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A Model of China's State Capitalism

Author

Listed:
  • Yong Wang

    (Hong Kong University of Science and Tech)

  • Xuewen Liu

    (HKUST)

  • Xi Li

    (HKUST)

Abstract

This paper documents a hallmark feature of China’s state capitalism as the state controlling the economy in a vertical structure: State-owned enterprises (SOEs) monopolize key industries in the upstream, whereas the downstream industries are largely open to private competition. We develop a general-equilibrium model to show that this unique vertical structure, when combined with openness and labor abundance, is critical in explaining the puzzling fact that China’s SOEs outperformed non-SOEs in the past decade while the opposite was true in the 1990s. We show how the upstream SOEs extract rents from the liberalized downstream industries in the process of industrialization and globalization. The unprecedented prosperity of SOEs is shown to be an efficiency-undermining symptom of the incompleteness of market-oriented reforms rather than a proof of SOE superiority. Emergence, sustainability, redistributive effects, and general implications for other countries of this state capitalism are also discussed.

Suggested Citation

  • Yong Wang & Xuewen Liu & Xi Li, 2013. "A Model of China's State Capitalism," 2013 Meeting Papers 853, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:853
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    References listed on IDEAS

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    Cited by:

    1. Alexander Ljungqvist & Donghua Chen & Dequan Jiang & Haitian Lu & Mingming Zhou, 2015. "State Capitalism vs. Private Enterprise," NBER Working Papers 20930, National Bureau of Economic Research, Inc.
    2. He, Hui & Huang, Feng & Liu, Zheng & Zhu, Dongming, 2014. "Breaking the “Iron Rice Bowl” and Precautionary Swings: Evidence from Chinese State-Owned Enterprises Reform," Working Paper Series 2014-4, Federal Reserve Bank of San Francisco, revised 14 Feb 2017.
    3. Cheremukhin, Anton & Golosov, Mikhail & Guriev, Sergei & Tsyvinski, Aleh, 2015. "The Economy of People’s Republic of China from 1953," CEPR Discussion Papers 10764, C.E.P.R. Discussion Papers.
    4. Hui He & Nan Li & Jing Fang, 2016. "China’s Rising IQ (Innovation Quotient) and Growth; Firm-level Evidence," IMF Working Papers 16/249, International Monetary Fund.
    5. Chang-Tai Hsieh & Zheng (Michael) Song, 2015. "Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China," NBER Working Papers 21006, National Bureau of Economic Research, Inc.
    6. ZHANG Hongyong, 2017. "Political Connections and Antidumping Investigations: Evidence from China," Discussion papers 17092, Research Institute of Economy, Trade and Industry (RIETI).
    7. Huangnan Shen & Xiaojie Liu & Jun Zhang, 2017. "Toward a Unified Theory of Economic Reform," Working Papers 204, Department of Economics, SOAS, University of London, UK.
    8. Pranab Bardhan, 2016. "State and Development: The Need for a Reappraisal of the Current Literature," Journal of Economic Literature, American Economic Association, vol. 54(3), pages 862-892, September.
    9. Pranab Bardhan, 2015. "State and Economic Development: The Need for a Reappraisal of the Current Literature," Working Papers id:7060, eSocialSciences.

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