Behind the curtain

China’s Regulatory State: A New Strategy for Globalization

Rosalyn Hsueh Cornell University Press 2011

US$35.00

What path should poor countries take to wealth and development? These days, the answer is less clear than it used to be.

The standard policy prescriptions that have been used over the last few decades – typified by the “Washington Consensus” that emerged in the late 1980s – are now debated even within the IMF and World Bank. Free-market economies in North America and Europe are struggling to break free from a slow-growth quagmire created by their own deregulated financial systems. Meanwhile, China’s “state-directed capitalism” has the envious challenge of trying to slow its breakneck growth.

But what dictates the extent to which China controls its markets? In her new book, China’s Regulatory State: A New Strategy for Globalization, Temple University Assistant Professor Rosalyn Hsueh looks at the nitty-gritty details of Beijing’s approach.

Hsueh argues that Chinese policymakers have danced a “liberalization two-step.” Markets have been opened across the economy – especially in the lead-up to WTO accession roughly 10 years ago. But central control has not disappeared. Instead, it has become more focused, with certain industries targeted for their “strategic value” – their importance to China’s national security and development goals.

The result is that some sectors which policymakers see as unimportant – such as consumer electronics, foodstuffs, paper and textiles – are genuinely open to competition. But others, like automotives, energy, financial services and telecoms, only appear to be liberalizing; Beijing remains firmly in control.

To illustrate her thesis, Hsueh draws on contrasting case studies from China’s textile and telecom industries. First, she traces the withdrawal of government control over the past two decades in the textile industry, which central policymakers view as a low-value sector that is unimportant to national security.

She then contrasts that with telecommunications, which policymakers see as critical to national security. Beijing has allowed some competition in the sector and created national champions that often look, act and conduct themselves on foreign exchanges as if they were profit-motivated companies.

Under the surface, however, the Ministry of Industry and Information Technology retains a tight grip on the telecom industry. Several events over the last decade have made that glaringly obvious – such as when the government swapped the top executives of all three major telecom companies in 2004.

There are nuances to this picture. Some state companies remain in the textiles market, and some local-level officials still regulate the industry. Similarly, Beijing has allowed market forces to take over in some more consumer-oriented areas of telecoms, such as internet services, consumer software and mobile platforms. But the overall direction is clear: strategically important industries will remain under tight control.

Lack of consensus

Hsueh’s argument is academic in every sense – rigorously and logically argued, but with dense, jargon-riddled prose. Readers should be prepared to wade through the minutiae of case studies.

Most disappointing, though, is that Hsueh hugs her argument tightly, only tepidly taking a stab at its implications. She concludes that the successes of China’s development model “force us to move away from simplistic ideas of the mutual benefits of liberal markets,” while also acknowledging that China’s development cannot be separated from its unique context. In other words, China’s development might be an alternative to the Washington Consensus, or it might not. The argument is so hedged it becomes useless.

The book generates more questions than it resolves: Who benefits from selective regulation, and who loses? Could China’s model be politically easier to swallow for developing countries – perhaps in a transition phase? Ultimately, should other countries try to replicate China’s approach?

Understanding the full costs and benefits of China’s model is critical to whether the country truly does present “a new strategy for globalization” – but readers of this otherwise excellent book are left to draw their own conclusions.

CHRISTOPHER BEDDOR