Lynette H. Ong, Prosper or Perish: Credit and Fiscal Systems in Rural China. Ithaca:NY: Cornell University Press, 2012.
(Review published in the June-Dec 2012 issue, pp. 113-14)
Scholars of political economy have adduced myriad explanations for China’s uneven development, a prominent feature of the gloomy side of China’s economic spectacle. In this context, Lynette H. Ong illuminates and analyzes the role of local governments in rural China’s credit and fiscal systems and identifies the “pathways” of its industrialization.
Rural Credit Cooperatives (RCC) are the main official banking institutions that serve rural China. Even though their official mandate is to “support agricultural development among farm households” (p.5), the latter considerably lag behind township and village enterprises in receiving loans. As such, in her neatly structured book, Ong addresses two critical questions: “why have RCC loans been llocated consistently to local government enterprises and projects?” and “what is the local variation in industrialization outcome from savings mobilizations?”(p.10).
The case studies comprise eight townships which are located in four provinces: Zhejiang and Shandong (east coast), Hebei (“central region”) and Sichuan (western region). What struck me was the location of Hebei which the author incorrectly says is in the central region; perhaps, she mixed it up with “Hubei”, the similar sounding province. Consequently, the central region has been inadvertently left out. Barring this aberration, the author has accomplished a wonderful task in addressing the aforementioned questions.
Ong captures the state of industrialization of the townships in two mutually exclusive descriptions: prosper or perish, in respect of which she highlights three pathways of rural industrialization: successful privately led industrialization, successful government-led industrialization, and failed government-led industrialization. Accordingly, Zen and Han have “prospered”, whereas Xiao, Zhang, Zhou, Cheng, Fan and Sun are the “perished locales” whose plight reflects in arbitrary imposition of taxes and fees on peasants, landing takings and peasant discontent, and exorbitant education and health expenses. Their plight originated from the failed industrialization which starved local authorities of revenue, adversely affecting their ability to provide public goods and services. On the other hand, she attributes prosperity of Zen and Han to their “proximity to urban centres and transportation linkages” which allowed them “access to outside markets and technical knowhow” (p.23).
The book is rich in useful appendices, figures and tables. Its methodology includes more than 120 in-depth semi-structured interviews with officers and managers of credit institutions and local officials, a survey of about 280 rural household respondents, and secondary resources. Ong claims that her findings differ from the popular concept of "market-preserving federalism" (MPF), "which proposes China's fiscal federalist arrangement as a primary explanation for its impressive growth"(p.165).
Interesting and insightful, Prosper or Perish will be extremely useful for those are interested in studying China’s uneven development, its rural credit and fiscal systems, its local-central relations, and the issues of rural governance. Moreover, it is an important contribution to understanding the nuances of rural China’s socially inclusive development and the linkages between industrialization and rural governance.
Vice President, IJAA
Xu Yi-chong (ed.). The Political Economy of State-owned Enterprises in China and India. Basingstoke: Palgrave Macmillan, 2012.
(Review published in the June-Dec 2012 issue, pp.114-16)
The peculiar development patterns of China and India evade distinct labeling or categorization, though some scholars consider them models of state capitalism. Contributing to understanding this debate, this edited volume examines a total of ten state-owned enterprises (SOEs) of China and India in the strategic sectors of coal, oil, electricity, steel and banking.
Why is an understanding of SOEs significant? In Chapter 1, Xu Yi-chong points out they are a “stand-out” feature of development in China and India, contribute a large share of gross domestic product of both countries and pose an international concern because of their scramble for world resources and marketshares. Besides, an understanding of their organization and operations can highlight the “fundamental politics behind the economic reforms” (p.4) in the two countries.
All the subsequent chapters discuss history and industry structure of the selected SOEs and address the questions pertaining to their organizational structures and relationship with the government, their operations, and sustainability issues such as profitability, nature of government support and reform measures.
In Chapter 2, Jianping Zhao and Xu Yi-chong discuss China’s Shenhua Group which has emerged as the world’s largest coal producer since its establishment in 1995. While Shenhua is autonomous in making operation and investment decisions, it is politically subject to the direction and policy of the Chinese Communist Party (CCP).
In Chapter 3, Xu Yi-chong examines Coal India Limited (CIL) which is India’s largest public corporation in terms of market capitalization and accounts for more than 80 percent of its coal production. She concludes that the government intends to maintain its monopoly over CIL in national interest. Yi-chong has also contributed Chapter 6 which deals with the State Grid Corporation of China (SG). She points out that SG’s technical and social importance justifies its virtual monopoly in China’s electricity industry.
In Chapter 4, Monique Taylor evaluates corporate governance practices in China’s oil industry by examining the ownership structures of the national oil companies (NOCs) and their regulatory environment. Taylor highlights mechanisms such as nomenklatura system that are employed by the “central party-state” in controlling NOCs’ strategic direction.
In Chapter 5, Supriyo De deals with India’s major public sector petroleum and natural gas companies. While following the structural pattern of this book, De adds distinctiveness by providing an overview of literature and an analytical framework. Alluding to the unlikely prospect of their privatization in the near future, De takes note of the greatest challenge before them—reconciliation of diverse “social, political and economic motives” (p.123). He then spells out futuristic scenarios that are related to public-private interactions, price management, and energy security issues.
In Chapter 7, S. Narayan examines India’s National Thermal Power Corporation (NTPC), highlights its probable futuristic multi-pronged fuel-security strategy, and concludes that NTPC will remain relevant as the largest generator of power, although it is faced with several large competitors and other challenges.
In Chapter 8, Jeffrey D. Wilson underlines that though Baosteel Group of China has largely achieved operational independence from the government, its autonomy remains “circumscribed” mainly because of “industrial policy constraints” that result from its status as a national champion.
In Chapter 9, Amitendu Palit examines the growth and transformation of the Steel Authority of India Limited (SAIL) since its foundation in 1973. He highlights the hindering factors such as regressive bureaucracy and a huge workforce and underscores that SAIL is likely to lose significance in the “supply-side economics of India’s steel industry” (p.202).
In Chapter 10, Leong H. Liew examines the role of the Bank of China (BOC) in China’s capitalist transformation. He points out that although its most senior officials answer to CCP, BOC has to meet “competing political and economic performance targets” on account of career ambitions of its diverse managers. In the last chapter, Rajesh Chakrabarti explains how government ownership has helped and hindered the State Bank of India in the face of intense competition in the banking sector. He points out that in spite of operational constraints, there is “considerable room for competitive improvement” (p.272), and as such, public sector ownership is not necessarily a “debilitating disadvantage.”
Immensely topical and rich in tables, the book makes a significant contribution not only to the literature on SOEs in terms of their institutional, operational and sustainable dimensions, but also to comparative studies involving the two prominent economies. Inclusion of a theoretical framework and a concluding chapter would have enhanced its importance. Despite these minor shortcomings, this book will be immensely useful especially for academia, public policymakers and researchers who are keen to understand the ongoing debate over the dynamics of developmental paths, involving strategic sectors, chosen by India and China. This apart, it is a valuable addition to the growing literature on political economy.
Vice President, IJAA
Roselyn Hsueh. China's Regulatory State: A New Strategy for Globalization. New York: Cornell University Press, 2011
(Review published in the June-Dec 2011 issue, pp.87-8)
China’s accession to the World Trade Organization (WTO) in December 2001was a major turning point in its integration into the world economy. While to a section of foreign policymakers and scholars of political economy, it heralded the inevitable onset of political reforms in China, to others it marked the adoption of a liberal model of economic development with adherence to “the western rules of the game,” and yet another school of thought holds that China is pursuing economic liberalization based on Chinese characteristics.
Roselyn Hsueh (2011) presents China’s distinctive approach to globalization in her remarkable analysis of China’s regulation of foreign direct investment (FDI) under the post-Mao open-door policy. She illuminates the façade of China’s economic reforms by demonstrating how China has emerged as a rather regulatory state in the strategic sectors of its economy. Presenting major and mini case studies, she argues that China has adopted a new economic model which sets it apart from “its Communist past, the liberal trading state, and the [East Asian] development state.” Under this model, China has tightened state control over sectors of strategic importance such as telecommunications, while liberalizing and decentralizing non-strategic sectors such as textiles. In this exercise, Hsueh explains, China is guided by the logic of strategic value which is defined in terms of a sector’s importance for national security and technological base.
Hsueh presents conceptualization of “state control” as she explicates China’s “bifurcation” strategy of macr-level liberalization and sectoral (micro) level “reregulation” (p.21). Accordingly, she delineates four types of state control on the basis of state goals, relationship with industry, and methods of control: expansionary, strategic, delegated, and decentralized. Thereon, she presents major case studies of telecommunications and textiles (pp.61-156). Considering telecommunications as a strategic sector, she points out, China consolidated central control of telecom in the pre-WTO era and introduced regulations in the post-WTO accession period such as network licensing regime, state-led setting of technical standards, and local content policy. On the other hand, it relinquished control of textiles, the less strategic sector.
In the subsequent chapters, Hsueh presents mini case studies to highlight how China has emerged as a “new regulatory state” through “deliberate reinforcement” in strategic sectors of financial services, energy, and automotives by managing “ownership structures, market entry, and business scope” (pp.193-226), while permitting “decentralized engagement” in non-strategic sectors of consumer electronics, foodstuffs and paper (pp.227-252).
Hsueh concludes that as a globalization strategy, China has adopted a“distinctive national model of sectoral integration into the international economy,” based on its national interest. She raises pertinent questions as to how the Chinese model of sectoral integration compares with that of India and Russia and whether the latter have pursued different models of sectoral integration based on strategic value.
Conceptually, theoretically, and empirically, China's Regulatory State is a pivotal contribution to the discourse on China’s development model and regulatory landscape, to the literature on government-business relations, and to the understanding of patterns of state control as part of the discipline of political economy. Hsueh has accomplished a painstaking task of uncovering a critical facet of economic liberalization in China, further exploration of which might unearth newer aspects of China’s development strategy or bring out newer interpretations. Data collection for this book includes over 250 original interviews with officials, industry experts, corporate managers and executives, among others, during the author’s “more than eighteen months of fieldwork” in China’s eastern coastal and western interior provinces.
It would have been an additional advantage to readers had the author taken the trouble of including a separate chapter on the implications of her findings for foreign business enterprises as they craft long-term investment strategies vis-à-vis China, for foreign governments, and for think tanks engaged in researches on China’s economic reforms, among others. This, however, does not detract from the book’s importance; evidences and analyses in this book make it evidently amenable to comprehension of significance for a wider readership.
The book, while interesting and useful for general readers, is indispensable for scholars, researchers and students of political economy, international business, and international economics.
Vice President, IJAA
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