The front page of The New York Times yesterday featured a very long story on the state displacing the market within the Chinese economy. Hats off to the Times for getting it right, but they’re late. Very late.
In fall 2002, a new Chinese government, led by current President Hu Jintao and current Premier Wen Jiabao, came to power. From the beginning, this government was bent on reversing market-oriented economic reform and started immediately by sharply expanding state-orchestrated lending and investment.
Indications of the reversal were plain by September 2003—seven years ago. By 2006, state dominance in nearly every major sector of the economy had been re-ratified, either formally, as in energy or on the ground, as in banking.
As the financial crisis spread in the fall of 2008, China’s stimulus was initially welcome. Over the course of 2009, though, American businesses began to complain that they were not being treated fairly, citing in particular a series of regulations promoting “indigenous innovation.” But these regulations, too, had been drafted years earlier.
By the end of 2009, it was widely recognized that the driving force of Chinese stimulus was lending by state banks to state firms. This merely replowed the ground of state dominance sown well before the crisis.
The results can be stunning. According to China Business News, the combined profits of just two state-owned enterprises, China Mobile and Petrochina, stood at just over 218 billion yuan in 2009. In comparison, the combined profits of the 500 largest private Chinese companies stood at just under 218 billion yuan.
This didn’t happen overnight or over the course of a single year. It is the result of years of ensuring and promoting the economic dominance of the state. Perhaps, with even the The New York Times on board, we will stop hearing about Chinese economic reform. That ended years ago.