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Book Review – China INC: Between State Capitalism and Economic Statecraft ; By Balasubramanian C

Updated: Aug 26, 2022

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Article 59/2021

Author- Dr. Aravind Yelery, Senior Research Fellow, Peking University, Beijing

Publication-Pentagon Press LLP, New Delhi; Published in 2021; Pages 360

The book is systematically arranged with loads of painstaking research supported by tables, figures and graphs. The founding of the People’s Republic of China (PRC) also saw an economy that was severely disrupted. In such a socio-economic condition the state-owned enterprises (SOEs) were vehicles that gave an uplift. Today we witness the CCP celebrating 100 years of its existence.

The broad story of China’s State-Owned Enterprises (SOEs) can be divided into two broad periods.

The first period is pre-1978 – which mainly witnessed the establishment of SOEs through the “Three Great Socialist Reforms”, Elimination of Private Property Rights” and the subsequent “National Industrialisation”.

And Post 1978 – Where it was only after 1978 that economic experiments began to be gradually carried out in the SOEs.

All these reforms transformed China into a global manufacturing powerhouse with considerable political influence both internally and globally. This is well established by the author through facts and supporting figures and graphs in the book.

However, the situation with China’s state-owned enterprises (SOE), is more complex than we can think of which the author has tried to decipher for the readers.

As of 2020 China is home to more than 100 corporations listed on the Fortune Global 500 – but only 15% of those are privately owned.

A third phase of reforms of sorts happened to streamline the SOEs in 2003. The Chinese government created State-Owned Assets Supervision and Administration Commission (SASAC) as the key supervisory body for SOEs. This is a marked shift to concentrated regulatory power from liberalising. The SASAC was to consolidate state assets management of SOEs, except the assets of the financial enterprises and the state banking sector.

Speaking about the banking sector. China’s banking system remains a very crucial part of the SOEs because It is the bank and its interest rates that define the relationship between the Chinese state and the SOEs. These State-Owned Banks (SOBs) not only form a key pillar of Chinese state capitalism but they are often used to serve the party objective by way of steering finances into projects that the party wants and thereby cultivates political support and legitimacy for the Chinese state. SOEs are frequently utilised as a mechanism for implementing policy, providing socioeconomic stability and building infrastructure.

The present phase is a momentum that is continued through the 19th National Congress when Chinese President Xi Jinping pledged to make SOEs “stronger, better, and bigger”.

Today we are witness to a changing global order, US-China Trade War, talks of Cold War 2.0 and the Fourth Industrial Revolution where China has taken a considerable lead in AI, ML, IoT among others.  In such an environment China is also trying to transform its economy from an investment-driven export economy to an innovation-driven economy reliant on domestic consumption. Due to which the role of SOEs has become all the more important and its role is only set to increase.

As the book by Dr Aravind Yelery China INC answers questions not only on where it all started with the SOEs but shows Chinese SOEs have traditionally assisted the government in reforms and it is now becoming even more important. This is particularly relevant to certain strategic sectors where government feels PRC oversight as absolutely essential – specifically in defense, energy, telecom, aviation and railway systems as the author brings out in a chapter on China’s Belt and Road Initiative (BRI).

One aspect missing in the stellar list of China’s SOEs are a comparison with India. The builders of modern India envisaged PSUs to be modern industrial temples of India and making India self-reliant and self-sufficient. But the thinking of the government of the day is more in lines of disinvestment. The GoI planned to raise Rs. 2.1 lakh crore through disinvestment in 2020-21, with just about Rs. 14,000 crores raised so far through minority stake sales.

But such a comparison and performance appraisal of SOEs in India & China would be a marathon task anyway but would have made the literature one of inspiring quality. To conclude is a must read for anyone interested in the history of SOEs in China and students of the political economy including China Watchers.

(Balasubramanian C is a Senior Research Officer at the Chennai Centre for China Studies.  His areas of interest include Sino –Russia Relations, Indian Ocean Region, Geo-economics, Security, and Strategic Studies. The views and opinions expressed are those of the author and does not reflect the views of C3S)

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