Excerpt: State Capitalism

Return to State Capitalism.

In late 2013, in a highly publicized address to the Communist Party's plenum, new Chinese president Xi Jinping announced that the government would unleash the private sector, after decades of gradual economic reforms that left many of China's biggest industries in the hands of state-owned giants. Market forces, rather than the state, would now play a "decisive role" in the Chinese economy, Xi declared, a line touted by Chinese and foreign media. Many investors in China also interpreted the declaration as a sign of Xi's reformist plans. Some news stories compared Xi to sainted former leader Deng Xiaoping.

Xi, who had used his own political savvy to eliminate many rivals and make himself the most powerful Chinese leader within the Party since Deng Xiaoping, hardly shied away from comparisons to Deng, who oversaw the beginning of China's era of economic reform. Indeed, Xi portrayed himself to the Chinese public and foreign investors as a once-in-a-generation economic reformer who could streamline the Chinese economy, slashing waste and unleashing the private sector.

Clearly trying to emulate Deng, in 2014 Xi made a surprise high-profile trip to a new free-trade zone in Shanghai, the country's financial capital. The trip was designed to remind Chinese of Deng's early 1990s tour of southern China. Deng had used his southern trip to kick-start economic reform after the Tiananmen massacre paralyzed Chinese politics and China's economy as well.

In Shanghai, where media outlets favorably compared Xi's visit to Deng's "Southern Tour," Xi offered more promises that the private sector, not the state, would be empowered on his watch, praising the free-trade zone and urging local leaders to attract domestic and foreign private investment.

In late 2013 and early 2014, at the end of the eighteenth meeting of the Party's Central Committee, Xi and premier Li Keqiang announced more specifics of how they planned to help market forces play that "decisive role" in the Chinese economy. The Chinese leaders touted land reforms designed to make it easier for rural Chinese to sell their land, changes that would allow some state firms to go bankrupt and be liquidated, quicker approval processes for Chinese entrepreneurs and for potential foreign investors in China, an opening up of some energy projects to private companies, and an end to state-mandated prices in some sectors. The two men promised that private companies would be treated equally, before the law, as state-owned Chinese firms, the first time any Chinese leaders had made such a promise. Premier Li also suggested that China could grow much more slowly than it had in years past—that Chinese people must accept slower growth as China kicks its addiction to cheap credit and cleans up bad debts in state-controlled banks, and as China makes the transition from an economy heavily dependent on manufacturing and state investment to one more reliant on services and consumer spending. In September 2015, Beijing announced more proposed reforms, including reforms designed to further liberalize state enterprises by pushing more state companies to sell public shares, giving boards of state enterprises more independence, and loosening restrictions on hiring and salary for state firms in order to attract better management talent from the private sector, among other changes.

But Xi and Li's plans for economic reform, and a gradual economic slowdown that they called "the new normal," so far have amounted to little, and it is far too soon to see if the most recent announced reforms will have any impact. The sharp drop in China's stock markets during the summer of 2015, which stirred anger among Chinese investors and led some China observers to conclude that Beijing would respond by speeding up its economic liberalization, also has had little impact on the pace of reform. In fact, contrary to the impression perpetuated by top Chinese leaders that China continues to open its economy and reduce the power of the government over many sectors, over the past decade Beijing actually has taken back control of many parts of the economy, such as energy and commodities and information technology. The Xi administration also has clamped down on critics who question this continued state intervention or even argue that China's economy is slowing faster than the leadership desires. Indeed, state capitalism is, in many respects, on the rise in China—and all over the world.