Forging Reform in China

Abstract

The greatest economic challenge facing China in the post-Deng era is the reform of unprofitable, state-owned enterprises (SOEs) which threaten to drag down the rest of the economy. Despite an array of well-intentioned, market-oriented reform measures, these firms have never truly been forced to face the pressure of a bottom line, or the threat of bankruptcy. Forging Reform in China explains how and why these measures have not been sweepingly successful to date, and what it would take to achieve meaningful reform. The author investigates firm-level processes, including case studies of China's steel industry giants, revealing institutional and systemic barriers to market-oriented performance. This book makes a compelling argument that private ownership cannot work in China's current system until governance over complex economic factors has been established, that is, until credit is tightened and market selection processes made to work.

The Asian financial crisis and financial reforms in China

“…passing interest' in contrast to narrow group interests (Olson 1982). 22 As Steinfeld points out correctly, this is far more important than any restructuring of ownership (Steinfeld 1998a Edition, 29 March 1999b). 25 As scholars of the politics of economic adjustment are careful to point out, the impact of social conflicts is limited by collective action problems and by the ambiguity of groups' policy interests (Nelson 1992;Haggard and Kaufman 1992).…”

“…The Chinese government has tried to reform the SOEs. But so far the reforms have not been successful, mainly because of the soft budget constraints on enterprises and the absence of any real threat of bankruptcy (Steinfeld 1998a). In fact, the financial performance of SOEs, especially asset-to-liability ratios, has declined in the last two decades (Lardy 1998a: 25-47;Steinfeld 1998a: 18-22).…”

Chintrepreneurship – The China-way of Entrepreneurship Government Intervention, Seedling Approach – A Network-based Model of Entrepreneurship

“…On the positive side, it expedited the reforms of SOEs including banking system (ex: the change of loan portfolios), and most significantly, it fertilized the exponentially expanded scale and scope of POEs across industries. On the flip side, combination of industrialization and privatization had led a huge number of laid-offs from SOEs (Steinfeld, 1998;Young, 1995). A research finding shows that the annual contraction rate of SOEs during the period of 90s is at least three million workers per year (Pomfret, 2000).…”

“…Note that, POEs were not eligible for the bank loans of any kind in the 80s (McMillan, 1997;Nee, 1992). Such a central-control and closed-looping financial system suffocated or hindered the efficient development and exploitation of capital resources (Boyreau-Debray & Wei, 2005;Chow & Fund, 2000;Steinfeld, 1998). Despite a few specially authorized private equity firms in the early 1990s, The private venture capitals (PVCs) were officially approved to enter and operate in China financial market until the very end of 1990s (Bruton & Ahlstrom, 2003).…”

“…Only when a market-selection mechanism is established and linked with GPTNs, can developing countries like China become able to tackle some problems deeply rooted in a centralized or planned economic system, such as government unfair resource allocation, soft-budget constraints, and so forth (Steinfeld, 1998):…”