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  • Author’s Response:China Has Grown Because It Has Grown More Capitalist
  • Nicholas R. Lardy (bio)

The five thoughtful essays reviewing Markets over Mao: The Rise of Private Business in China remind us of the complexity of China and the seeming inevitability of widely varying interpretations of contemporary economic trends and events. Different perspectives stem from varying disciplinary backgrounds, research agendas, and a host of other factors. Thus the review essays are a useful guide to perspectives that are sometimes different from those articulated in Markets over Mao. [End Page 163]

As is suggested by the subtitle, the central theme of the book is that China’s rapid growth after 1978 is largely the consequence of the growing role that markets play in resource allocation and the rapid expansion of private businesses that have operated increasingly successfully in this new emerging environment. The reviewers agree that private firms are more dynamic and thus have largely displaced state firms in broad swaths of the economy. They argue, however, that the book understates the influence of the state, and some of the reviewers even imply that the book argues that China’s economy is entirely market-driven. But the book also points out that the state still controls fully one-third of all investment and demonstrates clearly that the role of the market is very attenuated in upstream oil and gas, electric power, and modern businesses services, such as finance and telecommunications, largely because the government has severely limited entry by private firms in these domains. The incumbent state firms in these sectors, shielded from competition, have become extremely inefficient and, in fact, are an increasing drag on China’s economic growth. Thus the analysis in Markets over Mao shows that China remains short of a liberal market economy. The book concludes that the way forward is to implement the two key economic reforms embraced at the Third Plenum of the 18th Party Congress—i.e., eliminating most monopolies and fostering increased competition so that the market becomes the dominant force in the allocation of resources throughout the economy.

How then do we measure the role of the party-state in the economy other than by ownership and the control of investment? Kellee Tsai in her review notes that the top management of the largest state firms is appointed by the Organization Department of the Chinese Communist Party, which is a point made in Markets over Mao. But the 53 firms for which this is the case lie almost entirely in the segments of the economy that have never been opened up to competition from private firms. As a result, the role of the party there tells us little about its role in China’s private sector, which in 2012 consisted of 6.5 million private enterprises and 40.6 million household businesses (the latter not organized under the Company Law and thus not classified as enterprises).

Yukon Huang argues that the competition among provincial and local governments in attracting foreign and domestic investment to promote growth is unique to China and demonstrates that the state plays a major role in shaping growth that goes beyond its direct ownership of enterprises. Yet competition among U.S. states to attract foreign and domestic investment is pervasive, demonstrated clearly, for example, in [End Page 164] 2013 when 22 states offered tens of billions of dollars in subsidies in an attempt to attract a new Boeing aircraft production facility. Huang also argues that private firm access to credit “depends on relationships with the party system.” Yet he presents no evidence that this is the case, and it seems unlikely that the party could exert much detailed control of the roughly 15 trillion renminbi in bank loans outstanding to the millions of private firms and household businesses in 2012.

Joseph Fewsmith believes that the government regulatory and approval process is another mechanism through which the state exerts control of private firms. But the extent to which these approvals are substantially more onerous than in market economies is not clear. Food trucks, a prime example of entrepreneurial activity in Washington, D.C., and many other large U.S. cities, require not only registration of the vehicle and...


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pp. 163-168
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