- Introduction: The Social Construction of Competitive Advantage
Not long ago, the Chinese economy was characterised by its labour-intensive industries. In the past 10 years, however, it has witnessed rapid industrial upgrading. The high-speed rail diplomacy, Alibaba’s historic initial public offering (IPO) and Xiaomi’s rapid rise to the third-largest smartphone producer in the world represent some latest developments. Both long-time China observers and Western mainstream media have begun to discuss Chinese innovation.1
Different from the Japanese companies in the 1980s that threatened their Western counterparts mainly in the automotive and home electronics industries, Chinese companies have demonstrated the capacity to compete in high-tech, middle-tech and low-tech industries simultaneously, exporting not only shoes, toys and apparel but also renewable energy, high-speed rail, smartphones and machine tools. Overwhelmed by the challenge of China’s wide range of industrial upgrading, even Paul Samuelson, the guru of free trade theory in the post-war era, began to worry that the long-held concept of comparative advantage, which suggests an international division of labour between industrialised countries and developing countries, could no longer be counted on to create net gains greater than net losses, especially for industrialised countries.2
How could China develop its competitiveness so quickly? One of the explanations offered by the Western media these days is China’s state capitalism. When China achieved economic-superpower status in the aftermath of the 2008 global financial crisis, a fear emerged that China’s economic performance could further strengthen the legitimacy of its political institution. Consequently, state capitalism in China is often portrayed as the source of all evils. The state and state-owned enterprises not only collude as a China Inc. with an economic plan to conquer the world, but also block the access of foreign companies to China’s domestic markets. Despite containing the [End Page 3] word “capitalism”, state capitalism does not follow the rules of the market economy and is an entirely different species. As one commentator complained, “On the ground China keeps foreign companies from competing freely. It appropriates technology from foreign joint-venture partners without compensation. It regulates foreign firms with rules not faced by domestic ones. It bestows goodies on its firms—free land, cheap loans—to give them an edge”.3
The role of the state in China’s industrial upgrading raises many empirical and theoretical questions: Does state capitalism function like a China Inc.? How does the state promote the competitiveness of the Chinese economy? What kinds of obstacles does the Chinese state face in its efforts of industrial upgrading? Has state capitalism been predominant in the past 30 years or experienced ups and downs? Do the institutional arrangements of state capitalism represent China-specific phenomena or do they have general implications?
In an effort to answer these questions, the articles included in this special edition study the role of the state in China’s industrial upgrading in seven industries: high-speed rail, large commercial aircraft, electric power, telecommunication, machine tools, animation and textiles. This wide-ranging selection of industries aims to provide a broader, fuller empirical base to our understanding of the relationship between the state and industrial upgrading in China. These articles portray a more complicated picture than the stereotypes. They not only demonstrate the state efforts at various levels to promote industrial upgrading but also reveal various structural constraints faced by the state, imposed by either its internal bureaucratic rivalries or vested interests among state-owned enterprises and societal forces.
The state does not operate in a vacuum but in specific historical environments. In order to tell the full story of China’s state-led industrial upgrading, we need to examine the larger environments in which the Chinese state operates. As a way of introduction, I discuss some of the broader theoretical and empirical issues associated with the role of the state in China’s industrial upgrading that are addressed in these articles.
THE EXCHANGE RATE AND INDUSTRIAL UPGRADING
Was China’s industrial upgrading a good example of state autonomy in policy-making as the state capitalism argument implies, or did the state simply respond to the changing market situation...