White House

The role of law in Chinas economic development: to what extent and how does
the legal system, in particular laws on taxation system and The One Child
Policy assist economic development in China?

1.Contents
1. Table of contents.................................2
2. Introduction.3
2.1. Aims.4
2.2. Objectives.4
3. Key terms
3.1. Economic development.5
4. Key Concepts
4.1.1. 4.1The relationship between law and economics...8
5. Background information on China
5.1. Chinas economy
5.1.1. The transformation of Chinas economy9
5.1.1.1.

Rural reforms..9

5.1.1.2.

Urban reforms.10

5.1.1.3.

Accession to the global economy11

5.1.2. Current state of Chinas economy...11

5.2. Chinas legal system
5.2.1. Development of the legal system.12
6. The relationship between specific laws and economic development
6.1. Taxation system
6.1.1. Taxation system in China..13
6.1.2. To what extent it assists Chinas economic development?.......................18
7.

8.

One Child Policy

7.1.

Pre-One Child Policy...19

7.2.

Enforcement of The One Child Policy20

7.3.

How does One Child Policy affect the economic development? 22

Conclusion.....31

9. Bibliography......33
10. Appendix...38

2. Introduction
One of the primary purposes of law is to hold power to rule society, especially in a
modern society that we are living in now. Laws are set as a guideline for the society
to follow; it demonstrates the appropriate attitude and behaviour. More important, it
purely aims to maximise good living in a society.
The idea of Economics came slightly later then the idea of establishing laws. The
term economics, usually deal with money and in allocating scarce resources; a study
that include analysing the pattern of consumption and production in the market. Also,
it firmly aimed to maximise the use of resource.
In a way both law and economics aimed to maximise social welfare in different
aspects, these two topics seem to be inter-related, and would affect each other. In
1970s, a former student of Coase built a centre for Law and Economics at a major
law school, a place where people started to investigate into the relationship between
the topic of Law and Economics and how these two topics greatly support each
other.1
I was deeply influenced by my father, who is working in the legal system for the
Hong Kong government. When I was young, my father used to talk me through the
basics of law; I have then become really interested in this knowledge. I have always
been fascinated in the field of economics and law, especially the relation between
these two fields. I am interested in understanding the importance of the legal system
in a countrys economic development, particularly in the developing countries.
As a Chinese who lives in Hong Kong and is studying abroad in the United
Kingdom, I am not very often able to absorb this knowledge in my daily life, I am
therefore very interested in the economics and legal development of my own country.

1 Webster Online Dictionary (law and economics)

Moreover, as I would like to be a lawyer; I find this a good chance to broaden my

horizons in the field of economics and law. Therefore with personal interest in my
own country and given that the surprisingly fast economic transition of the country
would allow my research to have a more significant result, which I have chosen to
work with China, to dig deeper into the issue by studying of taxation system and its
affect on Chinas economic development, also with the case study of One Child
policy.

2.1 Aims
My aim is to investigate economics and law in order to find out exactly what the
relationship between the two is, mainly focusing on the influence of the legal
framework on Chinas economic development. My project uses evidence from
Chinas taxation system and with the support of One Child Policy to analysis whether
law assists the economic development.

2.2 Objectives
My objectives are as follows. My first task is to define the term economic
development, followed by establishing the key concept of what is law, what is
economics and the general relationship between law and economics determined by
experts in in the field of economics and law. The second section will introduce the
background information on China, including its economy and legal system. I shall
also involve the transformation and current state of Chinas economy, as well as the
development of the legal system.

My next section will be looking into relationships between specific law and
economic development in China: Taxation system. This section will involve an indepth investigation into the type of law; with evidence and explanations to determine
to what extent it assists Chinas economic development. Then I will also bring in
examples of the One Child Policy in China, providing a real example of how does the
legal framework affect the economic development.
In the last section I will attempt to answer the research question The role of law in
Chinas economic development: to what extent does the legal system, in particular
law on taxation system assist economic development in China? I will discuss by the
influence of the legal framework on Chinas economic development with the support
of evidence and explanations made in section above. Finally come to a conclusion
about the influence of law to Chinas economic development.

3. Key terms
3.1 Economic development
The bottom line of economic development today is about building prosperitya high and
rising standard of living. -David A. Sampson, Assistant Secretary for Economic
Development, U.S. Department of Commerce2
From the above suggestion we can conclude that there is no single definition of the term
economic development, economic development is generally describing a broad concept
according to the process that influences the growth, in order to enhance the ones economy,
this process is including both material and non-material factors affecting the quality of life of
consumers, for example, health and the happiness index. The major objective of economic

2
Official website of The United States Of America Department of Commerce (A Message
from David A. Sampson)

development is to improve the economic influences by increasing competiveness, such as

entailing jobs creation and increase the quality of life.
By definition, Economic development is the process of improving peoples economic wellbeing and quality of life. The measure of economic development takes social, environmental
and economics into account, while the measure of economic growth only takes account of
goods and services. Economic growth could also be explained as the change in GDP pa,
expressed as a percentage.
Michael Todaro, a well-known development economist has suggested that the process of
development must achieve three main aspects: Firstly, an increase in living standard taking
into account of both material and non-material factors; for example: better education, higher
incomes, more job opportunities. Secondly, an increase in the availability and distribution of
basic life-sustaining goods and an expansion of the economic and social options available to
people, which would help reducing poverty.3
Generally economic growth precedes economic development, however it is possible but
unlikely for an economic development to take place without an economic growth, unless
GDP is redistributed. For instant, GDP is redistributed from high-income earners to lowincome earners and if resources are moved from non-welfare goods to merit goods. The GDP
is a strong factor in rising potential development.
In practice, it is hard to achieve without making some people worse off. Economic
development will not happen if the benefits of growth are used up in capital goods creation
or when the growth in income is concentrated on a small part of the population.

3 Economic Development by Michael P. Todaro and Stephen C. Smith

The Gini Coefficient and the Lorenz Curve can be utilised as an indicator of measuring
economic development of a country. The Gini Coefficient measures the degree of income
inequality in a country; it can also be used for comparison between two countries. Whereas
the Lorenz Curve is showing the proportion of national income earned by given percentage
of the population.

The above diagram illustrated the Search by book title, keywords, or ISBN. graph of the Gini
coefficient and the Lorenz. The Gini index is the are between the Lorenz curve and the line
of equality. A value of 0 represent perfectly equal equality, whist a value of 1 indicated
perfectly inequality.4 The Lorenz curve also demonstrates the income distribution in a
society.

4 The World Bank (Measuring Poverty, Measuring Inequality)

4. Key Concepts
4.1 The relationship between law and economics
The field of economics involves a study that concentrates on the allocation of scarce
resources in the most efficient way; includes analysing the pattern of consumption and
production of goods and services. Economics investigates the method of maximising social
welfare, and examines the efficiency in allocating resources.
Law ... is definable as a system of rules. It guides and directs our activities in much of day
to day life: the purchases we make in a shop, our conduct at work and our relationship with
the state are all built upon the foundation of legal rules5 Law is functioning as a guideline
for the society to follow, modelling the appropriate attitude and social behaviour. It provides
a governing principle to solve the social problem, a system that holds the power to rule the
society. Law could be divided into different sub-categories; within the society, domestic law
includes the section of criminal and civil law. Criminal law focus on the perspective of
committing action against the law, by a citizen to the others, For instant, Murder and
Manslaughter. Criminal law also directs the punishment to be given to the offenders, aiming
to avoid violence, theft and public disorders. While civil law mainly deals with the disputes
between individuals, organisations and the government, it provides a way for public to seek
for compensation. The legal consequence for criminal law tends to be more serious than that
of civil law. Furthermore, there are Public law and Private law. Public law lays emphasis on
the relationship between the government and individuals, whereas the private law
concentrates on the relationship between individuals.

5
Learning legal rules by Holland and Webb

The market itself sometimes fails to achieve allocatively and productively efficiency,
government invention might be set in to solve the market failure. Government invention
includes the form of setting up laws and regulations, in order to assist the goal of achieving
market efficiency.

5.Background information on China

5.1Chinas economy
5.1.1 The transformation of Chinas economy
In the past three decades, the Chinese economy has transformed from a centrally planned
economy to an open market economy that have eventually integrated with the global
economy, with a significant economic growth rate. Labour, capital and technological
innovation are the key factors of production boosting the rapid economic growth.
Chinas economy reform path can be roughly divided into three main parts, rural reform
begun in late 1970s, urban reforms took place during mid 1980s and in early 1990s the
Chinese economy started open up to play a role in the global economy.6The economic
growth became more significant after the accession to the WTO7 in 2001.8 During the period
from 1949 to 1978, the country was running under the centrally planned economy.

5.1.1.1 Rural Reforms

The economic transformation in rural area could be described as the starting point of
Chinas economy reform, by introducing rural development and liberalization.

6 The Economy of China (P.3-10)
7
WTO: World Trade Organisation
8
The Economy of China (introduction)

The Household Responsibility System(HRS)9 was successfully established in rural areas,

and it provided an opportunity for farmers to retain on their agricultural products after
remitting a portion to the local government, this system encourages output, grew in rural
areas reaching a peak at 198410, it was marked as the starting point for the countryside to step
in as a part of the economic reform. With an increas in the share of national income by 10 to
15 points11, relatively high level of investment and a decrease in government saving, the
Chinese economy began to turn aside from the typical command economy model. Since
then, started to build up the structure of a market economy.
The Township and Village Enterprise was eventually set up in 1980.12 More than one-third
of industrial output in China was associated with the TVEs13, it has reached a peak during
the post-1978.

5.1.1.2 Urban Reforms

The reform then extended to the urban areas during 1980s to 1990s, with institutional
innovations14 it continues moving towards the market. There were the Budgetary
Responsibility System, the Contract Responsibility System and permitting direct borrowing,
these systems are generally benefitting the economy and also improving the relationship
between the central and local government. In addition to the accession to WTO in 2001 has
allowed foreign banks to extend domestic credit.
As a result, local state-owned banks, state-owned enterprises and autonomous local
governments have started to play the leading role of allocating resources. One the other hand,

9
Ibid (P.5-6)
10
Ibid (P.5-6)
11
Ibid (P.5-6)
12
Ibid (P.5-6)
13
Township and village enterprise
14
The Economy of China (P.6-7)

10

the importance of central government has decreased, without the ful reform of ownership.
Consequently, the decentralization and institutional innovations during the post-1978 period
was a significant factor affecting Chinas development. At that time, the inefficiency and
unemployment problem did not actually create any concerns, while the soft budget
constraints were eventually the most arduous issue in the state sector.

5.1.1.3 Accession to the global economy

Having gone through the three reforms in the past decades, in mid to late 1990s, China has
focused mainly on marketization by improving the corporate legal foundation and also
privatising state-owned enterprises. Furthermore, the transformation extended to the banking
system as well as the capital markets, which continuously encourage a rapid development in
the market in the 2000s.

5.1.2 Current state of Chinas economy

We absolutely must not any longer sacrifice the environment for the sake of rapid growth
and reckless roll-outs15 said Mr. Wen16 China decided to move to a sustainable policy, as
rapid economic growth will make its economic development unsustainable. In the last 10
years Chinas economic growth has been greater than the target set. At the same time,
Chinas economy is unstable. It has a high growth as well as inflation; it was about 6% in
2011. It is suggested that the Chinas economic growth will slow; it will turn towards

15
BBC NEWS- China lowers growth rate target in sustainability drive
16
Mr. Wen: Chinas Prime minister

11

sustainability instead. In March 2012, new target was set at the level of 7.5% Chinas
happiness index has been in decline for 4 years17

5.2 Chinas legal system

5.2.1 Development of the legal system
The legal system is a legal regime of a country; it could be a written or non-written constitution18,
in other words it is a system interpreting and enforcing the law. The Chinese legal system is similar
to the continent of Europe rather than to the common law.19
The government failed to practise the rule of law in early stage at around 1960s to 1970s, it is
suggested that the new system will disrupt society and that it was too costly to operate under the rule
of law.20 In 1976,after the death of Mao, many party leaders had seen this as a good opportunity to
introduce a legal reform.21 Deng Xiaoping realised that the most important thing is to boost its
economy; it threw open door to foreign investment. The legal reform has been successful especially
being able to attract foreign investments, getting on track with the global economy.22
It is believed that the legal reform is essential for economic development; it motivated the
Chinese government to move towards and practice the rule of law in China.23 The government did
make a notable affect in law making, and created a market economy.24 The success in having made at

17
Capital University, Beijin
18 Business Dictionary.com ( legal system )
19
The Chinese Legal System by Donald C. Clarke
20 China's Long March toward Rule of Law-Chapter 4 (p.126-187)
21 China's Long March toward Rule of Law-Chapter 3 (p.55-125)
22 Ibid (P.55-125)
23 China's Long March toward Rule of Law-Chapter 10 (p.450-512)
24 China's Long March toward Rule of Law-Chapter 6 (p.239-279)

12

least 350 laws since 1978, the government also started to diminish its role in law decision-making,
and moved the role to the National people congress.25 The committee of the national people congress
are a group of young educated learners, and they are allowed expertise in law making and to draft
better laws, in order to maximise the good living of Chinese.26

6. The relationship between specific law and

economic development
6.1 Taxation system
6.1.1 Taxation system in China
Taxation is one of the most important sources of fiscal revenue of China27, it directly affects
the social and economic development within the country. China has undertaken major tax
reform in the year of 1978,1983,1994 and 2004.28
Most foreign investment left China in 1949 after the formation of People Republic of
China, because the first PRC leader Mao nationalised private capital.29 Between the years of
1956 to 1978, the Chinese economy was running under strict soviet-type command economy,
depended greatly on the communist government, almost the whole private sector has
disappeared in the market. 30 During the Cultural Revolution, turnover tax was used to
transfer the money earned by enterprise to the government. Laws were disregarded and held

25 Ibid (p.239-279)
26 Ibid (p.239-279)
27
Beijing Local Taxation Bureau (http://english.tax861.gov.cn/zgszky/zgszky01.htm)
28
Economic Analysis of law in China29 Development and tax policy: case studty of China (Jinyan Li)
30 Ibid

13

little power. The department of taxation was only existing in name.31Since 1994, the taxation
system has been working very well with the socialist market economy.
In 1978, Deng XiaoPing suggested a totally different way, hoping to boost economic
development. He pushed forward the economic reform and allowed room for designing
taxation policy. The current taxation system in China includes 25 types of taxes, which are
divided in to 8 categories according their nature.32

31 Ibid
32
Beijing Local Taxation Bureau (http://english.tax861.gov.cn/zgszky/zgszky01.htm)

14

Tax
Categories

Turnover
taxes

Income
taxes

Type of Tax
Brief Description
Value Added Tax

A tax levied on value added. Tax rates: 0%

(for exports), 13%, 17%. Input tax
refundable for exports.

Consumption Tax

A tax levied on consumer goods produced

and imported. Exports are tax-exempt.

Business Tax

A tax levied on taxable services, transfer of

intangible assets or sales of immovable
properties in PRC.Tax rates: 3%, 5%, 8%,
5%-20% (entertainment).

Enterprise Income Tax

A tax levied on income of enterprises (both

domestic and foreign).Tax rate: 25%.

Income Tax on
Enterprises with Foreign
Investment and on
Foreign Enterprises

A tax levied on income of enterprises with

foreign investment (EFI) and on foreign
enterprises. Abolished Jan. 1, 2008.

Individual Income Tax

Resource
taxes

Taxes for
special
purposes

A tax levied on individual income. See

Section 2.8 for individual income tax rates.

Resource Tax

A tax levied on mineral resources and salt

production within PRC.

Urban and Township

Land Use Tax

A tax levied on land occupied by enterprises

and individuals (excluding FIEs, FE and
foreigners). Tax rate depends on the region.

City Maintenance and

Construction Tax

A local tax based on the amount of VAT,

Consumption Tax and/or Business Tax paid
by taxpayers. Tax rate: 7% (city), 5% (town
and county), 1% (other).

Farmland Occupation
Tax

A tax levied on the area of farmland

occupied for building construction or for
other non-farm purposes.

Fixed Asset Investment

Orientation Regulation

A tax levied on total amount of investment in

fixed assets (infrastructure, state projects,
office and residential buildings) within the

15

Tax

Tax Categories

Taxes for
special
purposes, cont.

Type of Tax

Land Appreciation
Tax

territory of PRC. Tax rates: 0%, 5%, 10%,

15%, 30%.

Brief Description
A capital gain tax levied on income from
a sale or other means of transfer with
consideration of state-owned land use
rights, buildings on land and their
attached facilities.
Not imposed on the disposal or transfer
of ordinary owner-occupied housing
(with residential area less than 120 m2)
or on ordinary residential construction
where the gains are less than 20% of the
original cost.

A tax levied on housing property in

cities, county capitals, townships and
Housing Property Tax industrial and mining districts. Not
imposed on owner-occupied housing.
Property taxes
Urban Real Estate
Tax

Inheritance Tax
Vehicle and Vessel
Usage Tax

Behavior taxes

Vehicle and Vessel

Acquisition Tax

Stamp Tax

A tax only applied to FIE, foreign

enterprises and foreigners, and levied on
housing property only. Abolished as of
Jan. 1, 2009.
In planning stages, not yet levied.

A tax levied on vehicles and/or vessels

within the territory of the PRC.
A tax levied on vehicles purchased. Tax
rate: 10% of pre-tax price for domestic
vehicles; 12% for imported vehicles.
A tax levied on the execution or receipt
of specified economic documents.Tax
rates: depends on the item, with rates
ranging from 0.005%-0.4%.

16

Deed Tax

A tax levied on the transfer of housing

property and land-use right within the
territory of PRC. Not imposed on first
purchase of public housing by urban
workers.Tax rate: 3%-5%.

Securities Exchange
Tax

Not yet legislated and levied.

Slaughter Tax

Agricultural
taxes

Customs duties

A tax levied on the slaughter of livestock.

Banquet Tax

A tax imposed on individuals or

businesses that provide banquets in
hotels, restaurants and other venues.

Agriculture Tax

A tax levied on agricultural production.

Real average burden 2.5%.

Animal Husbandry
Tax

A tax imposed on individuals and units

who engage in animal husbandry.

Customs Duties

A tax levied on imports to and exports

from PRC. Tariff rates for imports range
from 0% to 270%. Tariff rates for exports
range from 20% to 50%.

The above graph was produce by the Beijing Local Taxation Bureau

In China, VAT33 is the most significant revenue for the government; VAT generated more
than 37% of the total tax revenue in 200434, followed by income tax, it contributed to 22% of
the total tax revenue.35 The current taxation system in China aims to maximise the fiscal
revenue36, the tax revenue received in 1993 were 5.4 times less than that of 2003.37

33 Value-Added Tax
34 China statistical yearbook 2005
35 Ibid (2005)
36 Development and tax policy: case studty of China (Jinyan Li)
37 Ibid

17

6.1.2

To what extent it assists Chinas economic

development?
The reformation of modern taxation system benefited the effectiveness in the economic
policies and reaching the objectives. Chinas optimal level of tax revenues to GDP was
27.2% in 200738
Chinese taxation system played a critical mixed role in the economic development39. In the
beginning of the economic reform, taxation system assisted the economic development more
significantly by attracting Foreign Direct Investment and the adjustment to local
enterprises.40 A steady rise in fiscal revenues have supported china economic growth, it has
risen from only 1.07 trillion yuan in 1999 to more than 4.56 trillion yuan in 2006.41
The taxation system had directly affected the economic growth is China. In the past years,
the transition in taxation system had allowed economic growth however; an economic
growth does not necessarily lead to economic development. The taxation system in China is
clearly affecting the economic development, but the degree of effect is uncertain. The
decrease in VAT tax and Income tax might have also have increased citizens living standard
by increasing disposable income, hence economic development.
However, in recent years, there has been a negative impact on the tax incentives and the
discriminative policy against local enterprise.

38 Macroreview: Why Taxes Matter for Economic Growth (Caijing)
39 Development and tax policy: case studty of China (Jinyan Li)
40
Ibid
41
Macroreview: Why Taxes Matter for Economic Growth (Caijing)

18

7. How One Child Policy has affected the economic development

7.1 Pre- One Child Policy
The One Child Policy is an ambitious market reform programme that was introduced by the
Chinese government aimed to control the countrys population and to allow economic
development. In respect to my research, Chinas One Child policy gives a good all-round
examination on how a law assists the economic development in reality taking place in China.
The issue of population control had been a concern for the Chinese government since 1949,
after the formation of the Republic of China. The Chinese economy needed a significant amount of
labour at that time, in order to boost its economy; therefore there werent any substantial
population controls in reducing the fertility rate. The problem of overpopulation arose when ten
millions of Chinese people suffered from famine in early 1960s.42 In the year of 1975 Mao
Zedong said in one of his speeches that he wished the population of China remained at the level of
600 million for many years.43
In 1970s, China had a rapid growing population, more than a quarter of worlds population
belonged to China. Two third of Chinas population was under the age of 30 at that time,
additionally to an enormous number of baby boomers44 were entering their reproductive age,
which would have lead to a speedy expansion in the population. The Chinese government foresaw
the pressure and social-economical problem of being overpopulated. The problem of
overpopulation could be an obstacle to the economic development of China, given that resources
are limited, the larger the population, the harder to raise living standards.

42
China's population and economy are a double whammy for the world- Los Angeles Times
43
Chinas changing population
44
Baby Boomers: Population born between 1950s-1960s

19

7.2 Enforcement of the One Child Policy

Undergoing the pressure of being overpopulated, the leader Deng Xiaoping established the One
Child Policy in 1979, aiming to reduce the rate of rapid population growth and to reduce the strain
on scarce resources.
Under the one child policy, family resources are able to concentrate on one child, given that
educations are very expensive, and school spaces are limited. With better education and living
standard, the higher probabilities to train up a superior youngster, who would become a skilled
worker, benefiting the economy in the future. At the same time, women were able to concentrate
more on career, increasing the role of women in the workplace. In the social view, there is less
pressure on national healthcare; resources could be allocated to satisfy the demand for quality
services, rather than quantity.
Penalties known as the social maintenance fee45 were imposed to avoid couples having more
than one child. It is estimated that the Chinese government has at least received more than two
trillion yuan penalty fees since 1980.46 The penalty for a second child charges a couple in Shanghai
around 220,000 yuan, which is relevant to three to six times the citys annual post tax income.47
The penalty is progressive; it increases with the couples income. Without paying the fine, the
second child would not be allowed to access the household-registration document, which means no
access to the education and social provision.48 However the One Child policy was not an allencompassing law, the law in fact only applied to less than 40% the population49, the restriction of
one child only restricted to married couples that lived in urban areas and were ethnically Han.

45
The brutal truth-The Economist (June 2012)
46
Ibid
47
Consequences of the one-child policy-Perils of motherhood-The Economist (June 2012)
48
The brutal truth-The Economist (June 2012)
49
Consequences of the one-child policy-Perils of motherhood-The Economist (June 2012)

20

There were several exceptions under different circumstances; couples in rural areas were generally
excluded, ethnic minorities are formally excluded, families with children either mentally or
physically disabled might sometimes be excluded. Rural resident couples are allowed to have a
second child, if the first child is a girl.50
The policy turned out to be more successful in urban areas (e.g Shanghai), a high proportion
of couples agreed to have only one child willingly, due to the shortage of housing and the long
working hours. In contrast, the policy was not as efficient in rural areas; as most of the families
were participating in the agricultural changes, in long term most of them preferred having a son,
who would have been able to work as a more valuable labour force and being able to contribute
more in supporting family. Moreover, poor sanitation and medical condition in rural areas lead to
high infant mortality rate, around 53 per 1000 live births51,a large quantity of labour is needed to
support the family, consequently increased the intensive of parents choosing to have multiple
children. Without regular savings and pensions, rural parents needed children to support them in
their old age.

50
Ibid
51
Chinas changing population

21

7.3 How does One Child Policy affect the economic

development?

The above population pyramid shows the population pattern of China in 1970. In 1970,
The Countrys total fertility rate had a high significant crude birth rate at 36%52, also a
relatively high infant mortality rate; the under-5 mortality rate was around 110 per 1000
individuals53 due to the poor medication system, inadequate social provision and poor
sanitation. The Total fertility rate in 1970 was 5.554 .A large amount of the population is
below the age of 20, moreover, as the baby boomers that were born in the 1950-60s are

52
UNICEF-China-Statistic-Basic Indicator
(http://www.unicef.org/infobycountry/china_statistics.html)
53
UNICEF-China-Statistic-The Rate of Progress
54
Ibid- The Rate of Progress

22

entering their reproductive age, birth rate was expected to rise gradually due to more adult
families. The working population is comparatively smaller than the children population those
who are still at school. The life expectancy was around 63 years55 at that time, which it
wasnt very high, only a very minor of the population live up to the age of 80, according to
the population pyramid above, females in China had a slightly higher life expectancy than
males. The phenomenon could possibly be explained by the Chinese tradition value, where
the men was responsible for earning money to support the family, women stays home
looking after childrens and do the house work. In comparison, men had experienced a
comparatively poorer working condition, for instant factory worker and farmer etc, having
participated in exhausted jobs for several years, their physical health condition tended to be
worse than woman.
In 1970, China had an expansive population pyramid, regarding to large number and
percentage of the population are in younger age group. China did not have sufficient
resources to satisfy all these people, a high quantity in the population but the government
aimed for a quality population instead. Therefore, China had to set in birth control system to
stop the country being overpopulated, in order to increase the quality of living the quality of
the population.
In this way, more social resources could be distributed to each individual. It brought an
increase in the countrys medication development and education development. These factors
directly reduced the high infant mortality rate; more children were able to receive education.
The quality of the labour is a key factor affecting the economy, the higher the quality of the
labour, the higher the productivity. Economically, the higher quality of the labour is an
increase in factors of production; the situation could be represent by the production
possibilities curve, which shows the maximum combination of output produced given that

55
Ibid -Demographic indicator

23

resources are limited. As the quality of the labour increase, the curve shift outward from
PPC1 to PPC 2. Factors of production are used more efficiently, the output level therefore
increases from (X1->X2) and (Y1->Y2).

PPC1 PPC2

Consequently, this highly educated labour force played an important role in developing the
Chinese Economy at that time.

24

The above diagram shows the projection of population in China by 2050, around 70 years
after the One Child Policy was introduced in China. By 2050, It is seen that the pyramid will
have a relatively narrow base, it could possibly be an effect of One Child Policy causing
lower fertility rate, or it could be a side-effect as a result of late marriages and the decrease in
incentive to reproduce next generation, there could possibly be explained with several main
reasons; The fast-growing economy in China required a larger number of labour working for
long hours, in order to compete against each other, the labours have massive workload,
supporting the economic position of the company, as well as boosting Chineses economy.
And the delay in marriage could also be a reason; couples physically and mentally, have less
incentive to reproduce.

Moreover, the rapid grow in the economy brought inflation,

bringing up children is becoming evermore expensive; it increased the financial burden of

the parents. The population pyramid by 2050 is suggesting a contracting population.

25

Large amounts of the population will be entering their retirement age; in 2012 the retirement
age for civil servants is 60 for men and 55 for women. And for the others female labourers
are at the age of 50.56 The new slot of labourers in the working population will be greatly
reduced. Less labour is available to carry on the task from the previous group of labour; it
could result in a decrease in productivity. A reduction in productivity indicates that the
supply decrease, supply curve will shift from AS to AS1; the qualities of the output will

AS1

AS

decrease from RDO to RDO1. However the Price of the goods will increase from PL to PL1.
The decline in productivity leads to a decrease in output level, also the real GDP, the lower
the Real GDP meaning that there is a decrease in the growth rate. Additionally, with the
impact of increase in the price of the goods, would Chinese still be the largest manufacturer
or will it be taken out?
In July 2012, the director of social security research institute proposed that the Chinese
government should push back the retirement age of all employees to the age of 65, by the
year of 2045.57 He suggested that the country could increase the retirement age gradually

56
Proposal to push retirement age to 65-China.org.cu
(2012)(http://www.china.org.cn/china/2012-07/02/content_25785258.htm)
57
Ibid

26

from 2016 onwards.58 The delay in retirement age is crucial to the economy, the workforce is
estimated to decrease from 970 million in 2010 to 870 million in 2050, and the workforce
will approximately descend by 3.66 million yearly.59 This will significantly increase the
burden on the working population, and a noticeable effect on the countrys productivity; it is
believed that China will face a shortage in labour force supply from 2013.60
The economic development in China could also be analysed through the measure of
dependency ratio. Dependency ratio shows the proportion of young people aged under 15
and older people aged over 64 depend on the people from 15-64, who are in their working
age.61 The higher the dependency ration indicates that the economy has a larger burden in
supporting the ageing population.62 Hence, the change in dependency ratio created a great
impact on the Chinese economic development. 63

58
Proposal to push retirement age to 65-China.org.cu (2012)
59
Ibid
60
Ibid
61
Dependency Ratio-Investopedia
(http://www.investopedia.com/terms/d/dependencyratio.asp#axzz29HGt8X3t)
62
Ibid
63
Future Population Trends in China: 2005-2050 (2009) Chen Wei and Liu Jinju

27

The graph above illustrates the trend of dependency ratio from the year of 2005 to the
projection until the year of 2050. The dependency ratio is seen to be rising through out the
whole period; it could be observed that the ageing population is increasing continuously,
while the growth in young population is slowing down and decreasing. This phenomenon
could be an effect of the one child policy, reduction in fertility because couples were
encouraged to have only one child; they have to pay for the second child. Large amounts of
baby boomers with longer life expectancy are growing in the old age.
Conclusion
One of the aims of The One Child Policy was to slow down the birth rate, then increase the
quality of future labour force, by concentrating education material and resources on a limited
amount of youth.

28

After the set up of one child policy, the population has been in control and slowed down,
around 400 millions of births have been prevented.64 The diagram above showed Chinas
fertility rate, before and after the one child policy was introduced. The population
reached a peak in 1967-1968, it then fell rapidly after the year of 1968 until 1980.
Following the establishment of one child policy, the population had slightly increased in
late 1980s, then continued to decrease steadily. The Chinas fertility rate is at the level
of 1.6 children per woman, it is clearly lower than that of the United Kingdom and
United state. 65 However, a population expert Cai Yong suggested that the decline in
population was not a result of the one child policy; the population would still have been
decreased without the policy.66 Despite the fact that the decline in population might
have also been affected by other factors, it is believed that a one child policy has
contributed to population control, allowing concentration of resources, which increase
the standard of living by better state provision and training up quality future labourer.

64
Ageing China: Changes and challenges-BBC NEWS
65 Ageing China: Changes and challenges-BBC NEWS
66 Ibid

29

As a result of the concentration of teaching material and smaller classroom size67 the
literacy rate for youth aged between 15-24 in 2005-2010 had reached 99% for both male and
female. 68 The policy has efficiently increased the education and the skills of the workers,
future labour force are also able to take up managerial role in workplace, which require
literacy, rather than only taking up physical labour role. In a developed economy, it is
necessary to have a variety of different skilled labour to take up different roles, allowing
specialisation to gain productivity. The implication of more advanced medical technology
and better protection for infants; the infant mortality rate in 2010 is 16 per 1000 births69 Life
expectancy at birth have been raising continuously, from only 63 years in 1970 to 69 in 1990
and even higher to around 73 years in 2010.70 In other words, citizens have benefited from
better health care provision, and generally citizens have a better health condition. Better
health condition reduced the burden of central government in the public health care to the
opportunity cost is to spend the revenue in other public provision, such as transport and
environmental development.
One child policy comes in effect with family planning programmes, encouraging couples
to make use of contraception. In 1983, more than 14 million women had abortion organised
by the family planning committee, 23 years after it had greatly reduced to 6 million.71
The one child policy is seen to be an efficient and effective law in control such an
abnormal population and allowing giant economic development. As economic development
takes in social, environmental and economics into account, the one child policy to a certain
degree is examined to be beneficial to the society in all three aspects in the past 30 years.

67
Chinas 2010 Census Reveals Results of Urbanization and One Child Policy
(http://blogs.elon.edu/irblog/2011/04/29/chinas-2010-census-reveals-results-of-urbanizationand-one-child-policy/)
68
UNICEF-China-Education
69
UNICEF-China-Basic indicator
70
UNICEF-China-Demographic Indicators
71
The brutal truth-The Economist

30

However, the one child policy had also created certain problems to the modern economically
developed Chinese society. There has been a debate on whether the One Child policy should
be carried on? Does the One child policy match the needs of the new Chinese society?
Should the government focus more on the balance of age structure, the pressure of ageing
population and the future decline in productivity instead. The one child policy benefited the
planned economy would it still be effective to the well-developed economy in the future?
The government responded that the one child policy would remain unchanged until 2015.72

8. Conclusion
The Chinese economic development has been unique, development in taxation
system showed a encouraged economic development, given possibility of increasing
peoples standard of living, such as the happiness index and their purchasing power.
The Chinese leader Deng XiaoPing believed that modifying the taxation system would
have allowed room for economic development. And the great economic transformation
proved that he was correct, the new taxation system is now allowed to integrate well
with the global economy.
The case study on the One Child Policy also showed a good image on how the law
assists the economic development in reality. One child policy successfully reduced the
problem of overpopulation and greatly contributed to the economic development in all
three aspects; social, economic and environmental. Evidence showed that the One Child
policy allowed space for the government to allocate resources in a variety of areas.
Law is essential in maintaining a modern market; in order to develop a sustainable
economy.73 A world bank in a 1997 report stated that countries with stable government,

72
Rethinking China's one-child policy-The child in time (2010)
73 China's Long March toward Rule of Law Chapter 3 (p.55-125)

31

predictable methods of changing laws, secure property rights, and a strong judiciary
saw higher investment and growth than countries lacking these institutions. 74 My
investigation has agreed with the assumption, suggesting that the role of law is essential in
order to allow for economic development.
Despite the fact that the Chinese government is actually playing the most important role,
the communist party still hold a rather strong power then the actual legal system; everything
is still greatly depending on political factors.

74 China's Long March toward Rule of Law Chapter 10 (p.540-512)

32

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Local Taxation Bureau. Retrieved September 13, 2012, from
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Annual Data. Retrieved October 17, 2012, from

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http://www.unicef.org/infobycountry/china_statistics.html
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10.Appendix
In this section I intend to evaluate my sources used in my dissertation, aiming to
investigate the benefits and flaws of different resources provided by a variety of mediums.

I have consulted some of the statistical data from the United Nations Childrens Fund
(UNICEF). I believe this source is trustworthy because UNICEF is global authority and they
are expert in surveying and conducting statistical data all over the world. I avoided using
statistical data from any Internet forum and blog, where Internet users could freely edit
information;I do not consider that as creditable.

I am aware that a large proportion of my resources are online resources, I consider the
reliability of the Internet sources before I use it. Government site and academic article sites
are usually considered as more reliable sources; therefore I mainly used the online resources
that are published by such authorities.

The Beijing Local Taxation Bureau is an official website and gives information about the
taxation system in China. I have also gained resources from The Economist, BBC New, and
some other Chinese local journal article. (e.g China.org.cu and Caijing). These journal and
magazines articles provided more up to date information, articles written by different
journalist gives a different view even looking at the same issue. These journals provided very

38

informative resources especially for the One Child Policy. The BBC News has made a series
video regarding to the One Child Policy. I have also collected the population pyramids I
used in my dissertation from The BBC website.

Moreover, I did also collect material from university project articles, for example
Development and tax policy: case study of China by Jinyan Li a student studying in
Osgoode Hall Law School of York University. I believe these university research papers are
quite reliable, because these researches are undertaken with the guideline of academic
research.

Apart from Internet resources, I also used a variety of books as sources in my project. I
have visit Senate house library in London to look for resources that are related to my topic, I
have found a really useful book called Law and the economy by Roger Bowles and I have
also gained extracts from several books. I have found it very interesting that most of the
published books in the library mainly focus on how the economic growth in a country allows
development of its legal system, which is related but opposite to my topic. Reading these
books allows me to investigate my topic in different aspects and I find it very helpful. I
highly consider these resources as reliable and creditable.

Furthermore, I have gained access to the Hong Kong City University Legal library, where
I was about to access many Chinese law books. And the library provided a variety of
Chinese language academic magazines, such as the Chinese Law Magazine. These academic
sources are highly trustworthy source. I found these sources particularly helpful because it
might not have directly helped the writing part of my project, but it allowed me to
understand more about the law in China.

39

The two most important sources of books I used are the The Economy of China and
Enterprising China both are written by Linda Yueh. Both of the books gave an extensive
overview into my topic. The book The Economy of China explained the transformation of
Chinese economy in great detail; I have gained good understanding of the economic
transition. The book Enterprising China investigates the business, economic and legal
developments in China since 1979. I have referenced these books, I certainly consider these
two books that are published in the Oxford University press as highly creditable and reliable
sources, the author Dr. Yueh directs the China Growth Centre at St. Edmund Hall, University
of Oxford; she is an expert in the field.

40