Scott Kennedy, ed. Beyond the Middle Kingdom: Comparative Perspectives on China's Capitalist Transformation. Stanford: Stanford University Press, 2011. xv + 256 pages. $65.00 (cloth), ISBN 978-0-8047-6957-0; $22.95 (paper), ISBN 978-0-8047-6958-7.
Reviewed by David Buck (University of Wisconsin=Milwaukee)
Published on H-Asia (March, 2012)
Commissioned by Sumit Guha (The University of Texas at Austin)
In Comparison with Others, China’s Economy Looks Even More Successful
This collection of articles grew out of a conference held at Indiana University that compared China’s political economy with that of other nations. The editor, Scott Kennedy, argues that through such comparisons, China will lose some of its mystery as a unique and difficult-to-understand place. His approach also counters criticism in political science circles that regional or country specialists are so focused on their particular place they cannot produce real social science. All the contributors employ extensive comparisons in their essays. Some contrast China with the East Asia developmental states, particularly Japan, Korea, and Taiwan, or with post-1991 Russia. Others create their own comparisons, as Mark Frazier does in his study of welfare policy in the “large uneven developers” of China, South Africa, Brazil, and India.
Consequently, each chapter introduces new perspectives and data. Readers will find these shifts in focus challenging because authors are discussing widely disparate aspects of China’s economy, employing varying methods of analysis, and finding different countries for comparison. It is dense thicket to penetrate; nonetheless, the results are rich and impressive.
The volume opens with Margaret M. Pearson offering a useful insight into the existence of three distinct realms or tiers within the Chinese economy. First are the so-called commanding heights, meaning large and important state-owned industries in fields such as transportation and communication. A second tier is comprised of “firms considered important by the state and sometimes governed by explicit industrial policies.” (p. 28). The third contains the vast majority of Chinese firms, who operate without much central oversight, but often are beholden to regional or local authorities. This distinction is quite useful in thinking about how the Chinese economy functions. However, Pearson does not in this essay spell out where particular industries or firms fit into this scheme. In a later essay Andrew Wedeman discusses the automobile industry. It would seem that most automobile producers would fall into the second tier, but some such huge, state-owned producers such as the First Auto Works, must belong the first tier, while some independent auto makers fall into the third tier. In other words, Pearson helps us in understanding the overall structure of the Chinese economic system, but for practical purposes her analysis may not provide the answers one needs when dealing with actual Chinese firms.
Arthur Koebler, editor of China Economic Quarterly, provides a wonderfully clear chapter about the overall Chinese economy by comparing China with the East Asian developmental state model based on the examples of Japan, Korea, and Taiwan in the post-World War II era. Koebler argues that although China shares many qualities with the East Asian model, it has important differences in its size, diversity, and because its development occurred in a later period, with different circumstances prevailing in world trade.
Koebler also deals with an important difference that emerges from most of the other chapters. China had a economy organized on a Marxist-Leninist command basis until 1979. In the last thirty-odd years China has successfully dismantled the old model, without dislodging the Chinese Communist Party, and replaced it with an economy that has many capitalist qualities. These include the market mechanism dominating economic choices, economic interests lobbying for their interests, and capitalists flourishing in the bosom of a Communist Party. China’s approach may be impossible to reproduce in spite of its admitted success. Yet unlike other formerly communist countries, in China state-owned industry still produces 40 percent of industrial output. Still, Koebler concludes that in spite of this remarkable success, China has failed to date in producing a domestic technological base and internationally competitive firms such as Sony, Toyota, and Samsung. He attributes this to the continuing domination of the Chinese Communist Party, which has insisted that the largest Chinese firms “pursue noncommercial objectives” (p. 53). These include offsetting competing opinions with the Communist Party hierarchy, attempting to balance the development across the nation’s regions, obtaining foreign technology, as well as suppressing any organized resistance to the party and maintaining social stability.
Andrew Wedeman’s chapter on the Chinese automobile industry and Mark Frazier’s consideration of Chinese welfare policies begin to reveal how the Communist Party pursues the noncommercial objectives. These essays illustrate how the government under party guidance has surrendered control of many facets of the developmental process but still holds the reins on key aspects of the political economy. In this situation the government and party must realize that many times its policies produce unanticipated consequences. As long as economic growth continues these faults seem minor, but in fact there is considerable imbalance and contradiction within China’s success.
Wedeman’s discussion of the evolving shape of the automobile industry is particularly rewarding. The automobile sector began with a myriad of inefficient producers protected by local governmental interests and led to a central government policy that favors large state-owned automotive groups such as the First Auto Works (FAW). Practical political considerations required the central authorities to accommodate the interests of the Shanghai economic region’s major automobile producer, the Shanghai Automotive Industries Corporation (SAIC), as well as create a space for subsidiaries in defense industry giants that wanted access to this lucrative market. These policies did not produce the intended consolidation, for inefficient, small, domestic producers remained, while foreign automobile companies clamored to introduce advanced technology to produce better cars. Wedeman calls the whole process “evolutionary chaos” (p. 68). Price wars ensued, and runaway production saturated the market with poor quality automobiles. Eventually what he calls an unstable equilibrium emerged, with most surviving automobile producers shaped into conglomerates tied to foreign technology.
Wedeman’s article, and Frazier’s discussion of welfare policy, both show how much risk has been involved in China’s most successful economic and social policies. This also suggests how unclear their future may be. Wedeman also alludes to the important changes that have taken place in the Chinese tax system, but unfortunately there is no chapter in this collection dealing with the remarkable shift from a tax policy based on wholesale confiscation of agricultural and industrial production by the government to a more complex system involving the end of the age-old Chinese land tax and complex VAT taxes on industry and commerce.
Frazier’s article on welfare policy emphasizes how rapid and far-reaching the changes in Chinese government welfare policies have been during the reform era. Until the 1990s state-owned industries were the principal providers of welfare, but then the Chinese government shut down most welfare operations of these large and hugely inefficient firms and shifted to a more general form of welfare for all citizens, requiring a shift from firm to local government control of welfare financing and management. Frazier shows that the Chinese welfare system still has many gaps in spite of the major changes in conception and coverage it has undergone.
Kellee S. Tsai’s contribution on the Chinese capitalist class concludes the any faith that capitalists will promote democracy is misplaced. Instead she finds that capitalists in China and elsewhere adapt well to whatever political economy will tolerate them. She concludes that capitalists support the existing system out of self-interest.Tsai finds some glimmers of hope in the growth of informal practices which may lead indirectly to the growth of democracy. This tendency is explored at length by the editor, Scott Kennedy, in his chapter on business lobbying in China. Kennedy discusses how the Chinese government created various industrial and commercial associations under its firm control. Nevertheless, large industries or important businessmen often gain direct access to power-holders at various levels in China. True to the volume’s comparative focus, Kennedy usefully compares how Chinese businesses lobby with the situations in Japan, India, and Russia.
Victor Shih, who has written insightfully elsewhere about Chinese fiscal policy, takes up the question of foreign investments in Chinese banks. He compares China with Korea and Mexico and finds that in those two nations domestic banking interests as well as other interest groups help determine banking policy, but argues that in China, despite Kennedy’s account of business lobbying, decisions about the banking sector remain the purview of the CCP Central Committee. Shih’s contribution is to prove, if there were any doubt, that key elements in the Chinese political economy remain in the control of the Communist Party.
These articles begin to convey the breadth and depth of the changes that have occurred in China since 1979. Our newspapers and magazines are filled with almost as many articles about Chinese economic development as our clothes racks are filed with garments made in China. The usual emphasis is on jobs lost to China; Chinese producer’s advantages because of wages, working conditions, and currency manipulation; and the ability of the Chinese leadership to implement clear policy measures while American, European, and Japanese governments dither over policy direction. This collection looks much more deeply into China’s successes to reveal how incredibly complex and risky has been the process of changing an unsuccessful Marxist-Leninist command economy into a locomotive of economic growth. The huge success of China stands out in stark relief from the situation in post-Soviet Russia, but in comparing China with other countries one realizes that successful market-based economies are difficult to create and sustain. Although Kennedy concludes that comparison shows that “China is distinctive but not an outlier” (p. 18), it still looks unique to me. Koebler in his chapter shows how certain qualities of the Chinese development model--including its surprisingly decentralized economic decision making, its relative openness to direct foreign investment, the huge role of foreign companies in China’s exports and imports, and the survival of key state-owned industries--along with its unusual geographical size and huge population make China a unique case.
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David Buck. Review of Kennedy, Scott, ed., Beyond the Middle Kingdom: Comparative Perspectives on China's Capitalist Transformation.
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