- The Advance of the State in Contemporary China: State-Market Relations in the Reform Era by Sarah Eaton
Since the international financial crisis of 2008, China's state-owned enterprises (SOEs) have dramatically expanded their influence over the country's economy. The phenomenon, which the Chinese media have termed "the advance of the state, the retreat of the private sector" (國進民退 guojin mintui), is widely discussed in Chinese intellectual circles. Pessimists interpret it as a major turning point in the country's economic policies; they argue that the incremental marketization reform of past decades has ended. Optimists, on the other hand, believe this is no more than a temporary setback in China's economic development and that further restructuring of SOEs is inevitable.
In her new study of the issue, Sarah Eaton provides a fresh perspective on state capitalism in reform-era China. Drawing upon extensive interviews and document analysis, the author finds that the advance of the state since the recent financial crisis, rather than being a new trend, represents "a moment of cumulation—a product of 20 years of sustained effort to mould state-owned national champions in key industries" (p. 4). To trace the origins of Chinese state capitalism, the author innovatively employs an ideational approach. Her central argument is that the advance of the state has incrementally developed from "a set of ideas regarding the political and economic significance of developing state-controlled large enterprise groups" (p. 25).
This book provides a systematic review of the government's changing policies toward SOEs and their ideational foundations. For a long time after "reform and opening" in 1978, the economy remained troubled by the inefficiency and industrial fragmentation of SOEs. The Chinese leadership, receiving liberal advice, came to believe that market competition would solve SOEs' problems. So for the whole of the 1980s and early 1990s, successive administrations took many liberal measures, such as granting more autonomy to management, streamlining workforces, and embracing private capital, to reform the state sector. This did not mean, however, that they planned to fully relax their control over the country's economy; in fact, the goal was to help SOEs survive the market transition. The official slogan "macro control and micro flexibility" was indicative of government efforts to combine market principles with state guidance. Around the time China joined the WTO in 2001, economic [End Page 187] nationalist discourse was gaining traction in society. Many argued, for example, that some "lifeline" industries related to the country's core interests should be exempt from competition. At the same time, the Chinese leadership, highly concerned with the fast rise of the private sector, believed that "the Party must control not only the gun but also key assets in the economy in order to shore up authoritarian rule" (p. 110). Guided by these ideas, policy makers in Beijing explicitly decided some SOEs should "go bigger and go stronger" (做強做大 zuoqiang zuoda), eventually giving rise to national champions in the 2000s.
Eaton's two case studies of airline and telecommunication industries confirm the complexity of China's SOE reforms. In the early years of the reform era, policy makers, for the sake of economic development, accepted liberal arguments that the airline industry could be open to more non-state capital. But despite a series of bold liberalizing and deregulating measures, the industry fell into crisis in the 1990s, during which most state-controlled airlines suffered serious losses. So state policies were sharply reversed and almost the whole industry was restructured into the "Big 3 Airlines." Although the policy change was advocated by these state-controlled airlines, the impetus for reform came mainly from "the center's emphasis on developing a national team to compete with established players in global markets" (pp. 76–77). Unlike with the airline industry, Chinese policy makers were clearly aware of the strategic importance of telecommunication at the very beginning of the reform era. As a result, there was only ever modest restructuring of telecommunication enterprises. After China joined...