Mexico City: UNAM Faculty of Economics [distributed by Lynne Rienner Publishers], 2021. 148 pp. (Tables.) US$23.95, paper. ISBN 978-607-8066-59-9.
This slim volume accomplishes three things: it documents industrial policies in the People’s Republic of China (PRC) during the reform period; it traces how policy makers’ views of a changing world shaped the evolution of industrial policies over time; and it shows that “China’s [past] world-shaking economic success cannot be attributed to industrial policy” (136f.).
Barry Naughton explains how rapid economic growth in the years 1978–2005 occurred through seven waves of reform in the absence of industrial policy (chapter 2). Industrial policy—defined as “any type of selective, targeted government intervention that attempts to alter the sectoral structure of production toward sectors that are expected to offer better growth than would occur in the (non-interventionist) market equilibrium” (19)—emerged only after 2005.
Chapters 3–5 document the revival of industrial policy from 2006 to 2013, the innovation-driven development strategy from 2015 until the present, and the instruments and institutions through which industrial policy is being implemented. Industrial policy took off just as the Chinese economy was slowing, driven by a belief in a “once-in-a-generation opportunity” (131) created by a new technological revolution. It remains to be seen whether the gamble to use industrial policy to “move directly to the technological frontier and surpass other economies” (72) will pay off (concluding chapter 6).
The book is meticulously researched. To trace the evolution of the PRC’s industrial policies and to explore the rationale for particular policy choices along the way, the author draws on a multitude of original documents and Chinese-language articles. As most of the referenced PRC URLs are today broken, Naughton also preserves for posterity what PRC media and policy makers have quickly committed to invisibility. A reader interested in the PRC’s industrial policies and their background will currently find no better coverage.
To evaluate the success of the PRC’s industrial policies is difficult because one (i) would need to establish a criterion by which success is measured, and (ii) would still lack the counter factual (might the absence of industrial policies have led to even greater success?). The literature has (partially) addressed the problem by examining if the introduction of a particular industrial policy is followed by a specific structural change, leading to the finding that industrial policy post-dates sectoral adjustments.
Naughton acknowledges that “[P]olicy-makers are happy to pick winners after the event, backing already successful firms in the expectation of raising them to be national champions” (103), but otherwise his objective “is not to try to evaluate the effectiveness of specific industrial policies, but simply to reliably track what policy was in effect during different periods, and where we might expect to see large and important impacts” (12). Choosing from among hundreds of industrial policy measures and 1,800 government industrial guidance funds, he elaborates on such endeavours as the “Big Fund” (supporting the semiconductor industry) and the “triangle” of communication, data, and artificial intelligence that is expected to eventually shape all economic activity.
One could quibble with Naughton’s claim that there was no industrial policy prior to the mid-2000s. Up through 2004, the State Planning Commission maintained long lists of favoured, restricted, and prohibited sectors for investment, while retaining approval authority for all investments of significant size. Clearly such requirements qualify under his definition of industrial policy. Perhaps what distinguishes the current industrial policies is a unifying nationalist agenda—the “China Dream”—with implications ranging from self-reliance to de-coupling from the world economy.
Consequently, instead of viewing the PRC’s industrial policies from an economic growth perspective (as this volume does), one could also view them through the lens of rising nationalism. Parallels in industrial policy and political context could be drawn, for example, to Germany in the 1930s, an era of perhaps equally intense competition in innovation and the subordination of innovation to nationalist if not military aims.
Similarly, the Global Financial Crisis (GFC) may not just be the point in time after which industrial policy in the PRC accelerated: “For China, this was the ‘lesson’ of the GFC: robust and decisive government intervention could and should complement the market economy” (67). The subsequent collapse of trust in Western institutions and the resurgence of Marxist notions of ever more severe crises in the capitalist system suggest yet an alternative angle on the PRC’s industrial policies as simply one consequence of a fundamental ideological break.
Implicit throughout is an assumption that the PRC’s industrial policies are the outcome of a benevolent dictator’s rational considerations. For example, following the GFC then-prime minister Wen Jiabao is reported to have argued that all through history, major crises were followed by major technological breakthroughs and the PRC, having missed previous technological revolutions, was not to miss this one (62). But mundane channels of bureaucratic, local, and central elite’s interests may have equally strong if not stronger explanatory power for the observed industrial policies and guidance funds. The National Development and Reform Commission and cash-strapped local governments easily come to mind. (Since this book has been written, most top officials in charge of semiconductor investments have been arrested.)
Working with a focus on economic growth, a historical dimension could be added to the various risks of the PRC’s industrial policies laid out in the concluding chapter. The literature documents a strong (positive) correlation between decentralized decision-making and economic growth, from the Qing dynasty to the PRC. One could debate if the PRC’s industrial policies and guidance funds are acts of decentralization (good for growth) or centralization (bad for growth). One could also draw parallels with an earlier period when Great Britain was to be surpassed in steel production within three years. The upshot is that for all the details of policies, funds, elite statements, and the occasional impressive “success” story, one may not want to lose sight of the forest for the trees.
The Hong Kong University of Science and Technology, Hong Kong
Princeton University, Princeton