The state and economic enterprise

Abstract

The relationship between the state and economic enterprise is a central choice that governments have to make in all economies. The role of the state and state-backed or state-owned enterprise in Asia’s economic modernisation is a question of special interest. Some argue that in all the economies of Asia that have enjoyed or are now prosecuting successful industrialisation—Japan, South Korea, Taiwan, Singapore, Indonesia, India and China, for example—the state has played a central role through active participation in economic enterprise. To others this is a controversial conclusion and they posit an alternative view, that successful Asian industrialisation is a story of removing the shackles of the state from economic enterprise. Lardy here and in his new book sees China’s experience through this latter prism. Nonetheless, state-backed or state-owned enterprises have been a prominent feature of Asian economies at some stage in their development and there is elevated interest in the role that state-owned enterprises play in the Chinese economy today with the surge in their investment abroad following China’s ‘going out’ strategy over the past decade. This issue of EAFQ looks in detail at the nature of China’s state-owned enterprises as well as their impact on global investment and the role of state enterprises in other Asian economies at different stages of development. The first step in understanding Chinese state-owned enterprises is the distinction that we need to make between the giant, central SOEs dominating strategic industries from Beijing and the tens of thousands of provincially and locally owned SOEs. While SOEs remain a prominent feature of the Chinese economy, they now account for only 30 per cent of industrial output and even the huge central SOEs are supposed to run at arm’s length from the state—an issue that is currently a focus of China’s Third Plenum reform agenda. Market competition and the corporatisation and privatisation of many loss-making SOEs in the 1990s have seen the environment in which they operate change dramatically. That seems the way of the future. In our regular Asian Review on major trends and developments, we cover the crucible of terror in Pakistan, the global growth of yoga, the Asian middle class and what it is not, and what’s to become of the Australian economy now the party from the Chinese commodity boom is over.