Economist: China’s Market-Oriented Reforms in Retreat

Last week at Caixin Online, Huang Yiping cited tennis star Li Na’s Grand Slam success as a model for reinvigorating financial reform. Now Wu Jinglian, an economist at the Development and Research Center at the State Council, laments market reforms’ loss of momentum since 2000 in the face of resurgent interference by government bodies:

Although the state economy no longer contributes a major portion to gross domestic product, it maintains a monopoly in sectors like petroleum, telecoms, railways and finance, Wu said in a keynote speech in the opening ceremony of a global conference sponsored by the International Economic Association.

Governments at various levels also have a huge hold over major economic resources such as land and capital, said Wu, who serves as a researcher of the

China still lacks a legal foundation that is indispensable for a modern market economy. Government officials intervene in the market at their will through administrative means, said Wu.

China’s market forces gained vigor when the pricing of goods was liberalized in the early 1990s and millions of township enterprises were privatized at the turn of the last century, said Wu.

Entering the 2000s, however, the reform of state-owned enterprises suffered a setback, and SOEs have inhabited an increasingly assertive role in the market at the expense of private businesses. “The government has acted more intrusively in the name of macro-economic regulation,” said Wu.

The role of government and SOEs in Chinese industry was the focus of one article in The Economist’s recent Special Report on China:

From 1999 to 2009 the state’s share of industrial output by value fell from 49% to 27%, according to a recent report by Unirule Institute of Economics, an independent think-tank in Beijing. In 1999 government-controlled firms owned 67% of industrial capital; a decade later their share had fallen to 41%. But in the industries that pay the highest salaries, state firms dominate.

A new shorthand has entered common parlance: guojin mintui, meaning the state [sector] advances and the private retreats. It seems to suggest that the state sector’s share of the economy is growing, which it is not; non-state businesses are in fact prospering. But the government has been muscling in on business in a variety of ways. It has been tightening its grip on some industries it considers “strategic”, from oil and coal to telecommunications and transport equipment. It has been devising market-access rules that favour state firms. And to the chagrin of private businesses, it has allowed state companies to remain active in a surprising range of palpably non-strategic sectors, from textiles and papermaking to catering. In recent years property development has become a lucrative sideline for government businesses. “The tentacles of state-owned enterprises extend into every nook where profit can be made,” writes Zheng Yongnian of the National University of Singapore.