Customer Reviews

Forging Reform in China: The Fate of State-Owned Industry (Cambridge Modern China Series)

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The author focuses on one industry (steel) and a small number of firms. There are some good points in the book, but overall it suffers from a biased sample because the author hasn't studied the successful management experiences of Handan and its derivatives.

This book is based on research on the Chinese steel industry conducted in the mid-1990s. There's some good info in here, but the author misses some pretty obvious points. You could ascribe this to ideological blinders (I'm thinking of his statement that corporate governance mechanisms "are absolutely essential for getting firms to respond to the price signals of the free market") or perhaps it's just a misplaced sense of disinterest. The most glaring omission is asset stripping. It has been well documented that asset stripping and associated corruption was behind most SOE problems during the period in question. The words "asset stripping" never appear in this book (although the author does admit that "uncoordinated agencies of the state... extract profits from the firm" but he doesn't really go into how this happens). And for some strange reason the author goes easy on Zhou Guanwu's son, admitting only that "something strange had happened." I mean, the guy was given a suspended death sentence, clearly he wasn't just misusing company stationary. My favorite bit, though, is the conclusion: "Perhaps this is not a country that can or should be purchasing airplanes, automobiles, power plants, and heavy machinery in great quantity..." Oops!

The author presents a different perspective on China's state owned enterprise problem. He contends that the problem is not an allocation of property rights issue. Instead, a supposed free market system has been overlaid over a still partially existing command economy. A fascinating theory. If the author is right, China's problems are very deep and will be extremely difficult to solve.

I remember one of my professors had said to me: "If you only read one book about SOE reform in China, you must read this one."
His recommendation cannot be more correct. The writer has undergone an in-depth investigation of SOEs and their reform in China. The three case studies, namely, Angang, Magang and Shougang, are all very comprehensive. For anyone interested in corporatization of these SOEs, Chapter 5 is a must-read for them. In all, the book is a tremendous achievement when you consider that the writer is a Westerner.
The writer thinks that the illness of SOEs is due to the continuous supply of soft budget from the government and state-owned bankers. The ownership issue - whether these enterprises are state-owned or in private hand - is not very important. However, my opinion is that you must not be a player when you also assume the role of referee. If this reform is to be successful, a detachment to government is necessary.
Anyway, this is an excellent book.

Steinfeld displays an uncommon ability to view today's China in a fresh light, unbound by the constraints of conventional Western thinking. Highly recommended for anyone seeking to understand modern Chinese economic development and the elusive prospects for China's full participation as a world economic leader.