Moving Away from Monopoly Control in China

June 2, 2014
By Doug Gavel, HKS Communications

While China continues to modernize its economy at a rapid pace, many of its energy, industrial and transportation sectors are restricted by longstanding structural constraints that inhibit competition. In a new Working Paper titled "Reforming China's Monopolies," Tony Saich, Daewoo Professor of International Affairs, and co-author Peijun Duan, a senior professor at the Central Party School, propose a set of specific reforms designed to enhance economic efficiency and promote more equitable growth in the country.
"There is a general consensus that the economic model that has served China so well in the past must undergo fundamental changes in order to maintain this economic momentum," the authors explain. "The continuing dominance of monopolies within the Chinese political economy is a primary contributor to the problems of economic inefficiencies and corruption."
Further, they explore the roots of the monopoly system, observing that “monopoly control in the Chinese political economy is not simply an economic phenomenon but also a phenomenon deeply embedded in a comprehensive system of power. Monopolies in the economic sphere (resources, prices, markets, and assets) are serious, but they are derived from the legacy of the centrally planned economy. They are also rooted in the traditional structure of Chinese society and its culture.”
The authors examine a number of sectors in which single companies dominate the marketplace and the ways in which monopolistic pricing structures and administrative oversight create market distortions and inefficiencies, income inequalities, corruption and rising social conflicts.
"Although since 2000 both state-owned and private assets have increased, the increase in the private sector has been double that in the state-owned sector," the authors conclude. "This disparity can be attributed to their different property rights and the difference between monopolies and competition."
To confront the challenge, the authors propose reforms to:

  • Separate the ownership of national enterprises from government authority
  • Separate business rights from government authority
  • Separate human resource management from government personnel authority
  • Implement legislative guarantees for the separation of government from enterprises
  • Implement judicial guarantees to separate government from enterprises
  • Implement ideological guarantees to separate government from enterprises
  • Guarantee public oversight for the separation of government from enterprises

"This approach is much more extensive than referring to a single individual, organization, or group that enjoys exclusive control over specific economic resources, products, technologies, or markets, including resource monopolies, price fixing, and so forth," the authors argue. "This complexity also means that any solution to the problem will require not only economic reforms but also widespread changes entailing legislative, administrative, personnel management, and ideological adjustments. If successful, such a shift in its development strategy will help China avoid the 'middle income trap.'"
Tony Saich is the director of the Ash Center for Democratic Governance and Innovation and Daewoo Professor of International Affairs, teaching courses on comparative political institutions, democratic governance, and transitional economies with a focus on China.

Tony Saich, Ash Center for Democratic Governance and Innovation and Daewoo Professor of International Affairs

Tony Saich, Ash Center for Democratic Governance and Innovation and Daewoo Professor of International Affairs
Photo Credit: Martha Stewart

"The continuing dominance of monopolies within the Chinese political economy is a primary contributor to the problems of economic inefficiencies and corruption," write the authors.

 


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