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Social Connections in China Institutions, Culture, and the Book Reviews Integrating China into the Global Economy. By NICHOLAS LARDY. [Washington, DC: The Brookings Institution Press, 2002. x�244 pp. Hard cover $48.95, ISBN 0-8157-5136-2; paperback $19.95, ISBN 0-8157-51235-4.] This book assesses the extent of Chin...

Social Connections in China Institutions, Culture, and the
Book Reviews Integrating China into the Global Economy. By NICHOLAS LARDY. [Washington, DC: The Brookings Institution Press, 2002. x�244 pp. Hard cover $48.95, ISBN 0-8157-5136-2; paperback $19.95, ISBN 0-8157-51235-4.] This book assesses the extent of China’s increasing integration into the global economy during the reform era and explores the likely global impact of China’s membership in the World Trade Organization (WTO). The five chapters of the book cover China’s pre-WTO trade reforms; the terms of China’s final WTO accession package; and the implications of China’s WTO membership for foreign companies, world trade, the international trading system, and US-China relations. It presents sober and reasoned analyses of these issues and represents a solid attempt to take stock of China’s economic progress to date and its prospects over the coming decade. Witnessing the mounting publications on this subject, one may wonder what perspectives or insights from this book are still worth repeating and remembering. Within this short review, I would like to highlight the following three. First, Lardy contends that, contrary to popular wisdom in the media and research literature, China’s economy had become far more open than Japan’s and it was ready to join the WTO. Before WTO entry China had already achieved the lowest tariff protection of any developing country and had also shrunk non-tariff barriers impressively. Most price distor- tions were eliminated in the decade before WTO entry and much of the necessary industrial and agricultural restructuring was already underway before accession. Other substantial progress included expansion of trade rights, adoption of current account convertibility, vast expansion of the legal scope for foreign investment, legalized development of the private sector, and establishment of basic social security systems in urban areas. If this assessment is correct, why did it take 15 years for China to get into the WTO? Lardy argues that the long waiting “reflects as much the rising bar imposed by members of the Working Party … as China’s slowness to embrace the principles of the multilateral trading system” (p. 9). This leads to the second insightful message. Under pressure from the US and the EU, China committed itself to rules that violate the non-discrimination principle, the soul of a liberal trading order. These rules include the transitional product-specific safe- guard, the special textile safeguard, and the treatment of China as a non-market economy for 15 years after WTO entry. These rules clash with normal WTO practice, being inconsistent with the WTO’s prohib- ition against voluntary restraint agreements and stimulating potential protectionism for developed countries to shut out China’s exports. More important, an aggressive utilization of these so-called “WTO-plus” provi- sions would substantially undermine China’s further reform attempts and  The China Quarterly, 2003 1085Book Reviews cripple China’s ability to sustain its WTO implementation efforts. For example, under the Agreement on Subsidies and Countervailing Mea- sures, China becomes ineligible for favourable treatment of subsidies associated with privatization. China would not be allowed to treat debt- for-equity swaps, a promising means for privatization, as “non-action- able” subsidies. Newly privatized enterprises therefore face the possibility of countervailing duties. An insistence on this or other similar issues would undermine the privatization process in China and collide with Western intentions to promote private property rights and a liberal market order. While politicians and bureaucrats may typically focus on the direct, first order impact of these agreements in their negotiations, it is the duty of scholars to detect and reveal their far-reaching consequences, as Lardy does in this book. Thirdly, Lardy dismisses the notion that China is solely to blame for the large and increasing US trade deficit with the country. He argues that the US is running a global trade deficit that is a consequence of the low US saving rate relative to domestic investment. To fill the gap, the US must rely on foreign countries to run trade surpluses and extend credit. “Selective trade liberalization abroad only affects the country-by-country distribution of the US global trade deficit, not its overall size” (p. 158). To reduce its global deficit, the US would either have to increase its saving rate or reduce its domestic investment. This is a powerful point worth highlighting and repeating whenever deficit hawks seek to single China out as a threat to the US national security. Lardy warns, “U.S. policies that have given rise to the perception in China that the United States seeks to delay or even block China’s emergence as a major economic power must be abandoned” (p. 167). Furthermore, “the United States should be extraordinarily judicious in exploiting the three highly protectionist measures that U.S. negotiators insisted China agree to as a condition for WTO membership” (p. 168). All in all, the thesis of the book is well established, carefully examined, and meticulously documented. The book can serve as a very valuable reference to scholars, business professionals, policy makers, as well as more general readers who are concerned about the dynamics of the international trading system and the growing importance of China in the world economy. LAIXIANG SUN Selling China: Foreign Direct Investment During the Reform Era. By YASHENG HUANG. [New York and London: Cambridge University Press, 2003. 383 pp. £40.00. ISBN: 0-521-81428-6.] Internationalizing China: Domestic Interests and Global Linkages. By DAVID ZWEIG. [Ithaca, NY: Cornell University Press, 2002. 291 pp. $54.00. ISBN 0-8014-8755-2.] In 2001 China attracted more foreign direct investment than any other 1086 The China Quarterly nation in the world, including the United States. China’s love affair with foreign capital and foreign investors’ ardour for China is increasingly a subject of academic inquiry. What are the causes of this mutual attrac- tion? And perhaps more important, what are its effects on China’s internal political and economic development? Two recent books by political scientists are focused on answering the former question and, by way of conclusion, speculating on the latter. In their attempts they have contributed to a new and fascinating debate on how globalization (in- creased contact and interdependence between states, organizations, and individuals) is changing China. Despite their similar focus, these books are complementary rather than overlapping. They employ different theoretical approaches and modes of empirical evidence. Huang’s book is situated in the general business literature on foreign direct investment with scant emphasis on political science while Zweig forges an eclectic argument that draws from political economy, China studies, and sociology. Zweig employs various methods of data collection and empirical evidence, relying both on extensive interviews and statistical data. Huang relies mainly on statistical data culled from various sources and a small number of interviews with firm managers and officials. Both books are data rich and are argued persua- sively. While Zweig’s research is more finely-grained and attentive to regional differences in opening up, Huang uses some key case studies to make his general points more specific. In Selling China, Huang argues that China’s ability to attract foreign direct investment is a sign of weakness rather than strength. Large inflows of foreign direct investment are in part the result of two institutional characteristics of China’s political economy. First, there is a “political pecking order of firms” that grants SOEs greater access to credit and political favouritism. This pecking order descends downward from SOEs to collectives to domestic private enterprises (although Huang notes that leadership attitudes toward private enterprise began to change at the end of the 1990s). Domestic demand for FDI is generated because FDI functions as a substitute for credit for many firms at the lower levels of this order and also as a method of SOE rescue through “JV acquisition” at the higher levels. Huang’s main point here is that there is systematic discrimination against private Chinese firms, which prevents them from gaining access to credit, limits their legal protection, and also prevents them from acquiring many SOEs. The second institutional distortion is domestic economic fragmentation, which limits the expansive abilities of Chinese firms across different regions due to local protectionism. Foreign firms are less inhibited by this economic fragmentation (indeed Zweig and others argue that they take advantage of it) and can more easily extend their reach across China’s national economy. Huang here surpris- ingly does little to engage with the literature on Chinese-style federalism, which tends to portray China’s economic decentralization as an unmiti- gated good for China’s reform prospects. Huang concludes that the reasons for China’s institutional weaknesses are inherently political. The general literature on FDI, which tends to 1087Book Reviews focus on market failures, overlooks political explanations for large inflows of FDI into developing countries. Huang’s political explanation is that the Chinese state continues to maintain an ideological adherence to socialism in at least one respect, state ownership of large enterprises. Protection of SOEs, rather than a deliberate attempt to favour foreign firms, has been the driving motivation and large inflows of FDI are an unintended consequence of SOE policy. Zweig’s account of China’s increasing internationalization is more far-reaching, examining not only the politics of trade and foreign direct investment but also policies of overseas education and foreign aid. His account of the local politics of opening up in rural Jiangsu is one the best attempts in recent years to link leadership policy decisions with move- ment on the ground by local elites, TVE managers, and overseas Chinese investors. It is an explanation with strong microfoundations but Zweig also argues strongly for the importance of key central leaders, especially Zhao Ziyang. Zweig’s main argument for all three policy realms (econ- omy, education, and foreign aid) is that opening up was a dynamic process of deregulation and liberalization led by external forces and changes in relative prices, but sustained by the ability of local elites, bureaucrats, and others to benefit from China’s gradual and segmented opening up. Zweig shows, as Joel Hellman did for post-communist states, how partial reform can yield unequal benefits to those who have admin- istrative and regulatory power. However, like Dali Yang in Beyond Beijing (Routledge 1997), Zweig also places great emphasis on the ability of Chinese reforms to be pushed further through their competitive effects between regions and sectors and in the end to weaken the control of those in power. Zweig is careful, however, to note that China does not seem to be moving toward a free-market economy of deregulation and the rule of law, but rather has built a market economy on the shaky foundations of corruption, weak regulation, and unclear property rights. In this con- clusion Zweig and Huang are in agreement, as Huang notes repeatedly that China’s liberalization entailed administrative decentralization but not true privatization at least until the late 1990s. Thus despite the emphases in both books on a successful aspect of China’s economic reform, internationalization and greater openness, both authors point to funda- mental weaknesses in China’s political economy. Huang’s conclusion that the CCP regime remains committed to social- ism is left largely unexplored despite evidence in the late 1990s that privatization and the private sector were gaining ground. I remain uncon- vinced that the policy shifts around the SOE problem have anything to do with ideology, especially of the socialist variant. Huang’s evidence is thin on this point in particular and despite its importance to the overall argument it is not analysed at length. Rather than explaining the protec- tion of the SOE sector as some kind of ideological remnant of socialism, an alternative explanation is that SOE ownership has been retained because it is one important means by which the CCP maintains its monopoly on political power. With the improvement in the treatment of private entrepreneurs, however, do we see an important shift in CCP 1088 The China Quarterly strategy and a more concerted effort to make the economic transition from state ownership more complete? Huang spends most of the book proving that domestic demand for FDI is a sign of institutional distortions in the Chinese economy but spends little time on analysis of the political foundations of these institutions. Zweig gives ample space to the political foundations of “segmented deregulation” and is able to show how China’s global linkages expanded over time as increasing numbers of social actors were able to benefit from openness. Zweig’s use of rational choice theory to explain the large movement of mostly unorganized collectivities is appropriate. At times, however, the emphasis on interests seems overdrawn, for example when he notes that Chinese regulatory policies in the 1970s prevented Chinese academics from knowing their interests (p. 262). A more careful parsing of the difference between knowledge of one’s own interests and the ability to articulate and then to act upon those interests is warranted. Both of these books will add to the debate on the nature of China’s political economy amid globalization. They offer persuasive arguments for why globalization was demanded from within, but both end with cautionary notes on the future of China’s opening up. MARY GALLAGHER Chinese Entrepreneurship and Asian Business Networks. Edited by THOMAS MENKHOFF and SOLVAY GERKE. [London: RoutledgeCurzon, 2002. xv�335 pp. £65.00. ISBN 0-7007-1653-X.] Chinese Entrepreneurship and Asian Business Networks contributes to a growing and contested field of scholarship. The introduction presents the volume as a corrective to what it regards as misconceived, popular perceptions of Chinese entrepreneurs and business networks in Asia, and expends much energy criticizing prominent examples of these miscon- strued ideas. The major claim is that the culturalist perceptions of bamboo networks and business tribes (pp. 4–7) are not sustained by “sober empirical facts” (p. 8). The aims are to “counteract” the myths about Chinese entrepreneurs with the use of “data” revealing the “actual patterns,” and to present “alternative” interpretations of concepts such as “guanxi” that are “essentialised” in “mainstream literature on Chinese business” (p. 8). To judge by the introduction and the last chapter (both written by the editors), the volume’s agenda is dominated more by the will to engage in a polemic than by the urge to get on with the job of exploring how Chinese businesses in Asia function. Fortunately, most of the contributions are much stronger than the introduction and the last chapter. Tong Chee Kong and Yong Pit Kee in their study of the Lee Rubber Group provide an exemplary, incisive and sensitive model for how to deal with the complex ideas about Chinese 1089Book Reviews business (pp. 217–18), regarding culture as an important object of enquiry alongside economic factors. Terence Gomez, in his political-economy analysis of Chinese businesses in Malaysia, acknowledges difference in business style and the ways in which the Chinese have been able to use ethnic resources. Jakob Lindahl and Lotte Thomsen’s analysis of the ethnic Chinese businesses in Ho Chi Minh City, Vietnam, shows how both the political economy setting and cultural perceptions give shape to the business frameworks. Thomas Heberer’s conceptualizes private en- trepreneurship in China and Vietnam within the dynamics of the tran- sitional economies. Constance Lever-Tracy, David Ip, and Noel Tracy in a well-documented tour de force through the Chinese community of Brisbane understand the “ethnic” characteristics in their dynamic interac- tion with the economic and social environment. Yao Souchou’s examin- ation of guanxi provides a fresh, empirical insight into how economic decision-making, business interaction and social conventions are inter- woven. These and other contributions demonstrate how “ethnic Chinese” ways of doing business and managing enterprises merit empirical examination and critical debate. They understand Chinese management style, business interaction, and co-ethnic networks not as simplistic shorthand concepts nor as independent variables explaining growth or success, but as social resources evolving within complex economic and social environments. Several of the contributions will be on next year’s reading lists for my Chinese society and overseas Chinese classes. The volume deserves better editing and copy-editing. A couple of contributions are hard to read, due to, in one case, extreme vagueness of style, and, in another, excessively long and convoluted sentences that are almost incomprehensible. The many mistakes in pinyin are annoying (Gaige Kaifeng for gaige kaifang; Qiyijia for qiyejia; mianxi for mianzi; xing yong for xinyong; gang qing for ganqing – just to highlight some). Although the volume is not the last word on Chinese businesses in China and South East Asia, it illuminates them with good empirical studies. FLEMMING CHRISTIANSEN The Chinese Coal Industry: An Economic History. By ELSPETH THOMSON. [London: RoutledgeCurzon, 2003. xx�412 pp. £75.00. ISBN 0- 7007-1727-7.] The performance of the Chinese coal industry in the 20th century is undeniably important given the pivotal role played by coal as a source of energy for Chinese industry and consumers alike until very recently. Was the coal industry a binding constraint on Chinese economic growth across the 1949 divide? And if so, can we identify some form of managerial failure as its root cause? 1090 The China Quarterly The answer offered by Tim Wright, in his well-known Coal Mining in China’s Economy and Society 1895–1937 (1984), is that the coal short- ages did not constrain pre-war economic growth. On the contrary: it was the slow growth of the Chinese economy in aggregate that limited the expansion of the coal industry. The main obstacle to the expansion of coal production was thus to be found on the demand side, and not in entrepreneurial failure or some other supply-side cause. Accepting this (rather Keynesian) conclusion, the question naturally arises as to whether the coal industry fared any better under Mao, and after. In particular, this framework of analysis invites us to consider whether the Maoist regime (and its successors) lifted the demand-side constraint, only to substitute a supply-side constraint in the form of state ownership and management. Rather surprisingly, few scholars have attempted to address these key questions for the post-1949 epoch. We are therefore greatly indebted to Elspeth Thomson for her willingness to bridge this chasm in our know- ledge. For material, Thomson relies upon a mixture of interviews with 25 officials in 1987 (and a further three in 1998), as well as a wide range of official statistics and Chinese-language sources. A brief chapter is admit- tedly devoted to the industry pre-1949 but, as Thomson readily admits, this is little more than a summary of the work of Wright, and of Ikonnikov’s The Coal Industry of China (1977). This, then, is pre-emi- nently a book on the post-1949 coal industry and that is exactly what was needed. But the book’s chief attraction is its wealth of information on a vast range of consumption and production issues; the study has been a long time in the making but the detail repays
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