Because of xian competition，concentration of indus-tries by type in particular locations is very pronounced.Chinese products are flooding the world market，but littleis known in the outside world of the degree of localityconcentration and specialization of industrial production.The ceramics industry of Foshan is a classic example,and I have arranged Li Junhui to write a paper on thesubject for this conference，as she is teaching at the University of Foshan.
Because of xian competition，privatization of stateenterprises has been pressed to proceed faster.Aroundthe turn of the century，a rise in land prices greatly assist-ed privatization.With higher land prices，local govern-ments could afford to pay off state employees andremove the major obstacle to private purchase.Buyersof the state enterprises would sell properties located inprime areas and move the factories to where land ischeaper.The City of Changsha may have broken theworld record in the speed of state enterprise privatiza-tion.I have arranged for their vice-mayor，LiuXiaoming，who was in charge，to deliver a paper detail-ing what happened.
Xian competition has also been a force to reduce cor-ruption.Other things equal，only uninformed investorswill put money in a xian noted for corruption.Experienced investors knowbribing is a cost，and in ear-lier days factory owners down south routinely penciledin such costs when quoting prices to buyers.Not all cor-ruption is gone，but at the xian level it is very muchreduced，particularly when compared to the early 1990s.Officials I talked to concur that competition among xianshave helped to bring this about.
Finally，it is my viewthat the great flexibility of con-tracting observed all over China these past ten or fifteenyears——other than the chain of responsibility contractsas discussed above——is also the result of competitionamong xians.It was this flexible choice of contracts thathelped to save China fromrecession in the second half ofthe 1990s.
One question remains: There will come a time when the conversion of land use from agriculture to industryand commerce would hit very strong diminishing returns—— perhaps ten years from now.Will theintense compe-tition among xians observed today vanish？My answer is that some weakening of competition will occur.However，given the nature of the xian system，freshdirections would doubtlessly be found in which to com-pete.The most likely and profitable candidate is compe-tition in terms of technology.For this reason I haveadvised my Beijing friends to hold firm to the value-added tax，because technological progress is the mosteffective way to increase value added.
Ⅹ.The Monetary System of China and the Rise of the RMB
Zhu Rongji is a brilliant man.Though seated in sever-al different offices，the general consensus is that he was the man in charge of the Chinese economy fromJuly1993 to March 2003.Zhu had every appearance of aplanner，a dictator，a market skeptic，and I criticized himfor his handling of inflation in 1995.Later，I openlyapologized in writing and on television: He was right; I was wrong.
We cannot evaluate a reformer based on what he saysor even on what he does.The performance canonly beevaluated on the basis of results.By this measure，Zhudeserves full marks.Appearing to want power，yet dur-ing his tenure central economic power was significantlyreduced.Critical of themarket，yet during his tenuredomestic markets became so free that they were inspir-ing even to dyed-in-the-wool neoclassical economists.You may accuse the market of selling fakes，but thesharp improvements in product quality rival those of Japan during a similar stage of development，and marketcontracts，both for goods and services and for workers,exhibit a range of choice seldomseen elsewhere.
In 1993，inflation in China was accelerating and the RMB was diving.I published an article on ay 21，say-ing that there was no point to control the money supply,because it cannot be done.42 The problemwas that banksin China were payroll offices，and that people in powercould ‘borrow’ on demand.I therefore proposed that thePeople’s Bank should assume the duties of a central bankand not engage in business transactions.Even more importantly，I argued that the power demand for moneymust go.
