A dragon and its younglings: State-owned enterprises

Today I finally present the second article in my 'dragon nation' series. As explained in the previous installment, the aim is to tackle some misconceptions surrounding the oft-mystified Chinese policy. This time I investigated the claim that reforms in China have made it a capitalist economy. Hereto I focused on the state-owned enterprises and their role in the Chinese economy. Well-aware that a complete image requires much more, I would still like to draw some conclusions.

Under impulse of Deng Xiaoping, China moved beyond Maoist recipes and reformed its way out of Third World status. I will not discuss the Chinese economic reform into detail. Much more interesting is to see how much 'Chinese characteristics' there really are in Deng's socialist market economy. After all, once reform was initiated, liberal theorists expect(ed) the People's Republic to move ever-closer to the western model of capitalism. The attachment to ideological references they dismissed as futile shadow-discourse; a canalization of Chinese nationalism at most. How solid is this view?

The Chinese government protects the state-owned enterprises. Favored
companies are effectively shielded from competition by perverse policy.

In 2001, China joined the World Trade Organization (WTO). In this the Chinese establishment subjected itself to the liberalization of its international trade relationships. While this surely is a big move, the power of state-owned enterprises within China's domestic market is still overwhelming. Indeed, ten years after the country's admission to the WTO, state-owned enterprises are stronger than ever. The Chinese government ensures a dominant position for its partners; favored companies abide and in return their share in the market is protected. The authorities realize this by applying rules with a double standard and by obstructing the take-over of domestic companies by foreign ones.

For a detailed analysis of how the state shamelessly obstructs market forces I can recommend this article from The Economist. Now our focus shifts again to the WTO: while domestic suppliers have a guaranteed playing field, they have it easier to export their services/products. The WTO strives toward free trade between its member states and, while it is true a foreign company can access the Chinese market, it is shielded from actual demand. Meanwhile Chinese firms, enjoying subsidized/enforced demand at home, can well-compete for the demand in Europe and the United States. China is thus far from a capitalist country. Much more it resembles a covert form of state-capitalism or even modern mercantilism. Regardless of the label, the state and indeed politics are a most determining factor in China's enterprise environment.