Logo
  •  
  •  
  •  

European Voices on China
MERICS Blog

Why economic reforms in China mean a bigger role for the state

25 September 2017

By Max J. Zenglein

The state’s role in economic planning has increased under Xi Jinping, and national interests take precedence over market principles. Signs point to more government controls and intervention, rather than liberalisation, as a result of the 19th Party Congress.

A robot made by the Chinese telecommunications company ZTE at the China Hi-Tech Fair 2016 in Shenzhen. Image by Imaginechina

As the Communist Party heads into its 19th Congress in October, we can expect announcements for economic reforms, but not deeper economic liberalisation. Under Xi Jinping’s leadership, state control over the economy has increased, and all signs point to further expansion.

Market-based principles are increasingly subordinated to long-term national strategic ambitions. State-led programs like Made in China 2025 and the Belt and Road Initiative seek to establish China as a global economic superpower. Another motivation for strong state involvement in the economy is the party’s entrenched distrust of market volatility and fear of losing control over the economy.

Rather than breaking up state monopolies, China’s reforms of state-owned enterprises (SOEs) focus on mixed ownership and public-private partnerships. The idea is to bring in private companies to help transform SOEs into financially sound, innovative and internationally competitive national champions.

In this process, the country’s private tech giants are particularly vulnerable to more government influence. Sectors such as artificial intelligence, big data, digital payment systems and industrial robots are seen as crucial building blocks for establishing China’s global technological leadership. Now that their products fall in the range of national strategic economic interests, they are at risk of closer state entanglement.

China’s nascent social credit system to monitor citizens’ and companies’ behaviour is the most sophisticated example of the fusion between private companies and state goals as the system builds on user data collected by tech giants. Industrial policies such as Made in China 2025 or Internet Plus, as well as new guidelines for foreign investment, illustrate the state’s leverage in shaping Chinese companies’ decisions. From the state’s perspective, ideal private investment decisions are in sync with national targets.

Another prominent example is an ongoing effort to establish party committees in private, even foreign-owned, companies. Once established, these committees may influence management decisions towards pursuing national targets.

It will be harder to evaluate the competitive landscape in China as lines between policy-driven and market-driven forces blur. Foreign companies will be ill prepared to face growing Chinese competition at home and abroad – just as more liberal economies struggle to respond to China’s state-led forays into their markets.

China’s leaders do not plan to withdraw state influence from the economy. Political stability and the pursuit of national interests take priority over market principles.

This article was previously published by the South China Morning Post on September 21, 2017.

  •  
  • 0 comments
  •  

Comment

The email address will not be published. Please fill all fields that are marked with *.

The  Mercator Institute for China Studies (MERICS)is a Stiftung Mercatorinitiative. Established in 2013, MERICS is a Berlin-based institute for contemporary and practical research into China.

Top