*Party Man, Company Man*

The author is Joe Zhang and the subtitle is Is China’s State Capitalism Doomed?  Here is the summary of his conclusions:

1. The state sector remains the dominant part of the Chinese economy.

2. In the past decade, China has erased most (if not all) of the liberalization of the previous two decades.  As a result, the state sector has become more dominant than it was a decade ago.

3. The state sector enjoys widespread public support in China, contrary to perceptions in the West.  there are political, social and cultural reasons for this “strange” situation.

4. The state sector and SOEs are constantly adapting to the public demand for transparency and efficiency.  As a whole, they do not necessarily underperform the private sector.  Indeed, due to systematic discrimination against the private sector, there is evidence to the contrary: the state sector has had a better financial track record in the past three decades.  Indeed, it is not fair to make comparisons given the unleveled playing field.

5. The many challenges China faces today need a robust and well-funded state sector.  At least that is, in my judgment, what the Chinese government and most members of the public think.  These challenges include social inequality, overpopulation, environmental damage, and the depletion of global resources.

I do not agree with every claim in this book, especially the normative ones, but this is one of the better places to go for a look at how the Chinese economy actually works.  Or doesn’t, as the case may be.

Comments

*yawn*

If Deng Xiaoping had followed Tyler's advice in 1978, China would be a much poorer and less industrially developed nation that it is today.

There is simply no believable scenario in which the PRC would have grown more rapidly in the last 36 years.

I actually wonder if Tyler and his ilk are actually in the pay of the Chinese government. After all, the regime constantly tries to convince us that China is simply another developing nation, and not an emerging superpower. Tyler agrees. When China becomes a peer competitor to the U.S., in what? Less than a decade? He'll have helped pave the way.

Why 1978?

What about from today?

Agree with you in that economics doesn't really understand why China is growing.

But we need to put some cold water on how successful Chinese growth has been. In order to see how actual performance compares against potential, we can compare Manchuria, Taiwan, North and South Korea, all part of the Japanese empire until 1945. Let's assume that they were economically similar at that date.

Today we have nominal GDP/person in USD of: Liaoning $10,000, Taiwan $22,000, North Korea $500 and South Korea $26,000. Liaoning's performance compared to North Korea is great (and it's also great when compared to China's own economic trough of 1972), but compared to Taiwan and South Korea, there's nothing great about it and GDP only tells part of the story.

I like the one about how the state outperforms...by kneecapping the competition. We see that logic here too. Except the difference is here people usually don't realize they are doing it while Chinese seem to say it with a straight face and almost pride.

Jack Strocchi claims the Communist Party recruits a large fraction of the better talent in China to become government officials. How true is that?

Steve - It's true. As part of the post-Tianamen settlement, the Party decided to co-op students. The result is that the top students in college, those who have superior grades and show some leadership potential and have no signs of being politically unreliable (e.g., Falun Gong members), get a tap on the shoulder and an invitation to join the Party. It's a lot like an invitation to join Skull & Bones. There's no obligation to join, but if you do, it opens doors. At the graduate law school I teach at in China, over half of our students, and most of the better ones, are Party members.

Note that there is no ideological component to Party membership. The only thing the Party believes in is the Party. The required classes in "Marxism with Chinese Characteristics" are widely regarded as a joke. There are more Marxists on the faculty at any Ivy League school than at any leading Chinese university. Unlike most American law students, my students don't think profit is a dirty word. They admire people who get rich. The Party members among my students join the Party purely for career purposes.

When people say that the Party recruits top talent to become government workers, bear in mind the revolving door between State Owned Enterprises and the Government. The Party functions as the HR Department for China, Inc., shuttling people back and forth. So talented young people might start at an SOE and then go into a ministry or vice versa.

Richard MacGregor's book, The Party, has a very good explanation of how all this works.

In a lot of universities and state owned enterprises, joining the Party is the equivalent of getting an MBA or something. If you want to advance within the organization, it's not entirely a prerequisite, but it's a very highly recommended course of action.

The many challenges China faces today need a robust and well-funded state sector. At least that is, in my judgment, what the Chinese government and most members of the public think. These challenges include social inequality, overpopulation, environmental damage, and the depletion of global resources.

So a strong state is needed to correct the problems created by that strong state?

The Chinese will screw themselves in the end. Like the Japanese.

And what about the Democratic Party of the U.s.? They believe everything in #5 about this country and themselves.

Joe Zhang's book on China's financial industry, Inside China's Shadow Banking: The Next Subprime Crisis?, is the best introduction there is to that very strange world. If this book is half as good as that one, it's worth reading.

The Chinese elite are following Bismarck's path, try and give the population what they want without regard to ideology as long as we get to run the show.

This was difficult enough in a full employment industrial society with a normal gender distribution and a safety net that kicks in after most people are dead. What happens when what most people want is a wife, you can't redistribute those. Well you can but only from neighboring countries. Also Bismarck was specifically attempt to defang a constituted, if at times outlawed, movement with an articulated policy. It's easy to triangulate against an existing movement like socialism. How do you triangulate against a far more inchoate challenge that isn't organized and consequently doesn't give you a go idea about what your opponents want. If that's China's policy they should really think about allowing a second political party to form in order or signal back to the Party what services they are expected to provide.

Sure, you can redistribute wives. Just lock up the same percentage of males as we do young black men in the U.S. That'll solve the gender imbalance right quick.

All that has done is damage the marriage prospects of black females. For whatever reason, other races do not pursue black females.

It's very much a two way street there. Black females are raised to look only at black men as appropriate partners.

I wonder how long until the Left in the US declares that a market failure, in need of, "bold, decisive action".

There are 20.6 million black males in the United States of which about 700,000 are in prison or jail at any one time. That amounts to 3.4% of the black male population. About 0.3% of the black female population is incarcerated. The only 'imbalance' that can resolve would be one wherein men were 49.2% of the population.

Un and underemployment are even bigger problems than incarceration for black marriage rates.

"...systematic discrimination against the private sector..."

Hmmm. Hmmm. Hmmm.

the eventual outcome is financialization and conversion of state-run enterprises to state-owned holding companies. those that cannot compete on a purely financialized basis turn into quangos. political control is maintained through cross-ownerships and interlinks on boards of directors/party organs/legislatures.

this is inevitable as bureaucracies struggle to control a tangled web of state subsidiaries and make them all follow a unified government policy; also settle jurisdictional disputes between SOEs.

I'm not sure it's quite fair to say that they erased the liberalization. It was practically a wild west of sorts for a time, despite the enormous contradiction that poses with respect to the fairly constrained scope of activity in the political realm. There was hardly a point in making various regulations because the government could hardly enforce them. For example, no smoking in restaurants, needing certain types of driving licenses, opening up informal business, etc. Perhaps the state sector is more apparent because it dominates mobile telecommunications? I think the examples that have the greatest impact on the data can be seen as particular examples, and not as reflective of general trends. It was always necessary to negotiate extensively with officials to get anything off the ground if it was any larger than very small. Now there are many firms to fill in gaps even if formal rules are tending to be a little tighter, or more regulated, if you will.

Basically, I'm making an argument that the Chinese economy may be more regulated, and that the state-owned sector happens to be in some high growth areas including mobile and internet, but that compared to the 1990s, for example, it is no less "liberal" in the sense of economic freedom, at least if you're a foreign investor. The wild west, where anyone with a few yuan to rub together and some of the right connections could go seek their fortune, building some business from scratch, is perhaps over. More regulated, but at the same time, more openly accessible, perhaps, as demonstrated by the number of firms which openly offer services to facilitate various forms of offerings.

There is a lot of misperception about China. I suggest that interested readers wait for Yukon Huang's book about China's development coming out hopefully soon. In the meantime , read his paper on China published by the Carnegie Institute for Peace. Washington DC. Yukon is a senior Associate at CIP. He was the Director of the World bank office in Moscow during the transition years and then Director of the Beijing Office for six years. He has unique insights into China's development. I will try to post a link to his recent speech to the World Bank 1818 Society on the ten fallacies about China's growth.

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