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Monday, July 16, 2012

Command Versus Market: Chinese Capital Markets At A Crossroad

China’s state capitalism is a messy mix of market, plan, and one-party rule. Less than half of the economy is directed by the state; the rest is private and market driven. Except for infrastructure and other nontradables, both Chinese economies operate in the world economy. Although not well known, China’s rapid growth derives primarily from private companies, despite the state policy of “state advance, private sector retreat.” The new leadership that takes command at the end of 2012 must decide whether to liberalize and privatize the state sector as advised by the World Bank’s China 2030 programs or bow to the entrenched interests of the state sector. How they decide will determine China’s long term growth.

China’s battle between plan and market is fought day by day on many fronts. What appears to be a minor dustup between the Ministry of Finance and the Securities Regulatory Commission over accounting practices for publicly traded companies is illustrative of the war between market and plan and between the private and state sector.


go to forbes.com

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