In the literature on Chinese politics one finds quite disparate views of state capacity in China. Is the Chinese regime now “in the midst of a deep and perhaps overwhelming crisis of governance” as Shaoguang Wang argued in a recent issue of the Journal of Democracy (14 [2003]: 36–42)? Those who adopt this perspective trumpet the growing challenge that unemployment, income inequality, peasant and worker discontent, lawlessness, crime, corruption and environmental degradation pose in China and the state's inability to deal effectively with these problems. Or has the “central state” in China become “more capable and effective generally” over the past decade as Dali Yang, author of the book under review, argued in the same journal (Journal of Democracy, 14 [2003]: 43–50)?
In this volume, Dali Yang makes a case for growing state capacity in China by analyzing the Chinese regime's efforts over the past decade to improve the institutional framework for economic governance. In particular, Yang's monograph describes in impressive detail what he portrays as successful or in some cases partially successful efforts by China to a) strengthen the central state's fiscal and regulatory capacity; b) downsize government at all levels; c) alter relations between state and business by abolishing most industrial ministries and by divesting the People's Liberation Army and other party and state institutions of their business operations; d) transform China's patronage-based civil service into one based on merit; e) encourage competitive bidding and online auctions for state land-use allocation and for state procurement and construction projects, in order to reduce corruption; f) increase transparency; and e) strengthen legislative oversight and other institutions of horizontal accountability.
As impetus for these reforms, Yang cites changing economic conditions, political leadership and the role of crises. The declining profitability of state-owned businesses made it easier to abolish government ministries that were micromanaging the economy and to divest army, party and state and other official institutions of their business operations. Growing corruption and local protectionism increased the demand for institutions to regulate a market economy. Another impetus was commitment to economic governance reform by Zhu Rongji, whose five-year prime ministerial term began in 1998.
Crises served as “catalyzing events” (18), focusing Chinese leaders' attention on the importance of dealing with problems that could undermine regime stability. The collapse of communism in East Europe, the disintegration of the Soviet Union, and concern about the possible negative impact of Deng Xiaoping's impending death strengthened the Chinese leadership's resolve in the early to mid-1990s to get their fiscal house in order by increasing overall government revenue and the share going to the centre. The fall of crony governments in Indonesia and other countries during the 1997–1998 Asian financial crisis served as a warning of what might befall the Chinese regime if it failed to reform the banking system and to stem corruption.
Beijing's decision not to devalue its currency during the Asian financial crisis increased the incentive for Chinese enterprises to engage in smuggling, which reduced the customs revenue flowing to Beijing. According to Yang, Chinese leaders were infuriated when they realized the extent of involvement in smuggling by business entities affiliated with the armed forces and other party and state institutions. The smuggling crisis became an important impetus for the divestiture reform.
Yang has made an invaluable contribution to the literature on China by analyzing these economic governance reforms and the incentives for them. His analysis serves as a useful antidote to the pessimism one finds in other analyses of state capacity in China.
Has Yang gone too far by exaggerating the significance of these reforms? A careful reading of Yang's book reveals his awareness of the limits to these economic governance reforms. He acknowledges that China still has a serious corruption problem and that new forms of corruption have emerged even as old ones “have been contained” (258). There has been some, but still limited, improvement in administrative transparency within the economic realm. Outside the economic realm, the governance reforms have been even less effective as was illustrated by the 2003 SARS crisis. Yang acknowledges that backroom negotiations, not public auctions, still determine the allocation of land for industrial as opposed to commercial use and most, if not all, land allocation in less developed regions of China. Despite the divestiture, the state still controls enormous business assets and remains the dominant player in many economic sectors. Much remains to be done to create a level playing field for state and private business.
While acknowledging these and other limits, Yang, nonetheless, portrays China's economic governance reforms as a “tectonic shift in the way the Chinese government conducts itself” (18). He maintains that these reforms will benefit business, alleviate state-society tensions, and help “transform the mentality of bureaucrats from gatekeepers to service providers” (185).
These broader claims may overestimate the Chinese leadership's unity and commitment to these reforms and their ability to implement their policy choices. Provincial and local defiance of Beijing's wishes is still widespread. Corruption remains a serious problem. Whistle blowers and advocates of greater transparency are regularly put in jail. Environmental degradation with the connivance of local officials is a common occurrence. Nonperforming loans remain a serious problem. As Yang himself stresses, there is great regional variation in the implementation of China's governance reforms and their application outside the economic realm is negligible, and uneven within it.
Yang characterizes the glass as half full whereas by his own acknowledgement of these limits, it would have been just as accurate to characterize it as half empty. The important question then is in which direction is the trend going? Is the glass continuing to fill up or is the water level going down? It is too soon after the period covered by Yang's book (1989–2003) to provide a definitive answer. This is an important question for future research.
