What variety of capitalism is emerging from China’s market reforms? In this edited volume, Barry Naughton and Kellee Tsai argue that China is forging a new form of state capitalism closer to the Brazilian and Russian economies than to its neighbors in East Asia or the advanced industrial countries of Western Europe or North America. From their point of view, the most unusual feature of the Chinese brand of state capitalism is the degree of centralization provided by the Communist Party’s penetration into private companies and its control over personnel in partially privatized state-owned enterprises.

This edited volume brings together economists, political scientists, sociologists, and a historian to provide a comprehensive assessment of China’s efforts to reform the state sector. These reforms were launched in the 1990s to address the enormous losses that state-owned enterprises (SOEs) suffered after they were forced to compete with private and collective enterprises. Restructuring, corporatization, partial privatization, creation of business groups, and extensive regulatory reforms reduced the size of the state sector and stemmed its economic losses. According to the editors, the key turning point in state-sector reform came in 2003, when a new set of economic and political institutions was consolidated. Although several proposals to continue liberalizing the state sector emerged in 2005 and have been revived by policymakers at several points since then, political inertia has set in. Moreover, the global financial crisis in 2008–9 further entrenched these institutions. However, even after more than a decade of relative stability, Naughton and Tsai argue, it is too soon to tell whether China’s state capitalism is at a transitional stage of development or a more enduring political economy.

In Part I, Naughton and Margaret Pearson provide an overview of China’s state-sector reforms. Their two chapters are the strongest part of the volume because they provide a concise analysis of the outcome of the bewildering range of policies adopted over more than a decade of reform: a tiered economy defined by industrial sectors with different patterns of corporate ownership and government regulation. The top tier is comprised of large, corporatized SOEs in industries important to national security, such as energy and telecommunications. Owned by the new State Asset Supervision and Administration Commission, these firms are subject to highly fragmented central regulation and operate with considerable autonomy. The middle tier of the economy features diverse ownership (including majority state ownership, minority state ownership, fully private ownership, and foreign invested firms) in industries considered important to China’s economic development, such as the automobile and chemical industries. These sectors are subject to decentralized regulation that focuses primarily on fostering market competition. The bottom tier of the economy is by far the largest and is dominated by private firms. Regulation of this tier is especially weak, with the government promoting self-regulatory business associations and a new system of “social regulation” to curb specific forms of consumer fraud, such as the new State Food and Drug Administration.

Part II examines the impact of these reforms on the structure and performance of the state sector. In contrast to other approaches that focus primarily on profitability, these three chapters analyze SOE performance on multiple dimensions. In Chapter 4, Doug Guthrie and his colleagues examine the impact of partial privatization on profits and operating margins, showing that firms with predominantly private ownership outperformed firms in which the state maintained a controlling share. Their case study of PetroChina, a new corporatized state-owned oil company, shows that even in state-controlled firms, management reforms were extensive and improved its performance. Dylan Sutherland and Lutao Ning analyze the structure of the new business groups created by the corporatization reforms in Chapter 5, showing that pyramidal structures have already developed in a significant minority of them. The state-owned shareholding companies at the apex of these pyramidal business groups hold minority shares in their corporate subsidiaries that give them effective control while minimizing their exposure to risk. As a result, the corporatization reforms resolved some of the agency problems that undermined SOE performance, but created new incentives for corruption and excessive risk taking. Loren Brandt and Eric Thun examine the Chinese government’s efforts to promote technological upgrading in Chapter 6. They argue that Chinese state intervention in the market extends far beyond promoting research and development, including putting pressure on foreign companies to localize their supply chains and design activities. They show that these efforts are effective in promoting technological upgrading in the middle tier of the economy, where Chinese firms are increasingly incorporated into the global supply chains of foreign multinational companies seeking a share of China’s vast domestic market.

The strength of all three chapters is their multidimensional assessment of the changing structure and performance of the state sector. The main limitation is that their data cover only the 1990s to the mid-2000s, providing little evidence about the impact of the 2008–9 global financial crisis, when SOE performance declined.

Part III places the state-sector reforms in historical, social, and comparative perspectives. Morris Bian’s chapter on the history of state-owned enterprises in China shows that they can trace their origins to the 1930s, when the Nationalist government launched a state-led industrialization drive to counter Japanese aggression. This prerevolutionary history gives state ownership stronger legitimacy in China than most other Stalinist institutions, helping to explain how it has endured for 80 years. In Chapter 8, Mark Frazier examines the impact of state-sector reform on the Chinese welfare state. The corporatization reforms entailed extensive welfare reform to transfer welfare functions from SOEs to local governments. But the new “national” corporatized SOEs have resisted contributing to the new government social insurance programs, while local SOEs and private firms have been able to use their clout to negotiate different payroll tax rates. As a result, the unequal, dualistic structure of the old enterprise-based welfare system has been reproduced in the new government programs. Finally, Andrea Boltho and Maria Weber compare China’s macroeconomic policy, investment, and changing comparative advantage to those of Japan, Korea, and Taiwan during their periods of rapid economic growth. They show that while China had similar macroeconomic policies to those of its neighbors, it featured more extensive government intervention, more openness to foreign direct investment, and a different trajectory of industrial development.

These three chapters provide rich empirical detail in their effort to sketch out the “big picture” of China’s state-sector reforms—details that will interest China specialists but may make it harder for comparativists to perceive the broad contours of state-sector reform.

Overall, State Capitalism, Institutional Adaptation, and the Chinese Miracle makes a significant contribution to our understanding of China’s market reforms and to debates about the type of capitalism they have created. Furthermore, it contributes to comparative debates about the revival of state capitalism in the wake of the global financial crisis. The parallels between China’s corporatization reforms and the Brazilian reforms analyzed by Aldo Musacchio and Sergio Lazarini in Reinventing State Capitalism (2014) are particularly striking. As a result, the volume will interest both China specialists and comparativists, and will be useful in both graduate and advanced undergraduate courses.