State Capitalism, Entrepreneurship, and Networks: China's Rise to a Superpower

Abstract

From a Western perspective, state capitalism epitomizes one of the main impediments to sustained growth in China. I reached this conclusion without considering the many facets of state capitalism in the Chinese growth process. Having outlined some basic features of Chinese state capitalism in section one, in section two I focus on China's industrial policy to promote innovative entrepreneurship. Two sets of policies have played a key role: (a) the decision to build up a team of national global players, and (b) the decision to "grasp the big and let go of the small" (i.e., to retain big firms in state ownership but privatize small firms). This has resulted in the David-Goliath symbiosis, which is one of the cornerstones of China's economic success. Chinese policy decision-making is driven by networks (between public officials and managers of leading private and state-owned enterprises), the pervasive role of the new elite, and a highly developed patronage system. I describe this in section three. The focus in section four is on public investment in infrastructure to develop the hinterland and overcome the middle income trap. In the final section, I assess the methodology of recent Western evaluations of Chinese policy in the light of the global economic crisis.