Economic Research in Mainland China

Economics as a discipline and a field of study has come a long way in China. I still have a vivid memory of the first Chinese textbook on economics I read when I was an undergraduate student in mechanical engineering at Beijing University. The book must have been mostly a Chinese translation of a Samuelson-type textbook used in the U.S. for principal undergraduate economic courses, but at the end of every section there was a critique of the concepts just presented in the language of Marxist political economy. I wish I had kept the copy. Today, whether still referred to as Western economics or labelled modern economics, or simply called economics, it has undoubtedly achieved a mainstream status in economics departments, centers and schools all across elite universities in Mainland China.

The broadest definition of economic research as practiced in Mainland China would include any research using the same framework, terminology and methodology as used everywhere else. Much of the research output in economic institutions now falls into this category. In the most recent issue of Economic Research Journal (Jingji Yanjiu), which is the traditional standard bearer among economics journals, not a single article still conducts analysis using the labor theory of value that is the core of Marxist political economy.

It is useful to separate what I would call policy research (Zhengce Yanjiu) from the rest in this broad category. A policy research paper makes no claim about making a potential contribution to economic theory; rather, it applies the body of economic theory to the spe- cific policy issue at hand. I will refer to non-policy research as positive research (Shizheng Yanjiu). By this definition, a positive research paper is not necessarily theoretical; it may not make any direct contribution to economic theory. Moreover, a policy research paper may have policy implications; in fact it is clearly desirable for applied research papers to have implications to economic policies. Nonetheless, positive research is different from policy research, because the impetus, and the primary objective, is to further the knowl- edge of economic theory by contrasting it with economic reality, and not to inform policy makers. I know that this distinction leaves some room for subjective judgements, but I believe in most cases it is an unambiguously useful one.

A distinctive feature of economic research in Mainland China is that policy research dominates in the research output of economic institutions. I have no hard figures to back up this claim. However, looking at the content list of the most recently available issue of Economic Research Journal online, I think it is fair to say that most of the articles are policy research papers. In any case, I don’t think the claim is controversial. Outside China, it is positive research that is prevalent in academic institutions. In the U.S. for example, policy research is the main currency among the economists working in governmental institutions such as the IMF, the World Bank and the regional Federal Reserve Banks, and academic economists at research universities sometimes engage in policy research, but the prominence of policy research in elite research universities in Mainland China is highly unusual by international standard.

The comparative lack of positive research should be a cause for concern. It is clearly incompatible with world-class research universities. More importantly, I would argue that without solid positive research as foundation, there is no guarantee for high quality pol- icy research. Some people may disagree here. After all, since the mainstream economic theory and the most recent contributions are freely available from textbooks and interna- tional journals, it is not inconceivable that Chinese economists absorb the state-of-the-art knowledge of economic theory to deliver high quality research. However, without resident economists who are actively engaged in positive research, nobody would be able to or willing to safeguard the quality of policy research.

To change the situation, it is necessary both to have economists who are capable of high quality positive research, and to provide long term incentives for them. An economist trained in a good foreign research department and established as an economic researcher with publications in internationally recognized economic journals is clearly capable of high quality positive research, but on this trip I have met more than a few home-grown economists who are capable of doing the same. No matter from where capable economists are hired, the key is to provide the right incentives. Without the right incentives, the full research potential would not be realized even if capable economists are hired in the first place; conversely, with the right incentives in place, it can be easier to attract capable people.

An important aspect of the right incentives is an unambiguous commitment to an appropriate standard of positive research output. Among the universities that I have visited on this trip, which include some of the best universities in China, only the Guanghua Management School of Beijing University has a written tenure and promotion standard for recently hired faculty members. A committed standard is critical because it sends a strong message to both existing faculty members and potential new hires that important career decisions are not based on one’s reputation of making bold statements about the Chinese economy or economic policies in the press, but on the academic reputation measured by a standard that is internationally recognizable. Without such standard, an adverse selection problem would severely handicap the recruitment exercise so that people who are willing to accept a position at an economic institution would not be the kind of economists that the institution desires to attract.

For a commitment to positive research to be credible, ultimately university adminis- trations have to appreciate the difference between policy research and positive research, and to acknowledge the primary importance of positive research. Currently there is a race to bring back the most recognizable Chinese economist from abroad, delegate to him re- sources and decision power, and build an economic department around him by bringing in freshly trained graduates. This mode of operation seems to be working at the moment. I am particularly impressed by the energy of the leadership and the scale of the operation at Shanghai University of Finance and Economics (Shanghai Caida). However, as an outside observer I wonder how long the excitement is going to last and whether there is going be any long term impact. After all, a good research environment can not develop overnight and must rely on sustained nurturing. Sustained support can only come from a deep conviction; otherwise, it will quickly become fallen prey to vested interests, bureaucratic resistance, or even a change of fashion.

China is not the only place in the world that has been touched by the globalization of economic research that has been dominated by North America since World War II. It has happened in places from France to Turkey, from Singapore to Taiwan, and from Mexico to Brazil. There are great success stories, but also false starts and downright failures. A particularly important lesson can be learned from the success in Hong Kong and the failure in Singapore. Today Hong Kong is the most active center in economic research in Asia, but it was almost a desert before Steven Cheung (Zhang Wuchang) went back to the University of Hong Kong from the University of Washington. The change occurred only after the establishment of Hong Kong University of Science and Technology in 1991. The high salary and generous benefits certainly helped, but it was the local competition that drove the existing two universities, the University of Hong Kong and the Chinese University of Hong Kong, to revamp their outdated academic programs and to recruit fresh talents, many of whom were Mainland Chinese trained in North America. The lack of local competition is the reason that Singapore has not been able to imitate Hong Kong’s success, in spite of having similarly generous benefits packages and being able to draw from the same pool of talents.

In spite of the large number of Mainland Chinese that earn PhD degrees in economics outside China every year, and an equally impressive number of Mainlanders that have established themselves as research economists abroad, it has proven rather difficult right now for Mainland economic institutions to hire them back. Here, the Israeli experience is also worth studying. Israelis have pioneered the dual position approach that allows many prominent Israeli economists to split their time between a home base and an American economics department. I am not advocating that this approach should be adopted literally in attracting Mainland Chinese economists who are reluctant to completely give up their positions in North America; I am merely suggesting that a flexible, imaginative recruitment strategy is necessary, at least in the beginning before a critical mass can be built.