Thursday, December 3, 2020
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China is not (yet) in crisis

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Emilie Frenkiel. Specialist in China

At the end of a year marked by turmoil in the stock exchange, in this interview the economist and expert of China Jean-François Huchet describes the outlines of the economic reforms initiated in 1978 and explains the role of the state, large public and private companies in the Chinese economy and their adapting to globalisation and the challenge of the environment. *

Books and Ideas: What is the role of the Chinese state in industrial development of China?

Jean-François Huchet: The role of the Chinese state has been very important in the economic development of China, especially since 1978, when there was a major change in its economic development strategy. This is a state that has remained very present directly in public companies and through aid given to them to avoid a clash with foreign companies, as happened in Russia and Eastern Europe, following the disappearance of Soviet regime. It is a welfare state but has managed to restructure, develop and adapt to globalisation. A state that is very present but has been known to force firms to modernize, promoting new technological capabilities and raise international competition.

Books and Ideas: How has this role been evolving?

Jean-François Huchet: Their role has changed a lot since 1978. At first, until 1992, the state was marked by planning. It proposed quite ambitious goals and did not measure the imbalance between its modernization and development plans and the actual performance of an economy still determined by Soviet-style planning. This led to failures in industrial policy, particularly with respect to the concentration of enterprises to create "national champions". By contrast, a breakthrough was achieved in the policies of protecting the domestic market, temporary protection of enterprises until they could modernize and deal with international competition. Things have changed much since 1992. Under the leadership of Deng Xiaoping, a vast programme of economic reforms and transition to market economy was launched. The State-which withdrew some, though not completely- knew how to adapt its strategy on industrial policy, with more realistic objectives, and above all, drive the market so that China has approached other model countries with large State sectors but in a competitive landscape, more and more open and international (...) This varies, of course, depending on the sectors. There are those, such as oil and telecommunications, which are almost state monopolies and others fully open to competition, such as electronics, home appliances, light industry and even certain areas of heavy ones (...) Recently, the State took care of primarily issues related to the environment and energy transition. And in any case we must bear in mind that among the 500 largest Chinese companies, the vast majority belong to the state, but with little resemblance to those of the 80's. All these companies have been restructured and there is much debate about profitability.

Books and Ideas: What is the part of private companies in the Chinese economy?

Jean-François Huchet: What is interesting is the convergence of the state, which remains very strong despite the reforms and, since 1978, an important development of the private sector, which before had never really taken off. The private sector disappeared in 1953-1954, at the time of the nationalization of the Chinese economy, and reappeared and has continued to progress since 1978, except for two times in 1989 and 1991 (slowdown of reforms as a result of the student movement 1989) and 2008 (recovery plan in which much of the money was channelled into the public sector) (...) Today the private sector is dominant in the Chinese economy in terms of employment, investment and fixed capital. Its only difference with the public sector is the size of the companies. Large companies are public and the small ones private. This is to say that somehow the development of the private sector is not allowed. From a certain size up, there is a desire to have public companies that dominate the national economy.

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