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THE ENHANCED ROLE OF THE STATE IN CHINA’S INDUSTRIAL DEVELOPMENT

THE ENHANCED ROLE OF THE STATE IN CHINA’S INDUSTRIAL DEVELOPMENT The role of the State, far from being withering out, is in fact massive, dominant, and crucial to China’s industrial development in the XXI century. Moreover, it has been strengthened by the successful implementation of the “keep the big dump the small” policy, which in turn is consistent with a more general strategy shift towards re-centralization in many areas of economic and social policies. This trend is bound to be further accelerated by the massive package of fiscal and other interventions implemented as a response to the world financial and economic crisis. Stateowned and state-holding enterprises are now less numerous, but much larger, more capital- and knowledge-intensive, more productive and more profitable than in the late 1990s. Contrary to popular belief, especially since the mid- 2000s their performance in terms of efficiency and profitability compares favorably with that of private enterprises. The state-controlled sub-sector constituted by state-holding enterprises, in particular, with at its core the 136 large conglomerates managed by the State-owned Assets Supervision and Administration Commission (SASAC), is clearly the most advanced component of China’s industry and the one where the bulk of in-house R&D activities takes place. The State, through both direct and indirect means, has been exerting a strong form of control on industrial enterprises, on one hand, and on the publicly-owned, bank-centered financial system, on the other hand. Thereby, it has been in a position to fuel a massive and long-lasting investment drive and an extraordinary boom in S&T and R&D activities. These processes, in turn, have been generating major systemic external economies, contributing to sustain the competitiveness and profitability of both public and privately-controlled industrial enterprises. In our view, the dominant role of the State in China’s industry (and, more generally, in China’s economy) is not a necessary – albeit wasteful – evil, which will disappear once the transition from a centrally-planned to a fully capitalist modern economy will be completed. We rather see it as an imperfect and ever-evolving, yet strategic planning tool to promote industrial development, and as a core distinctive and structural feature of market socialism. JEL: F42, G32, H30, I28 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

THE ENHANCED ROLE OF THE STATE IN CHINA’S INDUSTRIAL DEVELOPMENT

Economics, Management, and Financial Markets , Volume 4 (3): 44-80 – Jan 1, 2010

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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
1842-3191
eISSN
1938-212X
Publisher site
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Abstract

The role of the State, far from being withering out, is in fact massive, dominant, and crucial to China’s industrial development in the XXI century. Moreover, it has been strengthened by the successful implementation of the “keep the big dump the small” policy, which in turn is consistent with a more general strategy shift towards re-centralization in many areas of economic and social policies. This trend is bound to be further accelerated by the massive package of fiscal and other interventions implemented as a response to the world financial and economic crisis. Stateowned and state-holding enterprises are now less numerous, but much larger, more capital- and knowledge-intensive, more productive and more profitable than in the late 1990s. Contrary to popular belief, especially since the mid- 2000s their performance in terms of efficiency and profitability compares favorably with that of private enterprises. The state-controlled sub-sector constituted by state-holding enterprises, in particular, with at its core the 136 large conglomerates managed by the State-owned Assets Supervision and Administration Commission (SASAC), is clearly the most advanced component of China’s industry and the one where the bulk of in-house R&D activities takes place. The State, through both direct and indirect means, has been exerting a strong form of control on industrial enterprises, on one hand, and on the publicly-owned, bank-centered financial system, on the other hand. Thereby, it has been in a position to fuel a massive and long-lasting investment drive and an extraordinary boom in S&T and R&D activities. These processes, in turn, have been generating major systemic external economies, contributing to sustain the competitiveness and profitability of both public and privately-controlled industrial enterprises. In our view, the dominant role of the State in China’s industry (and, more generally, in China’s economy) is not a necessary – albeit wasteful – evil, which will disappear once the transition from a centrally-planned to a fully capitalist modern economy will be completed. We rather see it as an imperfect and ever-evolving, yet strategic planning tool to promote industrial development, and as a core distinctive and structural feature of market socialism. JEL: F42, G32, H30, I28

Journal

Economics, Management, and Financial MarketsAddleton Academic Publishers

Published: Jan 1, 2010

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