This forum has noted before the notion that China’s highly lauded government-directed economy is not all it’s cracked up to be. Jonathan Laing’s new Barron’s cover story raises similar concerns.
It’s also of note that even some of the longtime bulls are growing concerned on the nation’s future. One is William Overholt, a respected Asian scholar who has moved smoothly between Asian investment-banking posts, think tanks, including the Rand Corp., and academia; he’s now a senior research fellow at Harvard’s Kennedy School.
As Overholt sees it, the economic and political reform movement of the Jiang Zemin/Zhu Rongji era (1993-2002) has flagged badly over the past 10 years. As a result, the giant state-owned enterprises — outfits like energy colossus Sinopec, telecom giant China Mobile, conglomerate Norinco and integrated steel maker Baosteel — have become overly dominant in the economy, thanks to their oligarchy positions, implicit government guarantees, cheap credit, tax breaks, and subsidized access to cheap raw materials. In the process, those national champions have been squeezing out small and medium-size companies in the more innovative private economy catering to the export market.
The so-called SOEs boast close family and financial ties to China’s ruling party clique. Power and wealth have become one in the same — a kleptocracy of insiders skimming off part of the prodigious money flows sluicing through the Chinese economy through relatives strategically placed in state companies, consulting firms, and various financial institutions.
