The Evolution of "Political Business Cycle" in Post-Mao China

Abstract

In the heyday of China`s socialist economy during the Mao era, economic fluctuations were highly correlated with central government policy cycles. In post-Mao China, economic fluctuations are again found to be closely related to political rhythms. A ”political business cycle,” with a logic different from that observed in Western democracies, seems an increasingly significant phenomenon. By scrutinizing the evolution of the political business cycle in post-Mao China, this article concludes that profound institutional changes have taken place from the Deng regime to the Jiang/Hu regime in three respects. First, China`s economic cycle has become more responsive to the political rhythms of formal political institutions, rather than changes in informal politics. Second, when Chinese leaders have needed to manipulate macroeconomic policies to bolster their political popularity, they have increasingly relied on market instruments rather than plan measures to achieve their goals. And third, as China`s economy has been rapidly integrated with the global capitalist system, international factors have played an increasingly important role in determining China`s domestic monetary environment. In other words, the Chinese government`s monetary autonomy has been largely undermined by the growing effects of globalization.