Book Review Capitalism with Chinese Characteristics Yasheng Huang 2008

Book Review Capitalism with Chinese Characteristics Yasheng Huang 2008
By H Khoo Feb 8th 2008

Yasheng Huang has produced the seminal work of recent years on the Chinese economy, ‘Capitalism with Chinese Characteristics’. Huang’s research was picked up on quickly by China watchers at the Economist and the Financial Times. It differs from most books on China in that Huang’s investigations go beyond the realm of previous economic surveys of China. Huang studied national bank records to reveal the relative strengths of the state, private, collective and foreign sectors of the economy. He identifies a policy of ingrained hostility within state banks and the Communist Party government toward the indigenous private sector.

What Huang discovered sharply contradicts the dominant view in Sinology that private capitalism dominates in the productive forces. Huang himself believes that a form of state capitalism dominates in which the state owns the ‘commanding heights’ of the economy. Huang’s view is that this is a form of crony capitalism run by the state, a conceptual frame for which he provides no evidence even though it is in the title of his book. Instead Huang concentrates on bemoaning the complete lack institutional support for private companies and entrepreneurs and the repression of indigenous private economic forces by the state.

Huang’s evidence shows -counter-intuitively -that Shanghai is the least capitalist major city in China, and that the Shanghai elite within the Communist Party played a key role in shaping government policy on a national scale from the 1990s. Huang admits that, “State led GDP growth can still be fast in Shanghai” as it was “in certain periods in the Soviet Union-without private incentives due to huge government investments.” p208

Huang shows that in the 1990s the path towards greater ‘market freedom’ was curtailed and ‘private entrepreneurship’ was stifled by the state. Whilst the state encourages foreign investment and joint ventures, indigenous private capitalism finds itself unwelcome and repressed.

Huang argues that many economic analysts have been fooled into overestimating the size of the private sector. He puts this down to the tendency to regard ‘legal-person shareholding firms’ as private companies. The OECD for example used this method to conclude that the private sector share of industrial output is 71.2 percent. Huang argues that the actual private sector share is 39.8 percent of industrial value added. He shows that legal-person shareholding companies in China are invariably actually owned by the state.

Huang laments the result of his own research, and that the facts point to,
“the inescapable sobering conclusion: At the end of the twentieth century the size of the indigenous private sector in China was miniscule. By 2005, however the indigenous private sector did become sizable (at 22 percent of industrial value-added). The flourishing of the indigenous private sector firms is a very recent development.” p18.

“Was” a recent development is more accurate as Huang’s research predates the shake out 67,000 firms both indigenous private and private foreign owned, over the past year. The proportion of the industrial value-added in China by the private sector has suffered a major reversal as state firms have been shielded from closure during the closure of export-oriented factories over the last year. State investment from the present massive Government stimulus package will primarily be channelled through state owned enterprises and local governments, therefore the grip of the state sector over the economy; what Huang calls alternately ‘crony capitalism’ or ‘commanding heights’ government, is inevitably set to strengthen over the next years.

Huang’s book is an important contribution to understanding China’s economic and political dynamics, and is essential reading for anyone interested in the nature of the Chinese economic boom. Marxists can benefit from his detailed and accessible research, provided one can laugh at his obsessive portrayal of the fortunes of the Chinese private sector, which Huang would have us believe has suffered a tragedy comparable to Goethe’s hero in “The sorrows of the young Werther”

Capitalism with Chinese Characteristics 2008 Cambridge University Press Yasheng Huang