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China Fortifies State Businesses To Fuel Growth

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http://www.nytimes.com/2010/08/30/world/asia/30china.html?_r=1&hp

During its decades of rapid growth, China thrived by allowing once-suppressed private entrepreneurs to prosper, often at the expense of the old, inefficient state sector of the economy.

Now, whether in the coal-rich regions of Shanxi Province, the steel mills of the northern industrial heartland, or the airlines flying overhead, it is often China’s state-run companies that are on the march.

As the Chinese government has grown richer — and more worried about sustaining its high-octane growth — it has pumped public money into companies that it expects to upgrade the industrial base and employ more people. The beneficiaries are state-owned interests that many analysts had assumed would gradually wither away in the face of private-sector competition.

New data from the World Bank show that the proportion of industrial production by companies controlled by the Chinese state edged up last year, checking a slow but seemingly inevitable eclipse. Moreover, investment by state-controlled companies skyrocketed, driven by hundreds of billions of dollars of government spending and state bank lending to combat the global financial crisis.

They join a string of other signals that are fuelling discussion among analysts about whether China, which calls itself socialist but is often thought of in the West as brutally capitalist, is in fact seeking to enhance government control over some parts of the economy.

The distinction may matter more today than it once did. China surpassed Japan to become the world’s second-largest economy this year, and its state-directed development model is enormously appealing to poor countries. Even in the West, many admire China’s ability to build a first-world infrastructure and transform its cities into showpieces.

Once eager to learn from the United States, China’s leaders during the financial crisis have reaffirmed their faith in their own more statist approach to economic management, in which private capitalism plays only a supporting role.

“The socialist system’s advantages,” Prime Minister Wen Jiabao said in a March address, “enable us to make decisions efficiently, organize effectively and concentrate resources to accomplish large undertakings.”

State vs. Private

The issue of state versus private control is a slippery one in China. After decades of economic reform, many big state-owned companies face real competition and are expected to operate profitably. The biggest private companies often get their financing from state banks, coordinate their investments with the government and seat their chief executives on government advisory panels.

Chinese leaders also no longer publicly emphasize sharp ideological distinctions about ownership. But they never relaxed state control over some sectors considered strategically vital, including finance, defense, energy, telecommunications, railways and ports.

Mr. Wen and President Hu Jintao are also seen as less attuned to the interests of foreign investors and China’s own private sector than the earlier generation of leaders who pioneered economic reforms. They prefer to enhance the clout and economic reach of state-backed companies at the top of the pecking order.

“China’s always had a major industrial policy. But for a space of a few years, it looked like China was turning away from an active and interventionist industrial policy in favor of a more hands-off approach,” Victor Shih, a Northwestern University political scientist, said in a recent telephone interview.

Mr. Shih, among others, now believes that the 1980s reforms that unleashed China’s private sector and the 1990s reforms that dismantled great sections of the state-run sector are being partly undone.

“The problem is that the reforms of the first 20 years, from 1978 to the end of the ’90s, actually did not touch on the power of the government,” said Yao Yang, a Peking University professor who heads the China Center for Economic Research. “So after the other reforms were finished, you actually find the government is expanding, because there is no check and balance on its power.”

More at the link.

A power shift occurring in China? In the present economic climate having the bulk of the economy state owned could be politically very appealing. Trouble is get the investment wrong and the people might not be impressed. The risk for massive malinvestement is huge.

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http://www.nytimes.com/2010/08/30/world/asia/30china.html?_r=1&hp

More at the link.

A power shift occurring in China? In the present economic climate having the bulk of the economy state owned could be politically very appealing. Trouble is get the investment wrong and the people might not be impressed. The risk for massive malinvestement is huge.

Think this is not an easy one - is it better to have a market economy with high taxes (cos government has no other income) or a state directed economy in certain sectors but leave the rest alone and with low taxes ) (e.g. HK [land] and Singapore [Telecoms, Airlines etc]?

Also, is UK really such a market economy when so many companies (PFI lots, banks profiting on Gilts carry trade, Gilts issuance etc) actually leech off the state and government contracts? Is this not just indirect "state directed economy" :

UK style - Government taxes -> Use the money to direct companies (many times in wasteful manner) -> These leecher makes profit -> Public forced to use their products (e.g. HMRC online filing website)

Edited by easybetman

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http://www.nytimes.com/2010/08/30/world/asia/30china.html?_r=1&hp

More at the link.

A power shift occurring in China? In the present economic climate having the bulk of the economy state owned could be politically very appealing. Trouble is get the investment wrong and the people might not be impressed. The risk for massive malinvestement is huge.

State spending to counter the downturn? Sounds a bit like Keynes. Or like Genesis 41.

China saved during the years of plenty, so it has the funds to play Keynes.

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  • 142 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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