Chinese Economic Strategy and State-Run Enterprises

The lead article in today’s New York Times, “China Fortifies State Businesses to Fuel Growth,” provides an interesting look at Chinese economic strategy and the role state-owned enterprises (SOE) play in their phenomenal expansion.

Apparently, the Chinese reserve key industries for SOEs and limit private entrepreneurs severely in these areas. The article mentions finance, communications, transportation, mining and metals as the key fields where competition is either non-existent, barely tolerated or opposed with all the power of the state.

For example, airlines initially experienced some competition between eight private competitors and the three big companies run by the Chinese government. However, after providing favorable terms to the big three for the state monopoly on jet fuel, the private competitors were reduced to just one.

In my opinion, the most important element for the United States, besides the growth of China as a formidable economic power, involves the degree their statist economic model is followed by other poorer countries. Even though Japan’s top-down economic systems eventually failed, you can’t argue with the success of China’s system, at least so far.

According to the Chinese, efficient management by the state can be more effective in helping poorer countries pull themselves up by their collective bootstraps than just capitalist market forces. The Chinese claim that the government can make decisions and organize more efficiently, as well as gathering resources for large projects. One only has to look at China’s success in the promotion of clean energy to recognize the validity of this latter statement.