This paper sheds new light on the debate on China’s “state capitalism.” Using some hitherto ignored data, it shows that the state sector indeed occupies a fairly large position in the Chinese economy, and its share in GDP has gradually increased after 2001. The paper suggests the existence of policy bias favoring the state sector by showing the high proportion of state owned enterprises among the petitioners of anti-dumping protection measures. After the global economic crisis in 2008, the policy bias was even strengthened, resulting in the expansion of the state sector in China’s GDP during 2010-2011. However, at this point, the trend has already been reversed, and it is likely that the state sector’s share in the economy will continue to decline. The gradual increase of private enterprises among the petitioners for anti-dumping protection also shows that there is an irreversible trend in the reduction of policy bias towards the state sector.

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The Xi-Li administration faces the dual challenge of managing state capitalism and shadow banking as China enters a phase of more moderate economic growth. During China’s first three decades of reform, private sector development occurred in parallel with prioritization of state-owned enterprises in strategic industries, and growth surged. This pattern of state capitalism rested on an unarticulated bifurcated financing arrangement whereby the formal banking system primarily served public enterprises, while private businesses relied primarily on informal finance. However, China’s response to global financial crisis disrupted the preceding equilibrium of financial dualism under state capitalism. Unprecedented expansion of bank lending after 2008 created opportunities for a host of state economic actors─including SOEs, state banks, and local governments─to expand their participation in off-balance sheet activities. Yet the resulting vibrancy of the shadow banking markets did not result from financial deregulation. Financial repression remains. Instead, the government’s Keynesian effort to avoid recession inadvertently incentivized the very agents of state capitalism to partake in shadow banking. The concomitant spread of Internet and social media fueled an equally unexpected “liberalization” in the technologies of and participants in informal finance. Middle class savers are investing in wealth management products through mobile devices, and those same products are being invested in a variety of private ventures promising high returns. State capitalism and shadow banking have now intersected and developed areas of mutual dependence, or more accurately, mutual liability. China’s present leadership has thus signaled intentions to curb the scope of state capitalism and shadow banking, including official corruption associated with both. These efforts, however, face a variety of political and institutional challenges.

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This paper estimate value maps of three electronics industries of China in the 2000s. Utilizing the estimated demand estimates of the three industries, I draw a cost-benefit supply curve that can visualize the positioning strategies, such as “cost-advantage strategies” and “benefit-advantage strategies”. Results indicate that FOEs takes a benefit-advantage position and private owned enterprise keeps a cost-advantage position, whereas SOEs were trapped in the middle. Anadditional findings is that benefits of POEs and SOEs were not priced proportionally. Higher benefit products are priced as much the same as lower benefit products. This might implies “excess” price competition among SOEs and POEs.

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Can political connections bring about government benefits? Investigating the firms publicly listed on the Chinese stock, we find that political connections in family-controlled firms are associated with better accesses to bank loans, less tax payments and more government subsidies. We further find that political connections can result in higher stock returns in the Chinese family-controlled firms. We argue that political connections bring about rents for the family-controlled firms under poor institutional environment, which increases corporate value at the cost of social welfares.

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