3 - The Rugged Terrain of Competition

Summary

In 1993 a research unit (China's Entrepreneurs Survey System, CESS hereafter) under the State Council conducted a survey of 2,620 industrial enterprise leaders. Most of the respondents indicated that the economic environments that they faced were either competitive (29.5%) or highly competitive (64.5%), but 74.2% regarded the competition as “unfair” (CESS 1993: 15). The main reasons given by those choosing this last answer included “preferential treatment enjoyed by some firms” (42%), “uneven income tax rates” (17.4%), “local protectionism” (12.9%), and “overly restrictive accounting procedures for state enterprises” (12.8%).

What this finding suggests is that opportunities in the new economic game are not equally distributed among competing firms and the state is largely responsible. There is little surprise in this. Despite the enormous economic changes since the late 1970s, China is nowhere close to Milton Friedman's ideal of a free market economy where the government plays a minimal role except in order keeping and enforcement of property rights and social justice. Even those who see the Chinese economy as increasingly “marketlike” regard the slow progress in the reform of laws, regulations, and property right institutions as major obstacles to China's completing the transition to a market economy (e.g., Naughton 1995a; Rawski 1994a, 1995).