ASIAN-PACIFIC ECONOMIC LITERATURE

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Journal compilation © 2006 Asia Pacific School of Economics and Government, The Australian National Universityand Blackwell Publishing Asia Pty Ltd.

China’s Ownership Transformation: process, outcomes, prospects

Ross Garnaut, Ligang Song, Stoyan Tenev and YangYaoInternational Finance Corporation, World Bank Group,Washington, DC, 2005

Pp. xviii + 235. ISBN 0 821 36237 2

For more than 25 years, as China has undergonea transformation from a centrally planned econ-omy to a more market oriented economy, thestate-owned sector has been diminishing in sig-nificance, while private enterprises are now play-ing a critical role. However, there has not been adetailed study of how this transformation (

gaizhi

or in Chinese) and ownership diversification inparticular has developed and what its impact hasbeen on governance, labour, and firm perform-ance. This book is very informative and helps usto develop a concrete picture of the economicrestructuring that is underway in China.

The book tackles this issue by conducting asurvey of around 700 Chinese enterprises in 11cities. While the overall results of the survey arenot so surprising, there are some interesting find-ings. For example, the authors try to identify thefactors that contribute to the

gaizhi

process andfind that improving the efficiency of enterprisesis not necessarily the factor that motivatesgovernments to initiate privatisation. Rather, theauthors conclude that regional factors, such asthe progress of market liberalisation and privatesector development, deeply affect the

gaizhi

pro-cess. Such a conclusion appears, however, to besomewhat tautological, and further investigationof the historical and social background of, oreven the mindsets of people in, each city andregion under consideration may explain the dif-ferences between

gaizhi

processes in differentareas.

Another finding is that restructuring and pri-vatisation are not necessarily associated withunemployment, but rather contribute to increas-ing job opportunities. Certainly, the current con-ventional wisdom is that China can only solveits serious unemployment problem by furtherdeveloping the private sector and by pursuing amore market-oriented strategy for the economy.In fact, Chinese authorities seem to realise this,and it is widely acknowledged that China hasbeen promoting private sector development pri-marily in order to absorb redundant labour laid

off as a result of reforms of state-owned enter-prises (SOEs). It seems that the important policyimplication here is that policymakers need to seethe impact of

gaizhi

, not from a myopic view-point but rather from a medium and long-termperspective.

The most important message in this book isthat, while the emergence of diverse ownership,outside ownership in particular, has greatlyimproved the efficiency of Chinese enterprises,fairness and the gap in income distribution haveattracted more attention than ever, and thatprogress in the transformation of ownershiprequires the authorities to create and enforce asounder market environment.

In relation to these issues, it is important toremember the following: while traditional eco-nomics might tell us that the market mechanismhelps to make firms perform efficiently and forPareto optimal resource allocation to beachieved, it is silent about income distribution.While the creation of a sound regulatory frame-work is essential to ensure fairness, such a frame-work will not necessarily solve the currentproblem of the widening income gap. The Chi-nese government has put forward the idea of a‘harmonious society’ and is trying to shift its pol-icy focus more towards achieving this objective.This change of stance may require some govern-ment interventions. We will need to see howthese measures fit with the progress in economicrestructuring, in particular the development ofthe private sector. The growth in the ‘new leftistschool’ of economic thought—as opposed to thecurrently dominant ‘new liberalism school’—canbe interpreted as an attempt to provide a theoret-ical basis for these arguments.

Another important issue that needs to beexamined, but which may be beyond the scope ofthis research project, is the impact that owner-ship diversification and the development of theprivate sector will have on the whole Chinesepolitical and social system. Some Chinese areworried about privatisation and the diminishingpower of SOEs, and wonder whether China canmaintain its system of one-party rule. In otherwords, what is the role of the state under marketsocialism? Currently, economic imperatives seemto overshadow this issue and, therefore, it is notconsidered to be a serious matter by the Chineseauthorities. Sooner or later, however, China willneed to sort out its thinking about this issue. Atthe very least, if the Chinese authorities go

BOOK REVIEWS

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Journal compilation © 2006 Asia Pacific School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd.

against economic imperatives in trying to main-tain control over the whole economy through theownership of SOEs and by delaying politicalreform, corruption and myopic behaviour on thepart of both enterprises and the government mayspread. How China gradually adjusts its politicaland social system to accommodate economicdevelopment is really a matter of concern foreverybody as well as China itself.

Toshiki KanamoriAsian Development Bank Institute

Economic Globalization in Asia

Partha Gangopadhyay and Manas Chatterji (eds)Ashgate, Aldershot, 2005.

Pp. xx + 227. ISBN 0 754 64114 7

Scholars and conference organisers often used‘globalisation’ as a convenient term to bringtogether diverse views and topics relating to theglobal economy. This is perhaps the explanationfor the title of this book,

Economic Globalization inAsia

, which is edited by Partha Gangopadhyayand Manas Chatterji.

The book does indeed devote a fair amount ofspace to topics relating to globalisation. Theseinclude surveys of the theoretical basis for, andmeasurement of, globalisation, as well as studiesof the experiences of particular countries, suchas Japan, Korea, China and India, when facedwith the challenges of globalisation. The countrypapers are interesting. Each focuses on a differ-ent issue, such as foreign direct investment (inthe case of Korea and Japan), the impact of theEast Asian financial crisis, and policy reforms(for China, India and Vietnam). There are alsosome empirical papers that are cross-country orregionally oriented. The more interesting of thesepapers use primary research, either in the formof qualitative evidence or quantitative micro-data, to examine business strategies and foreigndirect investment in the region. Despite theirnovelty, one gets the impression that thesepapers are exploratory in nature rather thandefinitive.

A significant amount of space (slightly morethan one-third of the book) is devoted to discus-sions of the East Asian financial crisis of 1997–98.This section includes discussions of the financialaspect of the crisis, its human and social aspects,

the macroeconomic dimension of the crisis, andthe impact of the crisis on specific countries suchas South Korea and China. Most of these papersprovide reviews of the existing literature. Thereare some interesting theoretical attempts atexplaining the crisis, namely the use of theKaldorian model to explain changes in the qual-ity of governance and a game-theoretical modelof the institutional change in China that occurredin response to the crisis.

The last third of the book includes essays thatare less directly related to the theme of ‘economicglobalisation in Asia’. This section includespapers on human resource development in Indo-nesia, the theoretical foundations of Russian eco-nomic policies, the characteristics of small firmsin Sri Lanka, and the political economy of ruralhealth care in India.

Overall, the quality of the essays in this vol-ume is very uneven. The book also tends to losefocus towards the end and would have benefitedfrom a more coherent selection and arrangementof essays. The strength of the book lies in the fewempirical essays that employ primary data onfirms’ strategies, and in the theoretically-basedessays that offer alternative views on policyreforms.

Cassey LeeUniversity of Malaya

International Trade in East Asia

Takatoshi Ito and Andrew K. Rose (eds)University of Chicago Press, Chicago, 2005.

Pp. x + 419. ISBN 0 226 37896 9

This volume is the fourteenth in the NationalBureau of Economic Research’s annual seriesfrom the East Asia Seminar on Economics. Thetheme for 2005 was international trade, focusingon empirical aspects of trade that are relevant toEast Asian countries. Given the rapid rise of EastAsia as a source and destination of merchandisetrade, this volume is of interest to all students ofinternational trade.

The chapters can be placed into two groups.The first group deals with the relationshipsbetween factor productivity and patterns oftrade. Using a large disaggregated dataset, Itoand Fukao show that the factor content of netJapanese exports, especially with China, has