Chien and Zhao: State-Mediated Knowledge Transfer and Resource Mobility – A Case Study of China Local Government Entrepreneurship

Abstract:

This paper focuses on a new phenomenon in China: local government
entrepreneurship in constructing infrastructure and attracting
investment has been diffused from more developed to less developed
regions. We argue that this geographically diffused phenomenon is part
of a larger attempt by the Chinese Communist Party (CCP) to facilitate
advancement of less developed regions. The CCP has used a unique and centralized personnel management system to shift knowledge and resources in the interest of local economic development through betweenregion pairing assistance and inter-regional cadre transfer. This diffusion has mixed results: it accelerates infrastructure construction, investment and economic growth in less developed areas, but at the expense of increased social exclusion and environmental pollution.

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Baccini, Impullitti & Malesky: Globalization and State Capitalism – Assessing Vietnam Accession to WTO

Abstract:

The recent literature on trade and firm heterogeneity highlights the importance of productivity gains from trade-induced selection and reallocation. Many developing and fast growing economies that are progressively opening up to trade are characterized by a significant presence of State-Owned Enterprises (SOEs) next to Private-Owned Enterprises (POEs). Can we still expect the same gains through the same channels in economies with a strong presence of SOEs? Which features of SOEs are key in shaping the effects of trade liberalization? We explore these questions first by introducing SOEs in a model of trade with firm heterogeneity. The model shows that the inefficiencies produced by SOEs can hinder the reallocation process and potentially reduce the productivity gains from trade. We test the predictions of the model using a new dataset of Vietnamese firms, and assess the effects on Vietnam’s 2007 access to the WTO. The standard selection effect triggered by trade liberalization is confirmed for private firms, while it is silent for SOEs. Moreover, we find that, as result of multilateral trade liberalization,  productivity increases in POE-dominated sectors, and less so or not at all in SOE-dominated sectors. Our estimates suggest that WTO entry is associated with an increase in average productivity of 6.2 percent in the period 2005-2013. Finally, we show that the overall productivity gains would have been more than 40 percent larger if SOE-dominated industries had been replaced by POE-dominated industries. Our results suggest that SOEs represent a large
obstacle to trade-induced efficiency gains.

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Silva: The Changing Role of the State

Introduction:

How is the role of the state viewed within economic theory at the start of the 21st century? Whilst economics has been developed as a science of the market, it is irrefutable that the state has never been completely out of the picture. We recall that in Adam Smith’s Wealth of Nations, the key role of the “invisible hand” was complemented by numerous interventions (Rothbard, 1995: 463-9). This became possible in the light of what was later considered “market failures”. Of course, some currents (anarchists, radical Austrians) may have conceived of the functioning of the economy without the state, emphasizing cooperation or competition between individual agents, and mainstream economists assume the conditions of their models, particularly those of general equilibrium, in a similar way.

In spite of all this, there has always been a critical interaction between the market and the state in the economic process. However, there is a difference: if the market is clearly privileged in the theoretical analysis, the state’s role is far from negligible in practical terms. Moreover, this asymmetry and the evolving views on the state’s role make the construction of a common framework very difficult and problematic. In the present paper we trace this intertwined and complex relationship since the 18th century which is necessarily outlined in broad terms. Starting from the fact that economics deals with the free market, we will focus in particular on how the state should behave in the light of this basic parameter, and the different perceptions stemming from such an approach. Our main objective is to examine in more detail the changing views on the state’s role

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Appel: Just how capitalist is China?

ABSTRACT:

In this paper, we review old and modern conceptions of “capitalism” and then we evaluate how “well” China fares on three touchstones of capitalism: competitive markets, generalization of wage-labour, and private ownership of the means of production. While we accept that China has come a long way under the first two criteria since the 1980s, we do not deem China yet to be a full-fledged capitalist economy for the State still wields great power through the allocation of massive state resources and control of large and highly profitable state enterprises, which dominate key sectors of the economy.

 

Available for download here.

Tsheola: Contemporary International Relations and the BRICS Geopolitics of State Capitalism

ABSTRACT:

This article posits that the BRICS set serves to create a “regional” business space for exclusive operations of state-owned enterprises (SOEs) of member states. Far from being forecast as leading emerging economies of future significant standing on the global stage, the BRICS of Brazil, Russia, India, China and South Africa is trapped in the binary-paralysis of private-public partnership governance. The article examines the BRICS set conditionalities and principles for conduct of international relations in order to demonstrate that member countries’ continued reverence of state capitalism governance, manifested through SOEs “champions”, will precipitate intra-set economic and political conflict in ways that perpetuate domestic political-economy of poverty and inequality. It argues that state capitalism, and a nuance hybrid of SOEs that are supported through public funds in order to operate on the global business platform in the same way as private multinational corporations that pursue commercial financial interests, does not serve societal goals of justice and equity. Given that the establishment of the BRICS is framed on the set being the centre of future global growth, consolidation of state capitalism and the nuance hybrid of SOEs imply that domestic poverty and inequality will continue unabated, as public investment share of education and health remains negligible.

The article demonstrates that state capitalism and SOEs “champions” governance, is inherently biased towards greater public investment in industrial production rather than social objectives. It concludes that multidimensional and income poverty will continue to be intensive whilst inequality remains stark among the BRICS member states, whilst their cultural, historical and ideological diversities stimulate economic and political conflict in international relations.

 

Available for download here.

Jiang: Enlarged State Power to Declare Nullity – The Hidden State Interest in the Chinese Contract Law

ABSTRACT:

This article is on the hidden state interest that article 52(§1) of the Chinese Contract Law protects and the questionable applicability of freedom of contract to Chinese state-owned enterprises (hereafter “SOEs”). In common law, fraud and duress make a contract voidable. In Western civil law jurisdictions, including Louisiana, fraud and duress make a contract relatively null. Article 52(§1) of the Chinese Contract Law renders a contract induced by fraud and duress absolutely null (null and void if using common law terminology) when state interest is harmed. At the same time, according to article 54 of the Contract Law, fraud and duress only make a contract relatively null just like in Western laws. The situation is further complicated by article 58 of General Principles of Civil Law (hereinafter “G.P.C.L.”), which renders all civil juristic acts absolutely null when induced by fraud and duress.

To understand when a contract is null or annullable one has to reconcile these three statutory provisions and figure out what the state interest article 52(1) refers to. This article attempts to demystify this state interest through a historical survey of the evolution of contract law in the communist regime in China in comparison with the similar path Soviet civil law had gone through. If it simply means public interest, Chinese law is no different than the western counterparts. If it means something different, a secretive enlarged state power to declare nullity and invade freedom of contract might come with this law. Given the principal-agent relationship between the state and SOEs regarding the ownership rights of SOE assets, the absence of a sufficiently competitive market, the incentive incompatibility between the state and SOEs, an enlarged state power over contractual autonomy is therefore implied and justified. This article suggests that such a state interest be state-owned enterprises’ financial interest, which is different from public interest. As a result, freedom of contract shall not be applicable to Chinese SOEs when ownership rights and a competitive market are missing, and a different interpretation of nullity law should be adopted to protect SOEs’ financial interest.

 

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Akbey: A Drawback in Turkish Budget Classification – Where Have Public Investments Gone?

ABSTRACT:

In 2006, Turkish fiscal structure has changed its budgeting and budget classification system from a program based and accordingly classified hybrid one (between Program Budgeting and Planning-Programming-Budgeting systems) to a strategically planned, performance based and analytically classified multi-year budgeting system that was structured in line with European System of Accounts (ESA) and Government Finance Statistics (GFS) which have been shaped by neoliberal praxis. What’s wrong with this new classification is that public investment expenditures cannot be clearly distinguished from other outlays. Pursuant to “non-investor minimal state” approach of the neoliberal thought, the idea of “public investment” is the missing point of new classification system. Here, I make three alternative technical recommendations to fix this drawback.

 

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Howson: Protecting the State from Itself ? Regulatory Interventions in Corporate Governance and the Financing of China’s 'State Capitalism'

ABSTRACT:

From the start of China’s “corporatization without privatization” process in the late 1980s, a Chinese corporate governance regime apparently shareholder-empowering and determined by enabling legal norms has been altered by mandatory governance mechanisms imposed by a state administrative agency, most often to protect minority shareholders against exploitation by the party state controlling shareholders which are the accepted powers of “state capitalism”. This chapter reviews the path of that benign intervention and the structural reasons for it, and then speculates on why this novel identity of the Chinese party state’s “fragmented authoritarianism” continues to be tolerated by the same party state, and indeed how it is necessary for the continued financing of China’s “state capitalism”.

 

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Carney: The stabilizing state – State capitalism as a response to financial globalization in one-party regimes

ABSTRACT:

One of the most important developments in the modern global economy is financial globalization. This has raised threats to the stability of political regimes in two ways: (1) by enhancing the possibility of a financial crisis that could cause political turmoil; and (2) by easing access to foreign sources of financing for opposition political groups. I argue that state capitalism – defined as state-owned publicly listed corporations – is greater among one-party regimes as a way to address these dual threats. One-party regimes have both the motivation and a greater institutional capacity for addressing these threats in comparison to other regimes. Tests are conducted on 607 firms in 1996 and 856 firms in 2008 across seven East Asian economies, and are supplemented with case studies of Malaysia and South Korea. The evidence suggests that financial globalization is contributing to the rise of the state as a counter reaction.

 

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Williams & Taylor: Measuring and Explaining the Extent of Corporate Propping Transactions – Evidence from China

ABSTRACT:

The practice of using related-party transactions (RPTs) to prop up a firm’s earnings or liquidity by its controlling shareholders creates governance and market-distortion issues. This study has two objectives: (i) to develop an improved measure of propping based on Jensen and Ruback’s (1983) theory of ‘market for ownership control’; (ii) to determine the extent to which controlling shareholders are able to capture directors and top executives in order to facilitate the carrying out of propping transactions. Models are developed and empirically tested for all listed companies in China in 2010, using data from the CSMAR database. Results reveal significant factors that create a market for ownership control and, hence, propping conditions, as well as significant board governance characteristics that facilitate propping. This paper provides a new approach to modelling the regulatory and market conditions and governance characteristics that could be applied by regulators and minority shareholders in predicting the phenomenon of propping.

 

Available for download here.