China and the Global Economy: National Champions, Industrial Policy and the Big Business Revolution Review

China and the Global Economy: National Champions, Industrial Policy and the Big Business Revolution
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China and the Global Economy: National Champions, Industrial Policy and the Big Business Revolution ReviewThe key focus of this book is about industrial policies of the Chinese government during the 1990s. According to Professor Nolan, the industrial policies adopted by the Chinese government during 1990s were to nurture a group of large firms in different sectors that could compete with multinationals from advanced economies. It had been a herculean task to state planners in China and this book delve deeply into the study of several indigenous and exogenous factors that stymied the capability of large Chinese firms to have head-to-head competition with global firms in advanced economies.
This book consists of three chapters. Chapter 1 is a multiple case study of large Chinese firms in different industrial sectors. Professor Nolan maintains that the state planners in China are against the mainstream thought of neoclassical economy advocated by the World Bank and IMF in which the growth of small and medium firms and free trade can promote national economic development. In the 1990s, 120 large firms were selected by the State Council. They were characterized by strong economies of scope and scale and predominant in those sectors considered of `strategic importance' including electricity generation, coal mining, automobiles, electronics, iron and steel, machinery, chemicals, construction materials, transport, aerospace and pharmaceuticals. Despite a series of policies to protect and support large firms such as the introduction of contract systems (Sanjiu and Yuchai case), expansion of firm autonomy (Shougang and AVIC case), requirements of foreign firms to transfer technology to indigenous firms (Harbin Power Equipment case), mergers of large firms with other firms in the same industry (China Petroleum and Sinopec case), and tariff barrier to imported products, none of China's large firms could become a globally competitive giant firms and the competitive capability of China's large firms was still weak. According to Professor Nolan, there were several indigenous factors that precluded them from being more competitive. For instance, large firms tended to be more bureaucratic in management practices and state planners still hesitated about expansion of autonomy of large state-owned firms. Besides, none of China's large firms could manufacture high value-added products to improve their profit margins because of paucity of fund to spend on R&D.
The 1990s business revolution in advanced economies continued to weaken capability of large firms in developing economies including Korea and Japan. Chapter 2 is a detailed description of large firms in US and Europe to globalize their market presence by undertaking cross-border mergers and acquisitions, acting as core systems integrators to interact with suppliers and customers in the whole value chain from upstream to downstream, and refocusing on their primary flywheels and selling off large segments of assets irrelevant to their core activities in order to gain benefits from economies of scale. The emergence of oligopolistic capitalism had resulted in concentration of market power by large global firms from advanced economies and the competitive strengths of large firms in late industrializing countries including China became weaker. In Chapter 3, Professor Nolan undertakes an objective examination of the capability of China's large firms to compete on the global level playing field and maintains that after China's accession to the WTO membership, it will be extremely difficult for China to limit access to domestic market by global large firms and he suggests Chinese planners to look into several possible options to increase competitive strengths of China's large firms including state-orchestrated mergers, increased autonomy for powerful emerging corporations, government procurement contracts, supporting large non state-owned firms, and state support for technological upgrading. According to Professor Nolan, the prospects of the capability of China's large firm to restructure and compete with the global large firms might not be bleak, although Chinese planners have to face large-scale psychological and political adjustment difficulties.
Among the world's 100 largest firms in the 2009 Fortune's Global Top 500 Corporations, China has more than 10 ranked by market capitalization and sales values and the US dominance of world stock market capitalization has been becoming weaker since the 2008 financial turbulence. Nowadays, the Industrial and Commercial Bank of China and China Insurance are more sizeable than other their western counterparts such as Citigroup and AIG. There are more and more China's state-owned and privately-owned firms that dominate the lion share in the domestic market, particularly in low and mid-tech industrial sectors with strong brand development and market capability. For the previous 10 years, China has also evolved itself to become a richer country with huge spending power in the consumer market and more well-developed and comprehensive transport system. Nowadays in China, there emerge numerous large and powerful firms and they have been ready to have possible full-scale mergers and acquisitions of selected firms from advanced and developing economies. Such drastic changes might not be what Professor Nolan has envisaged and the next big question remains unanswered in this book is whether the 2008 financial turbulence will change the competitive landscape of China's large firms in the era of oligopolistic capitalism and the gap between big business in the advanced economies and China will be narrow.
China and the Global Economy should be the most authoritative book about industrial policies of China in the 1990s. Professor Nolan is a revered pioneer and one of the sparkling gems in the field of China economy. This book can provoke reflection and thought and is a must-read for state planners from advanced and developing economies and senior executives from multinational firms.China and the Global Economy: National Champions, Industrial Policy and the Big Business Revolution Overview

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