The weaving-in arrangement as described is notunique to China.As Coase rightly points out，lease andemployment contracts in many countries often exhibitsimilar features，and I have pointed tothe similarity tocontractual arrangements found in shopping centers.Ihave also noted that none ofthe parts in the xian systemis new.What is newand important is the way the partsare put togetherthrough the manifestation of the respon-sibility contracts: Namely，use rights are granted inexchange for performance，and that this basic principleapplies everywhere.In particular，in the industrial sectorthe contractual arrangements between the state and pri-vate entities，via weaving-in and with share cropping andthe layer-by-layer chaining，is an awesome display of economic forces at work，at a time when more than onebillion people were poor but the leaders were courageousenough and intelligent enough to follow the principle of“give it a try and then take a look.”
The rights structure implied by chained responsibilitycontracts is reminiscent of the constitution of a country,except that arrangements in China are more flexible inthat the terms are negotiable，and in general they are farmore market oriented than under any constitution I know.In February 2004，I published a long article “It is Not Yet Time to Revise the Constitution,” trying to haltthe constitutional revision in progress at that time.39 My point is that the economic systemof China is so impor-tant that Beijing should study the nature of the system,pinpoint the key elements，and introduce theminto theconstitution.Beijing did not heed this advice，and thesubsequent revised constitution has little bearing on theeconomic system’s rights structure.Apparently Beijing did not fully appreciate that they have done something right，beautiful，and brilliant.
Four implications of significance are obtained fromour study of the Chinese economic experience.First，to the importance of the market and private property inadvancing life and livelihood，we must add the question of how contracts are arranged and structured to formaneconomic system.
【39】张五常，《还不是修宪的时候》，二○○四年二月十六日，《信报》。
We have shown that the economicsystemof China involves a far-reaching but delicatestructure of contracts the like of which has not been seen,and the competition among xians which this contractualarrangement promotes is，in my view，the key to answer-ing the “China question”.Of course，as scientists wecannot rule out the possibility that there may be othercontractual arrangements that would work better，but areas yet untried.As things stand at the turn of the century,and given the country’s relatively poor natural resourceendowment，I submit that the economic systemof Chinais the most effective engine of growth in the history of mankind.
Second，howindividuals and institutions are con-strained matters in the choice of contractual structurethat defines the economic system.The xian-based sys-temworks very well for China，a country with a hugepopulation and exiguous natural resources but blessedwith an intelligent people capable of working long and hard.For a country more richly endowed，adoptingChina’s economic systemmay well bear less fruit.Third，the speed of economic growth depends a greatdeal on the contractual structure which defines the eco-nomic system.We have seen that xian officials give pri-ority to investors who promise to performfaster，and they themselves routinely add a hefty shove tothe push.The sharing formula dictates that what the officials earnis directly and positively related to the rate of growth.Therefore，it has been a mistake on the part of Beijingthat when they sawthe economy growing at more than 8or 9 per cent a year，far higher than in the outside world,anxious thoughts emerged regarding “over-heating” andpolices were introduced to cool things down.My closeobservation of China for 30 years suggests that economicfluctuations there are attributable to changes in policy,while not one trace of business cycles of the endogenoustype described in the western world has been observed.Finally，I do not believe the evolution of China’s eco-nomic systemcould have progressed to a situation ofnear-miracle without the government or the CommunistParty playing a significant role.As I unhappily indicatedin the “Epilogue,” this golden age seems to have lastedonly 29 years.Make it or break it，the government was,and is，important in China’s economic system.It is a sadomen for economics that most，if not all，of the stupidpolicies recently adopted in China were conceived in theabstract by returning Ph.D.s in the subject.
Ⅸ.Side Effects of Xian Competition
