Chinese State Enterprises: A Regional Property Analysis. - book reviews

Business Horizons, Sept-Oct, 1991 by Jeanne L. Wilson

The reviewer Jeanne L. Wilson, is an associate professor of political science at Wheaton College, Notion, Massachusetts.

In this book David Granick, a noted specialist on Soviet and East European industry, applies his skills to the Chinese state enterprise. Granick's work is based on 20 case studies of large and medium sized state-owned industrial enterprises in China, carried out by the Chinese Academy of Social Sciences and the World Bank (where he served as a consultant) between December 1982 and the middle of 1985. His conclusions are straight-forward and provocative. In his view, China is unique among practitioners of the centrally planned socialist economy, exhibiting six significant variations that constitute a radical departure from the standard parameters of the model.

First, whereas production plans in the Soviet Union and Eastern Europe are typically taut and inelastic, Chinese state enterprises organize production around loose and easily overfulfilled plans. Second, whereas Soviet and East European enterprises are allocated their supplies through central procurement, Chinese enterprises typically receive only a low level of supplies through allocation, a practice that necessitates frequent forays outside of the central procurement and allocation system for major inputs. Third, the Chinese pricing system, unlike its Soviet and East European counterparts, is characterized by a high degree of heterogeneity with the widespread existence of multiple prices for the same product and customer in a single region. Fourth, Chinese enterprises diverge from the hierarchical structure of lines of authority found elsewhere in the socialist bloc by exhibiting multiple levels of supervision. Fifth, the structure of nomenklatura appointments in China differs from the Soviet pattern inasmuch as both the enterprise director and the enterprise party committee secretary are typically appointed within the nomenklatura of the same party committee rather than falling under the supervisory control of separate hierarchically differentiated party committees. Sixth, Chinese practices of labor allocation and wage determination differ significantly from those in the Soviet Union and Eastern Europe, reflected in negligible rates of labor turnover, a concerted effort by both enterprises and local authorities to create additional jobs, the existence of a highly differentiated employment structure, and low wage costs, both in absolute terms and relative to total costs of enterprise operation.

This sixth point of differentiation is seen by Granick as a consequence of China's status as an underdeveloped economy. Granick argues, however, that China's other points of variance with the centrally planned economy as it developed in the Soviet Union and Eastern Europe can be explained with reference to standard property rights analysis. To these ends, Granick maintains as the central hypothesis of his study that regional governmental bodies in China possess property rights relative to one another and to the national government that constrain the authority of the central government both in decision making and in policy implementation.

Granick's book is written primarily for comparative economists and, as such, can be slow going for those unversed in econometrics. Granick, however, takes care to render his analysis accessible to the non-economist, so there is much in this book that is of interest to a broader audience of political scientists, students of comparative communist and post-communist societies, and China specialists.

Lacking a background in the China field, Granick shies away from a consideration of the import of political or societal factors on enterprise operations in the PRC. What he does bring to this study is a formidable knowledge of Soviet and East European industry and an unparalleled capability to exact comparisons between the two systems.

Granick's property rights thesis, although employing different terminology and a different conceptual framework, generally is in accord with specialized studies of China that have long noted the decentralized nature of policy making in China and the corresponding lack of control-rhetoric to the contrary-that the state has often possessed relative to the localities. It is notable, however, that Granick pursues a different line of reasoning from that presented by Andrew Walder (1986) in his investigation of work and authority relationships in Chinese industry in the late 1970s.

Whereas Granick, a Soviet specialist, sees Chinese industry as unique, Walder, a China specialist, is at pains to demonstrate that Chinese patterns constitute a variant within a system that can be generically identified as communist. Possibly this is simply a matter of trying to decide whether the glass if half full or half empty, with one's vantage point and focus of reference (Granick is an economist and Walder is a sociologist) the determining factor in making an assessment. But Granick also calls into question the conventional collective wisdom of Western academics and Chinese economists alike in his dismissal of Hungarian economist Janos Komai's notions of either "investment hunger" or "soft budget constraints" as particularly relevant to the operation of the Chinese industrial state enterprise.