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Book Review – China INC: Between State Capitalism and Economic Statecraft ; By Commodore Vijes

Updated: Aug 26, 2022

Image Courtesy: Pentagon Press

Article 56/2021

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

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


The Communist Party of China (CPC) on 01 Jul 2021 celebrated its 100 years of existence. This one party has ruled China for 72 years, without a mandate from voters. That is not a world record. Lenin and his dismal communist heirs held power in Moscow for 74 years, as has the Workers’ Party in North Korea. But no other one-party dictatorship has been able to transform a country from a famine-racked disaster, as China was under Mao Zedong, into the world’s second-largest economy today, with state of art cutting-edge technology and infrastructure, under Xi Jinping. CCP leadership has always called itself “great, glorious and correct”.

This book provides a well researched and detailed narrative, very objectively the growth of Chinese State-Owned Enterprises (SOE), as well as the role of SOEs in China’s economic rise through various structural reforms, in their ownership, partnership, administration, and performance measurement, mainly post Mao era since 1978. The Chinese SOEs have played a very significant role in the economy of the state and for the CCP. From Deng Xiaoping, considered to be the chief designer of economic reforms to Xi Jinping, through Jiang Zemin and Hu Jintao, each of these leaders, brought varying economic and industrial reforms with their respective intended goals. The constant factor was the leadership control on CCP and CCP control over all aspects of life in China including SOEs. The uprising for democratic rights in 1989, resistance to reforms in the 1990s, being unpleasant politically (against the ideology of communism /socialism), and threatening socially (jobs losses due to privatization/economic restructuring) were crushed ruthlessly.

The author has explained the key characteristics of state capitalism in China and how it differs from elsewhere, by closely looking at the relationship between SOEs and the Chinese State, using case studies. The “Red Capitalism” that China has built over the last 40+ years started with Deng’s ‘Long March’ of the open-door policy in the 1980s, for turning China into a hub for global attraction. In rural reforms in 1979, the introduction of the Household Contract Responsibility System (HCRS) and changes in agricultural marketing and state procurement practices were the most notable ones. The four modernization sectors planned in 1984 were agriculture, manufacturing industry, science & technology, and defence. In Urban economic reforms, most noticeable was establishing Special Economic Zones (SEZ) for attracting Foreign Direct Investments (FDI) in every sector.

The reasons and differences as to why the Chinese version of capitalism or market socialism did not fail like East Europeans have been spelt out. East European economies had adopted the “Big Bang” reform approach (shock therapy), wherein abrupt changes affect consumption more as well as steeper but recover fast. However, China followed an alternate path of “Gradual” reform approach, in which the fall in consumption and recovery both were slower. The main attributes of East European market failure have been identified as economic decision making having remained politicised, non-competitive atmosphere, domestic products being out of market competition, absence of private entrepreneurship, and lastly state failing in responsibility of conserving efficient enterprises whilst to the let the inefficient ones go.  Though Chinese political leadership also faced harsh criticism for maligning the socialist path of progress, none of them ever stopped the path of continued economic reforms promoting ‘meritocracy’ and competition.

SOEs, covered under article 7 of the constitution of the People’s Republic of China (PRC), are the core institutions of the Chinese Infrastructure to undertake scientific, economic and social welfare, under the ownership of the whole people. Over the years they are strategically spread in sectors of energy, finance, infrastructure, IT &media. 119 of Chinese SOEs were listed in global Fortune 500 companies in 2019 . The book gives a detailed account of state funding of SOEs, various running models including PPP and monitoring mechanism of SOEs and difference between SOEs at center and province. The main drawbacks of the Chinese PPP model have also been discussed.

Finally, the book covers the Belt and Road Initiatives (BRI), the strategic framework of China’s global expansion plan, through a complex mesh of projects and partnerships and deep involvement of SOEs in these activities since 2013, under the leadership of Xi Jinping, is a well crafted Chinese economic craft. The author explains both features of BRI namely, the Silk Road Economic Belt (SREB) and Maritime Silk Road (MSR).  The Strategies, Chinese SOEs engaged in BRI projects, practice are technical strength & competitiveness, high-quality service, long-term effective partnership, system guarantees, and team talent.

The Chinese state relies upon SOEs in asserting total CCP control over the actions, incentives, and even the thought process of entrepreneurs. Chinese state capitalism is directed to pursue long-range objectives. It is marching ahead by balancing socialist modernisation drive and the pursuance of ‘great power status.

Looking at the Indian public sector undertakings (PSUs) and economic growth, I see many similarities. The economic reforms since 1991 were similar to what Deng brought in China in the 1980s.However, the intensity, approach, and political will in a democracy can never match the ruthless dictatorship of the CCP in China. The disinvestment in non-performing PSUs and their restructuring, for making them performance-oriented as well competitive is the need of the hour for the Indian economy.

(Commodore Vijesh Kumar Garg, VSM is Executive Director of the Chennai Centre for China Studies. The views expressed are personal.)

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