Teaching Comparative Government and Politics

Tuesday, September 13, 2011

Types of Chinese capitalism

Any time you're offered a list of things, it's a good idea to pay attention. The list is usually a helpful bit of description. And if you're a student, you should know that teachers often use lists as the basis for exam questions.

Privatisation with Chinese characteristics

[It's] hard to judge China’s state-led economic model. The government’s actions lie hidden beneath hundreds of tonnes of secrecy, and beyond easy measurement. But as our briefing this week makes clear, China’s semi-privatised companies are both more varied and less admirable than is popularly understood.

Under Mao, it was simple. The government controlled everything… Since 1993 Beijing has encouraged gaizhi for state-owned enterprises, which means “changing the system”… [which] has also created a variety of public-private hybrids.

At one end of the spectrum are the giant state-controlled enterprises in industries which the government considers “strategic”, such as banking, telecoms or transport. Such firms… operate more or less like government ministries…

Next come the joint ventures between private (often foreign) companies and Chinese state-backed entities…

A third group of firms appears to be fully private… But they are still subject to frequent meddling. If they are favoured, state-controlled banks will provide them with cheap loans and bureaucrats will nobble their foreign competitors…

A fourth flavour of Chinese firm is fuelled by investment by local government, often through municipally owned venture-capital or private-equity funds…

These firms with their various sorts of state influence have several strengths. They invest patiently, unruffled by the short-term demands of the stockmarket. They help the government pursue its long-term goals, such as finding alternatives to fossil fuels. They build the roads, bridges, dams, ports and railways that China needs to sustain its rapid economic growth.

But statism has big costs, too. The first is corruption… The second problem is that big state-backed enterprises crowd out small entrepreneurial ones…

[A second article in the September 3 edition of The Economist is longer and includes more details on the types of "private" enterprise operating in China.]

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Labels: China, economics, politics