Selling China: Foreign Direct Investment during the Reform Era
by Yasheng Huang. New York, NY: Cambridge University Press, 2003. 383 pp. $50 hardcover.
China, since its opening up in the late 1970s, has been the greatest
recipient of foreign direct investment (FDI) among developing countries
($446 billion from 1979 to 2002) and, since 1993, has been the
second-largest recipient of FDI in the world after the United States.
These fascinating figures depict China as one of the most popular
investment destinations in the world. While many celebrate China's large
FDI absorption as an unprecedented achievement, a lone voice asks: what
causes such substantial FDI inflows? What is the role of FDI in the
Chinese economy? Why would expanding opportunities created by China's
rapid economic growth and political stability appeal to foreign
investors more than to domestic firms?
These are the questions raised in Selling China: Foreign Direct
Investment in the Reform Era. The author, Yasheng Huang, a Harvard
Business School professor, proposes an unconventional perspective on FDI
in China: high levels of foreign investment result, in part, from the
weaknesses rather than the strengths of the Chinese economy. Under
identical macroeconomic conditions, such as market size and low labor
costs, he argues, whether a country receives more or less FDI relative
to domestic investments is a function of the relative competitiveness of
foreign firms versus domestic firms. Based on this insight, Huang's
central claim is that FDI flows into China because of the
uncompetitiveness of Chinese firms rather than the competitiveness of
foreign ones.
Huang uses what he calls an "institutional foundation framework" to
explain unusual Chinese FDI patterns. These patterns include an
unusually high dependency on FDI, a sharp rise in FDI inflows versus a
precipitous drop in contractual alliances including export processing
and assembly, FDI's dominance in China's labor-intensive and
export-oriented industries, and the ubiquitous presence of
foreign-invested enterprises (FIEs) across China.
Huang's institutional foundation framework emphasizes institutional
imperfections that attract huge FDI inflows. These imperfections come
from three fundamental problems in China's economy. First, China's
financial system allocates China's financial and economic resources to
the least efficient firms--state-owned enterprises (SOEs)--while denying
the same resources to China's economically most efficient firms--private
firms. Entrepreneurs have to resort to FDI for capital, which partially
contributes to the heavy reliance on FDI. Second, China's political and
legal systems offer poor protection to private enterprise. Therefore,
private firms may seek to become FIEs to obtain better legal protection.
And third, China's economy is substantially fragmented, a direct result
of the political hierarchy among firms, which places SOEs at the top and
domestic entrepreneurial firms at the bottom. This fragmentation reduces
domestic capital mobility across regions and constrains the growth and
investment options of domestic firms, thus providing opportunities for
FDI across China.
The cumulative effect of the economic and legal discrimination
against efficient and entrepreneurial domestic firms is a pervasive lack
of competitiveness in China's corporate sector: SOEs are beset with
internal inefficiencies while private firms lack resources and property
rights security.
Interestingly, while entrepreneurial domestic firms have to cede part
of their equity control in exchange for venture capital and legal
protection in the form of FDI, the assets that inefficient SOEs have
built up over the years are ideal targets for foreign investors. As a
result, some FDI has financed the ownership transfers of existing assets
from Chinese control to foreign control--a de facto privatization
process. This is no doubt the meaning of the book's title--that the
"selling" of China is the unwitting outcome of SOEs' failure to
capitalize on their privileged treatment.
Huang admits that FDI inflows bring benefits to China, but claims,
"FDI is not the only option to achieve economic growth and reforms." He
then posits, "If privatization of SOEs had been politically feasible, or
if private entrepreneurs could have obtained financing to fulfill export
contracts, many of the benefits currently associated with FDI could have
been realized with a lower level of FDI." Huang recommends that "a
better economic strategy" would be to privatize SOEs and remove
constraints on private firms.
Huang further suggests that China's gradualist reform strategy, while
positive overall, could be more efficient with faster privatization. He
suggests that Chinese policymakers have not endorsed a large-scale
privatization strategy because they want to preserve, not dismantle,
socialism. The ideology that private entrepreneurs and capitalists
change the color of the socialist state may hamper further action. The
solution, hinted at by Huang, is to take Deng Xiaoping's famous
aphorism--"it does not matter whether the cat is white or black, as long
as it catches mice"--and apply it to firm ownership.
Selling China should be recommended to scholars and practitioners
interested in China's political economy. It provides an innovative and
rigorously argued analysis with important implications both for scholars
and policymakers concerned with China's continued economic reform
efforts. Such a thought-provoking book will surely spark hot debate over
China's reform model as the country fulfills its commitments to the
WTO.
—Ying Huang
Ying Huang is a doctoral student at Michigan State University.
Beyond Tiananmen: The Politics of U.S.-China Relations, 1989-2000
by Robert L. Suettinger. Washington, DC: The Brookings Institution, 2003, 556 pp. $39.95 hardcover.
A professor once described to me that US-China relations are like "a
snake in a bamboo tube." The snake continuously slides through, while
every now and then squeezing itself through inevitable tight spots.
There couldn't be a better analogy to describe bilateral relations as
portrayed in Robert L. Suettinger's Beyond Tiananmen: The Politics of
U.S.-China Relations, 1989-2000. He begins by recounting the events
leading up to the Tiananmen Square massacre on June 4, 1989, when "the
United States and other Western countries recoiled from China in horror
and disgust." He then takes the readers through each important turn in
US-China relations from that fateful day until the end of the Clinton
Administration, relating how many US and PRC policy decisions were the
outcomes of complex intragovernmental processes.
Suettinger also details the two countries' inveterate dance between
estrangement and detente. President George H.W. Bush initiated contact
with China immediately following Tiananmen, and after receiving an
agreement from China, sent a secret envoy of US diplomats to Beijing
while the rest of the United States was outraged. A few years later, the
Clinton Administration's hard line on human rights threatened to revoke
China's Most Favored Nation status in 1994. In 1996, Beijing reacted
intensely when Taiwan President Lee Teng-hui visited the United States,
and began People's Liberation Army navy and air force drills on an
island in the Taiwan Strait, 75 miles from Taiwan. President Jiang Zemin
was the first Chinese president to make a state visit to the United
States in 1997 following a 12-year gap. These are only a few of the
complex and consequential developments in US-China relations detailed in
the book.
The lack of transparency surrounding government decisions in China
impedes a completely balanced look at diplomacy. Although we do not know
the Chinese government's exact decisionmaking process, Suettinger
provides strong analysis from available resources to give a fair account
of the each country's perspective.
Beyond Tiananmen satisfies the curiosity of readers interested in the
politics behind weapons sales to Taiwan, human rights in China,
Clinton's campaign finance scandal, the bombing of the Chinese embassy
in Belgrade, intellectual property rights, and just about any other
topic related to US-China relations. Suettinger himself occasionally
surfaces to share a behind-the-scenes look at diplomatic relations with
China from his days at the National Security Council, where he worked as
an intelligence officer for three-and-a-half years. Including more of
his personal experiences would have been intriguing, but doing so would
have skewed coverage of the central issues that defined the US-China
relationship.
Aside from giving us an insightful and clear look at the
not-so-black-and-white issues of diplomacy between the United States and
China, Suettinger argues that conflict between the two countries is not
inevitable--even better prospects for the twenty-first century's single
most important bilateral relationship lie ahead. Currently, the US-China
relationship is the best it has been in years. Is the snake nearing the
end of the bamboo tube, or are we just sliding smoothly into the next
tight spot?
—Doris Grage
Doris Grage is research assistant at the CBR.
Privatizing China: The Stock Markets and Their Role in Corporate Reform
by Carl Walter and Fraser Howie. Singapore: John Wiley & Sons (Asia) Pte Ltd., 2003. 296 pp. $27.95 softcover.
One of the key ingredients of corporate reform in China has been the
development of a securities market. Here individuals, and institutions
such as pension funds and insurance companies, can invest their funds
for long-term returns, and listed companies can provide an exit strategy
for investment bankers or raise capital to expand their operations.
Except for a few months in the early 1950s, China had no stock market
to provide capital to Chinese enterprises until 1990. Once the post-1978
Chinese financial reforms began, however, the need for capital grew,
particularly for the large state-owned enterprises, but also for new
enterprises started in the wake of these reforms. Thus in 1990, stock
markets were established in Shanghai and Shenzhen, and China started
listing companies overseas in 1992.
Chinese stocks have been immensely successful, raising more than $60
billion in international stock offerings and $85 billion in China's two
domestic stock markets. But China's listed companies and markets, like
other recent Chinese financial reforms, developed with "Chinese
characteristics" that set them apart from the experiences of most other
stock markets in the world. Just how far apart is skillfully analyzed
and thoroughly documented by Carl Walter and Fraser Howie in their new
book on China's stock markets, Privatizing China: The Stock Markets and
Their Role in Corporate Reforms.
Both Walter's and Howie's decade-long experiences working with
financial institutions in China enabled them to locate and marshal
hard-to-find sources to develop their analysis of stock market
development in China. They also gathered information from Chinese
research groups and from the Western-educated Chinese innovators who
pushed to establish China's stock exchanges in Shanghai and
Shenzhen.
This book should be required reading for any potential investor or
fund manager interested in the "China concept" (and who could not be
interested, as China fast becomes one of the world's economic
powerhouses?). Walter and Howie describe "privatization with Chinese
characteristics" and show what China's markets lack: truly privatized
companies, large numbers of private individual investors, and freedom
from the kind of misinformation and manipulation that often
characterizes newly established markets.
The core of their book, a revision of their 1990 work on the
experimental state of China's stock market, To Get Rich is Glorious,
gives step-by-step and in-depth answers to the various questions that an
inquiring investor should ask: How did China's stock markets develop?
What is the role of regulators? How are share ownerships defined? How
are stock offerings packaged? How are the listed companies chosen? How
many retail investors are buying Chinese shares? How are China's markets
segmented? What are the factors that created a 10-year-long bull market?
And, what may happen over the next 10 years, particularly in light of
China's World Trade Organization (WTO) entry?
Some of the areas not covered by the authors include stockholder
rights in company governance, a fuller explanation for China's bull
markets, and more detailed discussion of how Chinese characteristics
could possibly cause China's financial markets to fail in the future.
Yet the information Walter and Howie provide is invaluable, including
a detailed chronology of the development of China's stock markets, a set
of useful tables, and definitions of the alphabet soup of agencies and
policies associated with Chinese stock markets.
Potential retail investors in Chinese B shares, or managers of
foreign funds planning to become "qualified foreign institutional
investors," will find this excellent book indispensable. We hope the
authors will update their book in another four years to show the effects
China's WTO entry has had on China's stock markets.
—Stephen C. Thomas and Chen Ji
Stephen C. Thomas teaches Chinese Politics, and Chen Ji teaches Finance in the College of Business, at the University of Colorado at Denver.
Being Chinese: Voices from the Diaspora
by Wei Djao. University of Arizona Press: Tucson, Arizona, 2003. $22.95 paper. 240 pages.
Why do ethnic Chinese consider themselves Chinese no matter where
they were raised? Shanghai-born Wei Djao, professor of Asian Studies at
Northern Seattle Community College, probes the resilience of Chinese
ethnic identity among the interviewees despite their being raised in
vastly different cultures. Djao writes of the global search for identity
within the Chinese diaspora. Her book is an insightful glimpse into the
lives of 22 huayi, or people of Chinese descent, living in countries
from Australia to Zimbabwe. Djao's portrayal explores how the huayi
conceptualize their Chinese identity and its independence from ethnic
grouping. Djao's use of the word "identity" is not to be taken in the
strict academic sense; rather she uses it to encompass what she terms
"the emotional richness" of being Chinese. She finds that this richness
has roots interwoven in the ethnic, political, and cultural dimensions
of being Chinese, yet this identity incorporates selective aspects of
Chinese culture and is thus highly individualized.
The book opens with a comprehensive history of emigration from
mainland China and looks into the political, economic, and religious
reasons for the exodus. The second part of the book, entitled "Voices
from the Diaspora," features a series of interviews with people
descended from Chinese who emigrated between the Opium War (1842) and
the establishment of the People's Republic in 1949. In the third part of
the book, Djao examines the overlapping of the cultural, ethnic, and
political dimensions of being Chinese in the diaspora, and concludes
that ethnic identity, as evidenced in her subjects, is an issue that
defies concise classification.
Djao's interviews reveal the dichotomy between how people actually
live ("real" culture) and how they feel they ought to live ("ideal"
culture). She allows her subjects to define what it means to be
Chinese--whether through ethnicity, language, or social position. Djao
explains that for many of them, Chinese identity is a selective one at
best. She explains that, "...being Chinese is a state of mind and a
feeling. The sentiment is at times vigorous, at other times fragile, and
quite often deeply sustaining to those who feel it. Such a feeling is
not jingoistic nationalism, for it transcends political allegiance."
Many of the book's vignettes point to continual use of the Chinese
language, filial piety, a strong work ethic, and belief in fate, feng
shui (geomancy), and traditional medicine as distinct markers of their
ethnic identity.
One of the most fascinating profiles is that of Fay Chung, a
Zimbabwean-born Chinese, who currently works as the director of
education for the United Nations Children's Fund. She speaks of her
break with traditional expectations and stereotypes of Chinese women to
pursue her education. Chung says that while she considers herself more
culturally Zimbabwean than Chinese, she feels that the Chinese moral
values and strong work ethic her parents imbued in her have contributed
to her successful career.
Several of the huayi Djao features are of mixed ancestry, and some
are a few generations removed from China. Yet many of them define their
social identity as Chinese. Laileen Springgay of India explains that
despite the fact that her great-grandmother was not Han Chinese, she was
from China and Chinese in that all of her descendants used Chinese
kinship terms. Natascha Chinque of Canada points to her interest in feng
shui and Chinese philosophy as stemming from the fact that she is
three-eighths Chinese.
Being Chinese is a good sociological overview of some of the aspects
of Chinese culture that have endured despite the changing cultural
circumstances of the subjects. The most poignant aspect of the book is
the individual examination and interpretation of what being Chinese
means to each person profiled. Being Chinese is an informative
introduction to disapora studies for academics and students of Chinese
culture.
—Shannon Conrad
Shannon Conrad is an information specialist focusing on China and Tibet in the East Asian Research Division of the Voice of America.
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