Economic Reform in China, 1979-2003: The Marketization of Labor and State Enterprises (review)

Economic Reform in China, 1979–2003: The Marketization of Labor and State Enterprises is, in the author's words, "a study of China's attempt to modernize and revitalize its state industry in the post-Mao Zedong era" (p. 1). Although the major premise of the book—that the "reforms of the last two decades, namely the marketization and corporatization of large-scale industrial state-owned enterprises provided China's policymakers an alternative to privatization, given political constraints" (p. 3)—has previously been suggested in the economic literature, the author does provide a detailed historical overview of that process and some fresh insights and ideas.

This work clearly illustrates how the path of enterprise reform in China has been gradual but certainly not smooth. The transformation of state-owned enterprises (SOEs), from maximizing employment to maximizing profits and achieving efficiency, would not have been easy anywhere. However, in China the problem is vastly compounded by the fact that these enterprises were conceived not only as providers of employment but also as providers of economic and social welfare, in the form of housing, social security, health care, and education. Consequently, the restructuring of these enterprises necessarily calls for reforms in the housing market, social security, and medical insurance, all at once!

The author uses China's steel industry as a case study and concentrates on two of China's largest steel producers—the Anshan Iron and Steel Corporation (Angang) and the Baoshan Iron and Steel Corporation (Baogang). The history and the evolution of these two giants clearly demonstrate the problems experienced by the state-owned enterprises in the post-reform era. Angang, established by the Japanese in 1916 as a Sino-Japanese joint venture and later transformed into a Soviet-style enterprise, came to symbolize everything that was wrong with China's industrial state-owned enterprises—outdated equipment and technology, a large number of surplus workers, lack of competitiveness and efficiency, and a large debt. In contrast, Baogang (created in 1985), launched in the post-reform era and built by importing Japanese and Western advanced technology, represents a modern era enterprise. The 1988 Enterprise Law that gave SOEs managerial autonomy led to the restructuring of both enterprises and brought into question the Maoist practices of the so-called iron rice bowl (lifelong job and benefits) and one big pot (egalitarian wages). Unsurprisingly, Baogang has found less resistance and has been more successful in implementing those reforms than Angang, eventually evolving into China's premier steel producer.

In chapters 4 and 5, the author examines the structure of enterprises, labor relations, and labor administration reforms. This research builds on previous research undertaken by Walder (1986) and concludes that there is greater transparency now than before and that workshop directors have seen their powers decline. This is partly due to the roles played by the Staff and Workers Congresses (suspended during the Cultural Revolution and revived in 1978) and the labor unions. These two forms of labor representation differ in that the former is more a planning body and embodies the workers' right to participate in the enterprise decision making, whereas the latter has a broader scope in the sense that it deals with day-to-day worker-related problems. The All China Federation of Trade Unions (ACFTU), a member of the International Labor Organization (ILO) since 1983, is represented in all SOEs, and it has a unionization rate of 90 percent, though it operates under the political leadership and control of the Communist Party. Before the reform, state enterprises adopted the same wage model, which was based predominantly on seniority and on the employees' grade (according to the Eight Grade System). After 1988 most SOEs adopted a structural wage system, under which the wage consisted of two components: a basic or primary wage, which was a function of skills, position, and seniority, and a supplementary wage, which...