Long march to reform

Economic Reform and State-Owned Enterprises in China 1979-1987 - Agricultural Reforms and Grain Production in China
October 26, 1995

It is tempting to compare the Chinese experience of economic reform with the economic and social repercussions of the big bang programme of reform in eastern Europe. From such comparisons it is often concluded that China has found the correct path away from a state-dominated command economy and towards a more market-orientated system such as obtains in the West. Indeed, the authors of Economic Reform and State-owned Enterprises in China note that had eastern Europe been able to consider the Chinese experience as well as the advice proffered by western theorists convinced of magical properties of the market, some of the worst effects of their actual policies might have been avoided, or at least reduced. As J. K. Galbraith memorably commented at the time, for anyone to think that pure capitalism red in tooth and claw was what Poland needed, or what any other country needed for that matter, implied "a mental vacuity of clinical proportions".

In both of these books China's ongoing economic reforms are judged to have been broadly successful, although problems remain, some of them serious. Donald Hay et al provide a balanced assessment of the extent to which the reforms have actually altered state enterprise behaviour in China, and conclude that further reform is "both feasible and desirable". This study is the first book-length product of an enormous research project which has included field research at more than 30 state-owned enterprises, as well as survey data from more than 1,000 enterprises. Clearly the research has to date produced far more data than could usefully be included in a single monograph, and further publications are eagerly awaited.

Among the many merits of the present book, the opening section surveying the different phases of reform is a model of clarity and conciseness. Even within this brief survey, however, the authors are careful to acknowledge the often crucial discrepancies between the official line on the implementation of reform measures and the actual behaviour of enterprise management and local authorities. In particular, they return repeatedly to the problem of the scope for informal bargaining and the use of personal connections, a phenomenon which seems to have survived in all phases of the reforms to date. Their awareness of such issues can only increase the reader's confidence in the book's conclusions.

On the whole there are few surprises in these conclusions, but this is hardly a criticism in the circumstances. In fact it is reassuring to have so many of the things which we thought we knew about the effects of the Chinese reforms confirmed by a mass of empirical evidence and painstaking analysis. For example, it will not startle many observers to find that the greater autonomy in decision-making which the managers of state enterprises now enjoy has not been extended to the broader workforce, but we now have concrete evidence that this is the case. We also have answers to more detailed questions: what types of decisions are subject to workers' participation or consultation? How do these vary between enterprises of different sizes? In what proportion of enterprises do workers have a say in the appointment of managers?

What really makes this book indispensable is its wealth of statistical data on all aspects of enterprise operations and relationships under the reforms.

One conclusion of the book which will not meet with universal agreement is that issues of ownership must be tackled in the next phase of the reforms. The authors are convinced that "ownership matters", and that although further progress can be made without altering the basic framework of state ownership, the benefits of any such reform will be limited. What is proposed instead is a form of institutional private ownership whereby state enterprises will become joint-stock companies, with stock being bought by private financial institutions such as pension funds, insurance companies and banks. Clearly this development could not take place in isolation, and a whole range of issues connected with social welfare and employment, taxation, and other reforms would also need to be considered. Still, the case is thoughtfully made, and is a timely contribution to the debate on ownership and reform of state-owned enterprises.

Despite the problems identified by the authors, it is undeniable that the industrial reforms have been broadly successful. But, as is pointed out by Shujie Yao in Agricultural Reforms and Grain Production in China, just as in the pre-1978 period, the success of the reforms in industry has been founded on continued exploitation of agriculture, and urban consumers are still a higher priority for the government than the peasantry. Yao recognizes that the importance of agriculture in the national economy has declined under the reforms, but makes a persuasive case for the possibility of food shortages in the near future having a serious effect throughout the system. He is shrewd in distinguishing between changes in the policy jargon and actual substantial changes in the content and direction of policy, and his observations lead him to conclude that the recent growth in grain production may again, as in the mid-1980s, be due to the use of temporary measures which will not solve the long-standing problems in agriculture. Thus another period of stagnating grain production seems quite likely, and this could have serious consequences.

Yao identifies the government action needed to avert a major recession in agriculture, which would then spread to industry and trade. But he is pessimistic as to whether central and local authorities will be willing or able to take the necessary long-term view and assert control over the excessively rapid expansion of the industrial sector. When such basic questions as food security are still clouded in such uncertainty, we may perhaps be justified in modifying our positive view of China's prospects in the 1990s and beyond.

Although the most apocalyptic visions - visions of China disintegrating into its constituent regions, perhaps even of a return to the chaos and destruction of the warlord era earlier this century - are probably unjustifiably pessimistic, nevertheless China could still be heading for "interesting times" as the developments set in motion by the reforms play themselves out.

Jackie Sheehan is lecturer in international history, Keele University.

Economic Reform and State-Owned Enterprises in China 1979-1987

Author - Donald A. Hay, Derek J. Morris, Guy Liu, And Shujie Yao
ISBN - 0 19 828845 X
Publisher - Clarendon Press, Oxford
Price - £50.00
Pages - 494

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