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The Role of the State in China's Industrial Development: a Reassesment

Gabriele, Alberto (2009): The Role of the State in China's Industrial Development: a Reassesment.

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Abstract

In this paper, we argue that the role of the State (to be understood as a holistic term referring to the public sector as whole), far from being withering out, is in fact massive, dominant, and crucial to China's industrial development. Actually, 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 that not only is still going on, but is inevitably bound to be further accelerated by the massive package of fiscal and other interventions made necessary as a response to the world financial and economic crisis.

State-owned 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 favourably with that of private enterprises. The state-controlled sub-sector constituted by state-holding enterprises, in particular, with at its core the 149 large conglomerates managed by SASAC, is clearly the most advanced component of China's industry and the one where the bulk of in-house R&D activities take place.

The role of the public sector, moreover, goes beyond that of those enterprises which are owned or controlled by the State. In the specific Chinese context, many of the most advanced formally private industrial enterprises are in fact related to the public domain by a web of ownership, financial, and other linkages, to an extent that is qualitatively different and deeper than that of their counterparts in capitalist countries. The role public sector is paramount in engineering an extraordinary boom in S&T and R&D activities (both inside the industrial sector and outside, in universities and research centers), and in fuelling a massive investment drive aimed at enhancing China's infrastructural and human capital environment. These processes also generate major systemic external economies, which are reaped by public and private enterprises alike, contributing to abating their operative costs and to sustain their competitiveness and profitability.

Contrary to many other analysts, we do not view the dominant role of the state in China's industry (and, more generally, in China's economy) as a possibly necessary - albeit wasteful - evil, which will be superseded once the transition from a centrally-planned to a fully capitalist modern economy will be completed. We rather see it as a primitive, embryonic, ever-evolving but permanent form of strategic planning aimed at fostering industrial development, and as a key distinctive, structural, and pioneering characteristic of market socialism.

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