Private, not state, companies drive China's growth
Author's thesis is that private firms are now the main economic driver and source of new jobs
In China, the conventional wisdom holds that state-owned enterprises dominate the economy, private companies are often starved for credit, and the central government exerts substantial influence.
But here's a quiz: What share of China's gross industrial output will come from state enterprises this year? I have tried this question on friends, even knowledgeable economists, and the responses I hear fall between 50 per cent and 75 per cent. The correct answer is only about 25 per cent, a big drop from more than 75 per cent in 1978.
In his important new book, Markets over Mao: The Rise of Private Business in China, Nicholas Lardy of the Peterson Institute for International Economics assembles statistics like this to demonstrate that our image of state capitalism in China is dated and wrong. Lardy's central thesis is that "private firms have become the main source of economic growth, the sole source of increasing employment, and the major contributor to China's growing and now large role as a global trader". (Disclosure: I am on the board at the Peterson Institute.)
Lardy is a careful, soft-spoken scholar of China, not given to overstating his arguments in the hope that strength of conviction can make up for lack of evidence. But he pulls no punches in attacking prevailing assumptions about the Chinese economy.
However, don't state firms enjoy substantial market power, even if they don't account for most of the output? Again, Lardy suggests otherwise. For example, profit margins are no higher for state companies than for non-state ones, and the average return on assets of private companies is substantially higher than that of state ones - roughly 13 per cent and 5 per cent respectively in 2012. Those facts are hard to square with the assertion state companies enjoy extraordinary privileges and market power.
Finally, Lardy questions the notion that China's central government is omnipotent. Here's another quiz: Which country has more government officials per capita, the US or China? China has 31 civil servants and party officials for every 1,000 people; the US has 75. (France has 95.)