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The role of the state in China's industrial development: a reassessment.

INTRODUCTION

The unprecedented boom of China's economy has been interpreted by many orthodox analysts more or less as follows. Domestic markets have been almost fully liberalized, first in agriculture and then in industry and services. Previously collectivized land has been given back to peasant households. Most industrial and services enterprises are privately owned, and now produce the bulk of GDP, due mainly to their superior efficiency with respect to state-owned enterprises (SOEs) (see Dougherty et al., 2007).

The country also opened to international trade by joining the WTO, thereby boosting labor intensive exports and acceding foreign, advanced knowledge, thanks to FDI spillovers. In sum, there is nothing so special about China, apart from its size that ensures a virtually unlimited supply of cheap unskilled labor to fuel export-oriented industrialization. Yes, relatively egalitarian land distribution, widespread literacy, and an innate, culture-based attitude towards thrift also contribute. However, the bottom line is that China is just one more developing country that is prospering since it traded its obsolete socialist model to embrace capitalism.

Other, more acute, observers do acknowledge the depth of the structural differences between China and 'normal' capitalist countries, but dismiss the applicability of the term 'socialism' as a useful tool to analyze such a strange animal. Lindbeck (2008, p.116), for instance, argues that 'the bulk of production today takes place in private firms' and 'most prices in China are formed on market, the main exceptions being natural resources and public utilities. Moreover, the label "socialism" is not usually associated with a strong reliance on economic incentives, competition, internationalization and (as in China) an apparent neglect of the distribution ... of income, education and welfare'. Therefore, both terms 'state capitalism' and 'market socialism' are inappropriate, and the neutral term 'mixed economy' should rather be utilized to characterize China's economic system. Lindbeck is right when referring to the contradictions between China's present social reality and the traditional goals of socialism, which are particularly stark in the domain of income and social inequalities (see, for instance, Kanbur et al., 2008). Yet, in the present paper we are focusing on some positive (ie, objective) features of China's economic system, rather than on the country's social problems seen in a normative (1) dimension. In this context, we show that Lindbeck's view amounts to a severe underestimation of the role of the state in China's economy, and to an overestimation of the relative autonomy and supposed commanding position of unplanned, market-based regulatory mechanisms. Thus, we consider it as appropriate to retain the term 'market socialism', even if it has to be taken with a grain of salt and to some extent as an ad hoc definition.

There are two crucial differences between a 'market socialist' and a capitalist system. The first one is that in a market socialist system the role of the state is both quantitatively larger and qualitatively superior, thereby allowing the public sector as a whole to exert an overall strategic control over the country's development path, especially in crucial areas such as setting the economy-wide rate of the accumulation and determining the speed and direction of technical progress. The second difference is that in a market socialist system, although capitalists endowed with private ownership rights on some means of production do exist, they are not strong enough to constitute a hegemonic and dominant social class, as it happens in 'normal' capitalist countries (see Gabriele and Schettino, 2008). Our approach on the structural differences between capitalism and market socialism is consistent with (although not identical to) that of the late Giovanni Arrighi (2007), who argued that the presently existing Chinese economy is a 'non-capitalist market economy' rooted both in China's ancient economic history and in its more recent revolutionary tradition.

This paper focuses on the role of the state in China's industrial sector. As available statistical data are of a very aggregate nature, the analysis is of preliminary nature, and it can only provide a broad and tentative interpretation of such a vast and unique phenomenon as China's contemporary industrial development. Moreover, too little time has elapsed since the inception of economic reforms to allow for a proper historical evaluation of their ultimate significance. (2) Without underestimating the relevance of such important caveats, the paper concludes that China's state is able to engage in a novel form of strategic planning, employing as a crucial tool its ownership and control rights over the largest and most advanced industrial enterprises. It also carries out huge and ever-increasing investments in infrastructure, institution- and human-capital building, and R&D, on a scale unequaled anywhere else in the world. This public investment drive generates a network of systemic external economies, (3) which in turn decisively enhance the competitiveness, productivity, and profitability of both public and privately owned/controlled industrial enterprises. In the long run, the dominant role of the state in China's industry might consolidate itself as a sustainable structural characteristic of market socialism.

The paper is organized as follows. The next section briefly exposes a few basic facts about China's industrial reforms. The section after that reviews part of a sprawling literature on SOEs' reforms and their relative efficiency and profitability, focusing mainly on studies that covered the 1990s and the early 2000s. The subsequent section presents some statistical evidence on China's industrial enterprises and R&D activities. We show that the role of public industry has been changing but is far from marginal. The performance of public industry in China has improved dramatically in recent years, and is likely to do so even more in relative terms in the near future, due to the collapse of large sections of small-scale, export-oriented manufacturing private firms. Moreover, it has to be taken into account the impact of China's extraordinary R&D effort (the bulk of which is conducted either in large state-owned and state-holding industrial enterprises (SOSHEs) or in public universities and research centers) has important implications for evaluating the overall contribution of the state to industrial development. Finally, the last section concludes.

THE REFORM OF PUBLIC INDUSTRY IN CHINA: BASIC FACTS

China's industrial scenario, previously dominated by traditional SOEs, has been profoundly modified, first by the surge of township and village enterprises (TVEs) in the 1970s and 1980s, and subsequently by the boom of private- and foreign-funded enterprises (FFEs). Besides the SOEs' restructuring process at firm level, during the present decade, two other major and only apparently contradictory policy trends have become increasingly apparent during the 2000s. One is the adoption of leverage and of a rationalized hierarchical chain as an effective means to maintain state control under a diversified ownership structure. The other is a tendency towards re-centralization (pursued also in domains different from that of industrial policies, as shown by the key 1994 tax reform), which continues unabated and cannot but be further strengthened by the drastic interventions needed to control the exogenous impact of the world financial and economic crisis.

Rounds of SOE reforms have been going on in China since the 1980s. However, the governments' political willingness to accept the social and political costs of radically reforming state enterprises strengthened progressively during the 1990s and the early 2000s. A major turnaround in the performance of state-owned and state-holding firms has become apparent in the second half of the present decade. The reform in China's industrial sector has but accelerated dramatically during the 2000s. Since the late 1990s, private firms have boomed, rapidly overcoming public industry in terms of number, employment, and--to a lesser extent--share of total industrial output. The number of SOEs, conversely, was reduced drastically, as was their workforce, consistent with the thrust of the zhuada fangxiao (keep the big, dump the small) policy (see Morel, 2006; Ministry of Commerce, 2008; Wildau, 2008). Private- and FFEs presently constitute the vast majority of firms and generate the bulk of industrial employment (see below, section 'Public and Private Actors in China's Industrial Sector').

Yet, taking into account this trend should not unwarrantedly lead to underestimate the evolving but still crucial role of the state in China's industrial development. The crucial component of China's public industry reform process has been the transformation of many SOEs into state-holding enterprises. These corporations have partial non-public ownership and share trading, and are characterized by harder budget constraints and more indirect forms of control with respect to traditional state enterprises (see Li and Putterman, 2008). Changes aimed at hardening the budget constraint and improve performance have been implemented also in the SOEs that have retained their traditional, fully state-owned status, and many of the worst loss-making enterprises have been closed or (more rarely) privatized.

A key result of SOEs' reforms has been a major turnaround in profitability. By the mid-1990s, SOEs' losses were so high that net profits were less than 0.6% of GDP. By 2007, the picture had changed drastically, with profits reaching 4.2% of GDP in industrial SOSHEs and 2% of GDP in non-industrial SOEs (Naughton, 2008a, b, c).

A major role in the public industry reform process has been played by the state-owned Assets Supervision and Administration Commission (SASAC). The Commission was created in 2002 to represent central-government shareholder interests in large enterprise groups of which there are now 149 (4) after having been reduced through mergers. After reorganizations, SASAC-managed firms become joint stock corporations or wholly owned state corporations (5). SASAC acts mainly as the facilitator and promoter of the effective implementation of reforms, which had been officially launched already in the 1990s, but had not been carried out thoroughly until the political will to get rid of loss-making SOEs became evident, and state support was drastically focused on a limited number of large and ever-growing firms. Public enterprises are now concentrated in few strategic sectors: energy and power, industrial raw materials, military industry and large-scale machinery-building, transport and telecommunications. Some of these sectors are explicitly reserved to state firms; while, in others, spontaneous market forces and regulatory discrimination combine to erect very high barriers to entry for private operators. In both cases, however, the government has strived to avoid the creation of monopolies, engineering the emergence of oligopolistic market structures in which typically two or three large public firms compete with each other.

It should also be taken into account that the true scope of state intervention in China's industry goes well beyond the boundaries of SOSHEs. Even the most advanced among nominally private enterprises are often connected to the public sector through a number of ownership, finance, and other linkages, to a much larger extent than their counterparts in capitalist countries (6). A case in point is that of Huawei, a very successful and dynamic producer of telecoms network equipment with sales of about $15 billion in 2008. Huawei is formally private, yet it has been formally supported by the state, and its development strategy seems to be broadly consistent with that of China's industry as a whole. There are similar cases of leading private companies, which are in fact largely connected to public institutions. For example, the white goods company, Hai'er, which is now controlled by Qingdao city SASAC, and that of the computer firm Legend whose biggest shareholder is the China Academy of Sciences (see Naughton, 2008a).

In sum, it would be easy to be caught wrong-footed by the speed and depth of the changes taking place in China's industrial landscape, to the point of interpreting it as an extravagant private-led entrepreneurial unfolding, and concluded that SOEs' assets were being privatized at an accelerated pace and the state's presence in China's industry was withering away. Actually, there has been no mass privatization of major public industrial assets. Notwithstanding the contribution of private firms to production and employment, state-controlled enterprises play a dominant role in most industrial sectors, and the strategic control of key economic levers is still in the hands of public planners (see Kroeber, 2008; Kroeber and Yao, 2008; Wildau, 2008).

A REVIEW OF THE LITERATURE

Numerous studies analyzed different aspects of SOE reforms. Until the early 2000s, most acknowledged that important changes were ahead and steps to move forward were underway, but concluded that no decisive breakthrough in SOEs' performance had been achieved yet. However, a more favorable trend is evidenced by the most recent works. Zheng et al. (2000) analyzed SOEs' productivity performance over the period 1980-1994. They found that productivity did grow, thanks mainly to technical progress, but technical efficiency remained low. Dong and Putterman (2003) argued that hardening budget constraints without relieving SOEs from their social burdens caused a scarcity of non-labor inputs and thus rising redundant labor in the early 1990s. Cull and Xu (2003) found that bank finance--as an alternative to other sources of funding, such as retained profits or direct state transfers--had a positive impact on firms' profitability and on managerial flexibility in the 1980s, but this association had been weakening in the early 1990s. Zhang (2004) reviewed the effects of corporatization and stock market listing on SOEs' performance, identifying a rapid trend towards firms' concentration and consolidation, but concluded that results in terms of performance were still modest on balance.

Other studies compared the performances of public and private enterprises. Most of them found that private firms performed better (see Chen, 2001; Gul and Zhao, 2001; Wei and Varela, 2003; Hovey, 2005), while others were inconclusive or did not find a systemic relationship between ownership and firms' behavior (Wang, 2005). Zhang and Parker (2004) analyzed total factor productivity (TFP) trends in China's electronics industry in the 1990s, and found that corporatized SOEs did not perform significantly better than traditional ones, with TFP growing but at a slower pace than in both collective and private electronic firms. Most researchers, however, found that legal person holdings have a positive impact (see Sun and Tong, 2003; Wong et al., 2004). In a more recent study, Naughton and Hovey (2007, p. 139) reached similar conclusions: 'state ownership per se(is) negatively correlated with performance' while 'legal persons ... have a positive influence on firm performance or value'. On this basis, they put forward policy recommendations favoring various forms of divesture of state ownership in existing SOEs, some of which amount to a transformation of traditional SOEs into state-holding legal persons.

Other recent studies have also identified serious weaknesses in reformed SOEs. Girma and Gong (2008), on the basis of a large micro data set, investigate whether SOEs in China have benefited from the managerial, technical, and organizational skills possessed by multinational firms operating in their country, and conclude that evidence in favor of positive spillovers is weak, due mainly to scarce regional linkages and low level of absorptive capacity. The latter, in turn, was partly caused by a still-undeveloped structure of managers' incentives. Yu and Nikamp (2008) assess the comparative productivity performance of SOEs in high-tech industries from 1996 to 2006. They find that SOEs as a whole experienced an unsatisfactory trajectory of catch-up from 1996 to 2006, with SOEs gaining ground in 1997-2003, but falling further behind FEEs (7) in 2003-2006, due to their inadequate capability to develop indigenous technologies. These results (to be taken as indicative, due to some debatable features of the authors' methodology) might be due in part to the disruptive short-term effects of the major acceleration in SOEs' reform that started in 2003, as shown by Dong and Xu (2008). The authors analyze econometrically the short-term impact of China's major labor restructuring program, which was much more widespread among public-owned rather than private enterprises, and especially in older and SOEs with higher excess capacity. Their most interesting finding is that, far from automatically improving performance and profitability, 'downsizing has serious short-term costs in terms of total factor productivity (TFP)', due largely to its 'psychological' costs in terms of workers' demoralization. (8) They also found that 'private firms tend to have worse allocation efficiency after downsizing but tend to cut wages to a greater extent such that profitability is unaffected, and SOEs tend to have slightly milder deterioration in allocating efficiency, and tend to cut wages to a lesser extent as well ... SOEs have a more positive "catch-up" effect from downsizing, and ... tend to be more protective of labour' (p. 238). Dong and Xu's results illustrate why improvements in the performance of SOSHEs did not become apparent until the mid-2000s, while the bulk of labor shedding took place in late 1990s and early 2000s. Another recent contribution reaching drastic conclusions on the superiority of private enterprises is that of Dougherty et al. (2007). The authors provide a quantitative analysis based on a large sample made up by quarter of a million industrial firms, and conclude that '... the private sector ... operates much more efficiently than the public sector' (p. 309). (9)

Since the early to mid-2000s, a discordant strand of literature has been on the ascendance, which tends to be more optimistic regarding the results of past SOEs reforms and to deny the intrinsic superiority of private ownership of industrial enterprises. Some of these studies focus on the interaction between SOEs reforms and China's mushrooming R&D activities, analyzing various aspects of China's national system of innovation (NSI), which has been booming at a historically unprecedented pace and is now the second largest in the world in terms of R&D expenditure (see Mandel, 2004; McGregor, 2007; OECD, 2008a, b; Gabriele and Khan, 2008).

China's NSI is characterized by specific forms of interaction involving public universities and research centers, public enterprises, privately owned and foreign funded industrial firms (see, among others, Gabriele and Khan, 2008; Mazzoleni, 2008; Niosi, 2008). However, even in this flexible, rapidly evolving, and ever-changing context, the role of public organizations remains paramount, especially taking into account that most university-affiliated enterprises are ultimately state owned. In-house R&D activities on the part of public enterprises are a crucial component of any NSI, as they constitute a key linkage between the creation of knowledge and its productive application. Hu and Jefferson (2004) found high returns to R&D among Beijing's SOEs in the 1990s. However, they also found a suboptimal propensity to invest in R&D on the part of SOEs. Hu et al. (2005) showed that in-firm R&D was crucial to 'complement technology transfer--whether of domestic or foreign origin' (p. 780). Hu and Jefferson (2005) argued that, without underestimating the positive impact of the surge in indigenous R&D, China's patent explosion in the early 2000s was mainly due to legal and institutional changes in the competition conditions prevailing in the domestic market, which had been favoring patent holders and strengthened intellectual property rights protection. It was primarily the competitive challenge of FFEs, along with that stemming from the industry's shift towards a high degree of export orientation, which was 'prompting domestic Chinese firms to file for more patent applications for their strategic competitive value'. The case of patents is an example of a wider trend towards deepening linkages between international trade opening and technological change. FFEs enhance in-bound technological flows, and increased competition forces Chinese exporters to follow close world technological trends (see Kroeber and Yao, 2008).

Another form of interaction between economic and scientific human and non-human assets, in a framework characterized jointly by China's indigenous drive towards technological development and by the profit-oriented strategies of foreign investors, is the increasing propensity to establish R&D centers in Beijing on the part of many leading Transnational Corporations (TNCs) (Chen, 2008). Fisher-Vanden et al. (2006) found that both domestic (such as increasing R&D activities and enterprise reforms) and externally originated factors (technology imports) contribute to an energy-saving bias in China's technological development. In-house R&D activities are crucial to enable firms to develop the absorptive capacity needed for the diffusion of imported technologies. Their findings 'underscore the importance of diverse channels of technical change in driving the economic growth and development of China with likely implications for other developing countries.' (pp. 659-660). Fisher-Vanden and Jefferson (2008) found that in-house R&D is labor- and material-using and capital- and energy-saving, thereby capitalizing on China's comparative advantage, and is mainly aimed at slashing production costs of already-existing products. Conversely, imported technologies, which are comparatively capital-intensive, focus on new product development: 'These diversified channels of technical change reveal a pattern of technical change in a developing country context that is far more diversified than that suggested by the conventional growth literature' (Fisher-Vanden and Jefferson, 2008, p. 658).

Other authors analyzed comparatively the performance of public and privately owned/controlled industrial enterprises. Holz (2002) showed that the gap between SOEs and non-SOEs was not due to the formers' intrinsic inefficiency, and could be explained simply by SOEs' higher circulation tax rates and capital intensity. Qiu et al. (2005a, b) found that restructuring according to corporate law improved firms' governance in the late 1990s, and argued that full privatization was not needed to effectively improve SOEs' performance. Chang (2008) analyzed the diversification of large SOEs in Lanzhou, and concluded that the process was subject to market conditions and firm-specific factors, yet the government played a key enabling role in the reorganization and diversification process.

Jefferson et al. (2008) examine differences in levels and rates of productivity growth by ownership type among large and medium industrial enterprises (LMEs). Their firm-level data include both surviving firms that report in both 1998 and 2005 and firms that exit or enter the data set over this period. The authors observe substantial increases in labor and capital productivity across both SOSHEs, and find that the strongest driver of productivity growth was the Schumpeterian process of the exit and entering of firms, (10) due mainly to the thorough firm restructuring and reorganization process, which 'often included changes in ownership (including full or partial privatization)' (p. 3). As the enterprise reform process among LMEs rarely implied full privatization or a shift to private owners of a controlling share, it can be safely assumed that most of the new entrants were reformed mixed state-controlled firms. Jefferson et al., (2008) find that the 'level of productivity of an entering firm in 2005 represents an annual rate of growth of TFP of 18.37% in relation with the productivity of the exiting firm in 1998. This contrasts with a rate of growth of but 8.33% for a surviving SOE' (p. 17).

Many other studies show that 'ownership by legal person entities, which in the large majority of cases means indirect ownership by the state ... tends to positively affect productivity, profitability, and firm performance in general' (Li and Putterman, 2008, p. 374; see also Sun et al., 2002; Delios et at., 2006; Xu and Wang, 1999; Qi et al., 2000; Jia et at., 2005; Holz, 2002). Finally, a particularly interesting study is by Chen et al. (2009). The authors analyze a sample of listed companies with different types of ownership to evaluate their relative efficiency, focusing particularly on the group of 149 large enterprises controlled by SASAC, which they call SOEs affiliated to the central government (SOECGs). These elite firms 'excel in almost every way when compared to other ownership types', while mixed enterprises controlled by private investors do not perform particularly well, contrasting 'the claims that firms perform best when the state is completely absent from ownership ... at least in the case of China' (p. 172). (11) The authors attribute the relatively favorable performance of SOECGs to the transitional nature of China's economy, and to its weak legal and institutional environment in particular. However, to assume that private ownership would be superior in a fully developed legal and institutional context would be unwarranted. On the contrary, our view is that China's SASAC-controlled elite enterprises are pioneering a form of ownership and management structure, which has a good chance to prove itself quite suitable to deal with the challenges of industrial development in the 21st century.

PUBLIC AND PRIVATE ACTORS IN CHINA'S INDUSTRIAL SECTOR

Public industry in China, as in other countries, is constituted by industrial enterprises that are controlled by non-private legal entities (be them the state, local governments, or groups of workers). The state-controlled sector of industry is constituted by two components: SOEs and state-holding enterprises (mixed enterprises in which the state holds a majority share). These two groups of enterprises represent the bulk of public industry, and will be referred to jointly as SOSHEs in the remainder of the paper. In addition, there is a smaller category of non-state public enterprises, most of which are local cooperatives and collectives, many of which are small-scale and are located in rural areas.

Adding up all public-owned and public-controlled categories of enterprises, it is possible to gauge the relative weight of the public sector in China's industry. (12) The public sector share has been shrinking fast over the present decade, especially due to the relative decline of TVEs, collectives, and cooperatives, and to the parallel correspondent emergence of a growing number of domestic private enterprises (DPrivEs) (see Table 1). In 1998, SOSHEs were still almost 40% of all industrial enterprises, owned 70% of the assets, produced half of the national industrial output and employed 60% of the workforce. SOSHEs' relative weight declined over all these three dimensions, but in an uneven fashion. As a result, by 2007, SOSHEs were only 6% of all industrial enterprises, while (domestic) private enterprises were more than half of the total. Yet, SOSHEs employed over 20% of the industrial workforce, produced almost 30% of the output, detained over 40% of industrial assets, and generated 40% of the sector's profits. SOEs proper were less than 3% of all industrial enterprises, producing about 9% of total gross industrial output value (GVIO) and employing 8% of the sector's workforce (see Table 1).

However, such a reduced but still sizeable relative weight tells only a rather small part of the story. To evaluate thoroughly the role of the public sector in China's industry it is necessary to examine a number of economic and financial indicators for the three sectors: SOEs, non-state public enterprises, and state-holding enterprises. In turn, these figures will be compared to the corresponding data for privately controlled industrial enterprises. To this purpose, data on various groupings of industrial enterprises from China's Statistical Yearbook 2008 (CSY, 2008) have been aggregated and decomposed in order to present a clear picture of the public/ private relationships in Chinese industry (see Table 2). Indicators of productivity, capitalization, profit-generating capability, capital profitability, and efficiency are shown for each group of enterprises (see Table 3). The indicators are as follows:

* Labor productivity is measured by the O/L ratio (where O is GVIO and L is the average number of workers).

* Capitalization is the K/L ratio (where K represents the assets endowment).

* The indicator of profit-generating capability is profit generated by each worker; P/L where P represents profits.

* The P/K ratio is the indicator of capital profitability.

* K/O, the capital/output ratio, is a rough indicator of efficiency in terms of capital productivity. (13)

SOEs are on average much larger and capital intensive than most other Chinese industrial enterprises. (14) With respect to the national averages for the entire industrial sector, SOEs' per employee asset endowment is about double, while labor productivity is only slightly higher (Table 3, first and last rows),is Thus, SOEs' workers utilize on average twice as much capital than the industry's average, but do not translate this advantage into a correspondent productivity gain. SOEs' profitability is also lower than the national industrial average, both in per employee and in per unit of capital terms. Therefore, SOEs do not appear to be among China's most efficient and profitable industrial enterprises.

Conversely, the picture of another category of fully public industrial enterprises, that of Fully Public Non-State Enterprises (FPubNSEs, essentially constituted by cooperatives and collectives), is very different from that of SOEs. They are the smallest group of firms in terms of average labor force size, the most undercapitalized, and those that generate the smaller amount of profits per employee. Yet, they have the lowest capital/output ratio and the highest profits/assets ratio. These small and very light public enterprises occupy a segment of the industry that is virtually at the opposite side from that of SOEs, and utilize their scarce assets in a quite efficient and profitable way. However, their overall weight in China's industrial scenario is limited, both in terms of output and of employment.

The most advanced component of public industry is constituted by state-holding mixed enterprises (SHMEs). In SHMEs, the state owns a larger share than any other shareholder, thereby effectively being able to exercise strategic control. These enterprises are not formally very different from those state-controlled mixed enterprises that are still common (even if much less than a few decades ago) in many capitalist countries. Yet, in the Chinese context, their role is far more crucial, both in quantitative and in qualitative terms. SHMEs are few, large, capital-intensive, and very productive. They are only 2.7% of all industrial enterprises, a share even smaller than that of SOEs. Yet, they employ over 9% of the labor force, own over 20% of total assets, produce almost 16% of the output, and generate almost a quarter of all industrial profits. Their capital endowment per worker is the highest among all groups of enterprises. SHMEs are industry leaders in terms of labor productivity, with 880300 yuan on average in 2007. This figure is almost 60% higher than that of SOEs and extra-regional FDI-funded enterprises (FDIEs), and also more than double that of DPrivEs and that of privately controlled mixed enterprises (see Tables 2 and 3).

SHMEs' capital/output ratio (1.13), while lower than that of SOEs, is higher than those of all private and privately controlled enterprises (see Table 3). (16) However, we have already found that the enterprise grouping exhibiting the lowest K/O ratio is that of non-state public industry. It is not surprising, after all, that poorly capitalized, small-scale enterprises exhibit a very favorable K/O ratio: it is still theoretically possible for a firm to produce some output, and to realize a profit, utilizing only labor. Such a hypothetical enterprise would exhibit a zero K/O ratio, but would hardly represent a model for industrialization and technical progress. SHMEs are also very profitable, as confirmed by the very high levels of their profits/worker and profits/assets ratios. Both profitability indicators are superior to those of any other large grouping of either public or private industrial enterprises (see Table 3). Their interpretation, however, requires a good amount of caution. Across both developed and developing countries, under ceterts paribus conditions, profitability among large firms is positively correlated with their market power, which in turn is largely (17) dependent on each country's institutional settings. Thus, in many cases, high profitability could simply be the result of lack of competition, high degrees of monopoly, and corruption, and it cannot be taken as a significant performance indicator. However, an institutional framework allowing some large firms to maintain high, but limited, degrees of monopoly power can also be seen as a second best policy tool to foster the 'profit-investment nexus' (see Akyuz and Gore, 1996), (18) thereby enhancing growth and technical progress. (19)

We are inclined to believe (20) that in the case of China's SHMEs the improvement of profitability indicators should indeed be seen as a positive performance signal, for a variety of reasons. First, the profit-investment nexus approach is more likely to be plausible in a high-growth context (as in nowadays China and in the East Asian NICs in the 1960s and 1970s) than in a slow-growth one, and SHMEs are indeed growing fast (in terms of output and productivity). Second, the biggest headache with public industry in China until recently was precisely that many SOEs were suffering heavy losses. As a result, the overall profitability of the sector was dangerously low, thereby jeopardizing the very financial sustainability of public industry. Third, SHMEs--differently from many SOEs--usually operate in highly oligopolistic but not monopolistic market settings.

These findings on productivity and profitability of reformed public industrial enterprises show that the drastically implemented zhuada fangxiao strategy has been rather successful so far. To properly understand their respective roles, weight, and strength, however, it is useful to compare the public sector (21) of China's industry with its private counterpart.

China's private industrial sector is quite heterogeneous, being composed by four uneven categories of enterprises: DPrivEs; private-controlled mixed enterprises (PrivMEs); enterprises with funds from Hong Kong, Macao, and Taiwan (HKMTEs); FFEs, owned by investors from countries different from HKMTEs (FFEs). The latter two categories of enterprises jointly constitute the group of FDIEs. DPrivEs are now over half of the total, employ over one-quarter of the industrial labor force, and produce almost one-quarter of total output. They own only about 15% of industrial assets and generate a slightly higher fraction of total profits (see Table 2). DPrivEs' labor productivity is almost identical to that of their similarly small and undercapitalized public counterpart constituted by cooperatives and collectives, and much lower than that of all other categories of industrial enterprises. With respect to profitability, DPrivEs fare poorly in terms of profit/worker, but lead in terms of profit/asset ratio. (22) DPrivEs' K/O ratio is also the lowest of all groupings of industrial enterprises. Yet, it is very similar to that of cooperatives and collectives (see Table 3). The latter finding shows that DPrivEs' apparent efficiency in utilizing physical capital to produce industrial goods is not stemming from a supposed intrinsic superiority of private property, but simply by the very low K/L ratios that are a common characteristic of both DPrivEs and FPubNSEs. In sum, DPrivEs are comparatively small and undercapitalized, and their most valuable contribution to China's overall economic and social development so far is that of creating and maintaining a sizeable share of total employment, utilizing relatively few physical and financial resources (see Table 3).

PrivMEs share a number of characteristics with the state-controlled section of mixed enterprises. As such, they are larger and more capital intensive than PrivDEs. They are about 15% of all enterprises, and contribute to about 10% of total industrial capitalization, output, and profits, and to almost 15% of the employment. However, on average, privately controlled mixed enterprises lag behind their state-owned counterparts, as shown by size, labor productivity, capitalization, and profitability indicators. As they are less capital-intensive, however, PrivMEs perform better than SHMEs in terms of K/O ratios (see Table 3). (23)

Finally, it has to be taken into account that enterprises are a central but not an exclusive component of each country's overall economic system. The availability of a complex set of what could broadly be seen as 'public goods' has the potential to generate major systemic external economies, (24) thereby decisively affecting enterprises' ability to invest, increase their productivity, promote technical progress, and compete in domestic and world markets. Such economically relevant public goods are well known: infrastructure, education, health, and the like. Here we focus on the NSI in particular, showing that the role of the Chinese state in this crucial area is paramount, and that it is performed both directly (through public institutions such as universities and research centers) and indirectly, through the S&T and R&D activities carried out by public industrial enterprises.

Until the mid-1990s, China's research effort was still very modest, even in purely quantitative terms. In the second part of the decade, however, all S&T and R&D indicators started to skyrocket. In 1996-2000 period, S&T expenditure more than doubled (25) and the share of GDP devoted to R&D activities increased sharply, from 0.6 to 1% (see CSY, 2008, Table 20.44). Research output indicators also exhibited a sustained increase: certified patent applications, for instance, more than doubled (see CSY, 2008, Table 20.38 and 20.44, and Table 4). The upward trend continued in the 2000s, at a pace unequalled anywhere else in the world (see Gabriele and Khan, 2008; Hu and Mathews, 2008). During a period of exceptionally fast economic growth, the R&D to GDP ratio kept climbing, reaching 1.13% in 2003 and almost 1.5% (a figure much higher than that of many OECD countries) in 2007 (see Table 4). In sum, over little more than one decade, China leapfrogged from an almost insignificant role in the global research scenario to that of one of its main protagonists.

With respect to the respective role of government and industry--contrary to past experience, when research was almost completely confined to universities and government research institutes--most R&D activities in China are presently financed and performed by industry, similarly to the situation prevailing in the advanced capitalist countries. Actually, the share of total R&D performed by industrial enterprises in China (71%) is about the same as in the US, and higher than that of EU27. In China, however, the role of specialized government research institutions (which perform almost one-fifth of total R&D, and actually carry out the most advanced and ambitious research programs) is more relevant than in the advanced capitalist countries. Conversely, the role of universities is correspondingly minor (see Table 4).

The role of the public sector at large in propelling China's unprecedented research effort is overwhelming. It has been pointed out that over 70% of China's R&D takes place in the industrial sector (the rest being performed by fully public research centers and universities). An absolute majority of this R&D activity is carried out by enterprises owned or controlled by the state or other public bodies. Most industrial S&T and R&D activities in China are carried out by large and medium-sized industrial enterprises, who contribute over 80% of the total funding for both S&T and R&D activities. (26) In the LME subsector, SOSHEs contribute almost half of the industry's total R&D personnel and over 47% of the funds. Adding the (small) R&D contribution of non-state public enterprises, both figures increase to well over 50%. The bulk of the remaining R&D activities in the LMEs subsector is performed by foreign-owned enterprises, especially by those owned mostly by large TNCs and classified by CSY as FFEs.

FFEs fund over 20% of LMEs's industrial research and employ 15% of the R&D personnel. The correspondent figures for the other group of FDIEs, those owned by entrepreneurs from Macao, Hong Kong, and Taiwan, are both less than 9%. Fully owned private domestic enterprises fund only 7% of the LMEs' R&D effort and employ 8% of the R&D personnel. Among SOSHEs, the most critical role is that of SHMEs, who are at the core of the R&D effort in China's industry, contributing about 27% of LMEs' total R&D funds and personnel. Thus, SHMEs constitute the most research-oriented sub-component of mixed enterprises, on one hand, and of public industry, on the other hand (see Table 5).

These statistical findings allow us to draw a few stylized conclusions. We saw that (public) research centers and universities carry out about 30% of China's total R&D activities, while the rest is carried out in the industrial sector, mostly among LMEs. SOSHEs fund and execute over half of LMEs' R&D effort. Thus, broadly speaking, the public sector as a whole funds and performs about 2/3 of China's R&D activities. Statistical and descriptive evidence shows that two sub-components of public R&D system play a paramount role. One is constituted by government-funded research centers, which perform most of the basic research and truly scientific activities aimed at approaching or surpassing top world knowledge standards in a number of key areas (see Gabriele and Khan, 2008). The other sub-component is that of SHMEs, which carry out the bulk of China's R&D activities in the industrial sector. Most of the remaining R&D activities are carried out by FFEs, while the role of the domestic private sector is minor.

CONCLUSIONS

In this paper, we argue that the role of the state (to be understood as a holistic term referring to the public sector as whole), far from being withering out, is in fact massive, dominant, and crucial to China's industrial development. Actually, it has been strengthened by the successful implementation of the 'keep the big dump the small' policy, which in turn is consistent with a more general strategy shift towards re centralization in many areas of economic and social policies. This trend is ongoing and is bound to be further intensified by the massive package of fiscal and other interventions made necessary as a response to the world financial and economic crisis.

State-owned and state-holding enterprises are now less numerous, but much larger, more capital- and knowledge-intensive, more productive and more profitable than in the late 1990s. Contrary to popular belief, especially since the mid-2000s, their performance in terms of efficiency and profitability compares favorably with that of private enterprises. The state-controlled subsector constituted by state-holding enterprises, in particular, with at its core the 149 large conglomerates managed by SASAC, is in many aspects the most advanced component of China's industry, and the one in which the bulk of in-house R&D activities take place. The role of the public sector, moreover, goes beyond that of those enterprises that are owned or controlled by the state. In the specific Chinese context, many of the most advanced formally private industrial enterprises are in fact related to the public domain by a web of ownership, financial, and other linkages, to an extent that is qualitatively different and deeper than that of their counterparts in capitalist countries. The public sector is paramount in engineering an extraordinary boom in S&T and R&D activities (both inside the industrial sector and outside, in universities and research centers), and in fueling a massive investment drive aimed at enhancing China's infrastructural and human capital environment. These processes are also likely to generate systemic external economies, which are reaped by public and private enterprises alike, contributing to abating their operative costs and to sustain their competitiveness and profitability. Contrary to other analysts, we believe that the dominant role of the state in China's industry (and, more generally, in China's economy) is not merely a possibly necessary--albeit wasteful--evil, which will be superseded once the transition from a centrally planned to a fully capitalist modern economy will be completed. We rather see it as an ever-evolving but structural characteristic of China's peculiar form of market socialism.

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ALBERTO GABRIELE

UNCTAD, Palais des Nations, Room 8063, Geneva Ch-1211 geneva 10, Switzerland.

E-mail: alberto1gabriele@gmail.com

(1) A normative statement is one that states how things ought to be, while a positive statement is one that states factually how things are.

(2) According to a famous statement attributed to Zhou Enlai, even after more than one and a half century it was still too early to evaluate the impact of the French Revolution.

(3) Systemic external economies stem from the ability of individual firms to externalize a number of costs--such as infrastructure building and maintenance, human capital formation, access to free and quasi-free (less than fully protected) knowledge, environmental protection--which otherwise they should have borne directly. Some of these external economies are far from virtuous from a social welfare perspective, such as those resulting in environmental damages. However, on balance, in most countries they favor industrial development, or at least industrial growth. We call them systemic because they are predicated on a number of systemic factors that lie outside the scope of the firm's behavior. These factors, in turn, ultimately depend on the state's willingness and capability to macro-manage strategically the development path of the national economy. Systemic external economies are particularly relevant and crucial in China, consistently with the unique role played by the public sector.

(4) This figure refers to August 2008 (source: Ministry of Commerce, 2008), and might he further reduced by the time this paper is published.

(5) SASAC also strengthened managerial incentives. In 2004, all central SASAC firms signed three-year performance contracts, outlining annual and three-year targets. On the basis of these contracts, SASAC evaluates each CEO's performance. The three-year evaluation criteria are based on growth of capital value and revenues as well as annual profit results.

(6) It would be extremely difficult to quantify this phenomenon. Even well informed case studies on individual firms, like those on Huawei and Hai'er referred to in the text, cannot go beyond a heuristic appreciation of the true measure of control exerted by the state in these enterprises.

(7) There are two main groups of FDI-owned/controlled industrial enterprises (jointly referred to as FDI-funded enterprises, FDIEs) in China. One is that of enterprises owned/controlled by capitalists from Hong Kong, Macao, and Taiwan (HKMTEs). The remaining FDIEs, mainly controlled by large TNCs from the most advanced capitalist countries, constitute the group of FFEs.

(8) An additional factor is probably constituted by the transitional costs of adapting to new forms of labor allocation and organization on the part of both workers and managers.

(9) In our view, the conclusions of this paper are severely weakened by various methodological and interpretative problems. The author can make available a brief unpublished methodological critique to interested readers.

(10) A likely explanation for the relatively high productivity of entrants is that, exiting firms may be low-productivity firms in need for restructuring. 'Restructuring typically entails a change in formal ownership classification, industrial classification ... often resulting in the assignment of a new ID' (Jefferson et al., 2008, p. 17).

(11) In this respect, China's case might not be totally unique. Hanousek, Kocenda, and Svejnar obtain results similar to those of Chen et al. (2009) in a quantitative study using firm level data to examine the effects of divesture and privatization on corporate performance in the Czech Republic.

(12) The task of disentangling the relative weight and characteristics of public and private industry, respectively, along various significant dimensions (ie, number, production, investment, productivity, profitability, etc.) has been greatly simplified by the 1998 statistical reform (see Holz and Lin, 2001), but still requires a certain amount of interpretation of available data.

(13) Of course, the indicators including the capital term shall be seen as indicative, as they compare a stock variable (the total asset endowment owned by enterprises in a certain moment of time, as a result of an accumulation process that usually lasted for several years and was not tromogeneous across different firms) with flow variables such as labor force, output, and profits, each of which refers to a specific year.

(14) Comparing figures in the L and N columns of Table 3, it is easy to see that on average each SOE employs about five times more workers than a domestic private enterprise and almost twice as many as a foreign-funded private enterprise.

(15) In Table 4, the K/L indicator (assets per worker) is 84.7 for SOEs (first row) against 44.8 for the national average (last row referring to all industrial firms). O/L (labor productivity) is 56.3 for SOEs (first row) and 51.4 for the national average (last row). All the other statements on the relative performance of each group of industrial enterprises in the remainder of this section are based on the same reading of the indicators reported in Table 3.

(16) A relatively high K/O ratio is not incompatible with the existence of economies of scale and is not necessarily a symptom of inefficiency in a static context.

(17) Even in the most free-market oriented institutional frameworks, a tendency towards monopoly usually emerges among large firms due to well-known phenomena such as economies of scale, first move advantages, and the like.

(18) Akyuz and Gore argue that in the most successful East Asian economies 'Government policies played a major role in promoting capital accumulation by creating rents and animating the dynamic interactions between profits and investment. This was achieved through a broader set of measures than those usually identified as selective industrial policies' (p. 461).

(19) As is well known, although he emphasized the role of innovations rather than that of accumulation per se, Schumpeter also maintained that some degree of monopoly is preferable to perfect competition.

(20) Disaggregated empirical studies carried out in specific sectors would be necessary to gauge rigorously which of these two interpretative approaches is more appropriate in different historical and geographical contexts.

(21) With the term 'public sector' we refer to all SOSHEs, that is both SOEs and SHMEs.

(22) As previously noticed, SHMEs are also very profitable. It is interesting to note that the difference in the respective profit/assets ratios between two very different groupings of enterprises such as SHMEs and PrivDEs is less than 2%.

(23) The two groups of FDIEs are quite different from each other. HKMEs are mostly constituted by small- and medium-sized firms exhibiting a behavior very similar to privately controlled domestic mixed enterprises. Conversely, as most FFEs are controlled by large TNCs originating from advanced capitalist countries, they are more capital-intensive than HKMEs, and their labor productivity is higher, as well as their contribution to total industrial capitalization, output, and profits.

(24) Such economies are external essentially because the 'true' price of public goods is not and cannot be fully reflected in real-world markets.

(25) In nominal terms.

(26) LMEs employ 80% of all the S&T personnel and fund over 80% of both S&T and R&D activities of the entire industrial sector (CSY, 2008, Tables 20.39, 20.40).
Table 1: State-owned and state-holding enterprises (SOSHEs) and
(domestic) private enterprises:  number, output, employment (% share
of industry total, 1998-2007)

Year      Number of                   SOSHEs
region   enterprises
                       Gross industrial    Annual average
                         output value     employed persons

1998        39.2             49.6               60.5
1999        37.8             48.9               58.5
2000        32.8             47.3               53.9
2001        27.3             44.4               49.2
2002        22.7             40.8               43.9
2003        17.5             37.5               37.6
2004        12.9             34.8               29.8
2005        10.1             33.3               27.2
2006         8.3             31.2               24.5
2007         6.1             29.5               22.1

Year                   Private enterprises
region
          Number of     Gross industrial      Annual average
         enterprises      output values      employed persons

1998         6.5               3.1                  2.6
1999         9.0               4.5                  3.9
2000        13.6               6.1                  6.2
2001        21.1               9.2                 10.0
2002        27.1              11.7                 13.3
2003        34.5              14.7                 17.9
2004        43.2              17.4                 22.9
2005        45.5              19.0                 24.5
2006        49.6              21.2                 26.8
2007        52.6              23.2                 28.6

Source: CSY (2008)

Table 2: Basic statistics on industrial enterprises, 2007

                                                 Number of
                                                enterprises
                                                  (unit)

                                                     N

Public enterprises
State-owned enterprises              SOEs         10,074
State enterprises (total)            SEs          11,572
  Fully public non-state             FPubNSEs     19,742
    enterprises
  Fully public enterprises (total)   FPEs         31,314

Private enterprises
Private enterprises (total)          PrivEsT      244,536
  Domestic private enterprises       DPrivEs      177,080
  Foreign direct investment          FDIEs        67,456
    enterprises

State controlled enterprises
  State-owned and state-holding      SOSHEs       20,680
  enterprises

Mixed enterprises
Mixed enterprises                    MEs          59,779
  State-holding mixed enterprises    SHMEs         9,108
  Private-controlled mixed           PrivMEs      50,671
    enterprises
  SHMEs/SOSHEs%                                    44.04
  SHMEs/MEs%                                       15.24

Public industry (total)
Public-owned and public-holding      PubOHEs      40,422
  enterprises
Privately owned and controlled       PrivOCEs     295,207
  enterprises
Total                                             336,768

                                        Figures and percentages
                                          (100 million yuan)

                                     Gross industrial      Total
                                       output value       assets
                                     (current prices)

                                            O                K

Public enterprises
State-owned enterprises                   36,387          54,723
State enterprises (total)                 55,642          86,040
  Fully public non-state                  14,393           8,666
    enterprises
  Fully public enterprises (total)        70,036          94,706

Private enterprises
Private enterprises (total)              221,653          149,672
  Domestic private enterprises            94,023          53,305
  Foreign direct investment              127,629          96,367
    enterprises

State controlled enterprises
  State-owned and state-holding          119,686          158,188
  enterprises

Mixed enterprises
Mixed enterprises                        112,161          107,870
  State-holding mixed enterprises         64,043          72,148
  Private-controlled mixed                48,118          35,723
    enterprises
  SHMEs/SOSHEs%
  SHMEs/MEs%

Public industry (total)
Public-owned and public-holding          134,079          166,854
  enterprises
Privately owned and controlled           269,770          185,395
  enterprises
Total                                    405,177          353,037

                                        Figures and percentages
                                          (100 million yuan)

                                      Total     Annual average
                                     profits      number of
                                               employed persons
                                               (10,000 persons)

                                        P             L

Public enterprises
State-owned enterprises               2,630          646
State enterprises (total)             4,067         1,015
  Fully public non-state               880           349
    enterprises
  Fully public enterprises (total)    4,947         1,365

Private enterprises
Private enterprises (total)          12,581         4,606
  Domestic private enterprises        5,054         2,253
  Foreign direct investment           7,527         2,353
    enterprises

State controlled enterprises
  State-owned and state-holding      10,795         1,743
  enterprises

Mixed enterprises
Mixed enterprises                     9,541         1,883
  State-holding mixed enterprises     6,728          728
  Private-controlled mixed            2,813         1,156
    enterprises
  SHMEs/SOSHEs%
  SHMEs/MEs%

Public industry (total)
Public-owned and public-holding      11,675         2,092
  enterprises
Privately owned and controlled       15,394         5,762
  enterprises
Total                                27,155         7,875

                                      N%      O%      K%

Public enterprises
State-owned enterprises               2.99    8.98   15.50
State enterprises (total)             3.44   13.73   24.37
  Fully public non-state              5.86    3.55    2.45
    enterprises
  Fully public enterprises (total)    9.30   17.29   26.83

Private enterprises
Private enterprises (total)          72.61   54.71   42.40
  Domestic private enterprises       52.58   23.21   15.10
  Foreign direct investment          20.03   31.50   27.30
    enterprises

State controlled enterprises
  State-owned and state-holding       6.14   29.54   44.81
  enterprises

Mixed enterprises
Mixed enterprises                    17.75   27.68   30.55
  State-holding mixed enterprises     2.70   15.81   20.44
  Private-controlled mixed           15.05   11.88   10.12
    enterprises
  SHMEs/SOSHEs%
  SHMEs/MEs%

Public industry (total)
Public-owned and public-holding      12.00   33.09   47.26
  enterprises
Privately owned and controlled       87.66   66.58   52.51
  enterprises
Total

                                      P%      L%

Public enterprises
State-owned enterprises               9.68    8.21
State enterprises (total)            14.98   12.89
  Fully public non-state              3.24    4.44
    enterprises
  Fully public enterprises (total)   18.22   17.33

Private enterprises
Private enterprises (total)          46.33   58.49
  Domestic private enterprises       18.61   28.61
  Foreign direct investment          27.72   29.88
    enterprises

State controlled enterprises
  State-owned and state-holding      39.75   22.13
  enterprises

Mixed enterprises
Mixed enterprises                    35.14   23.91
  State-holding mixed enterprises    24.78    9.24
  Private-controlled mixed           10.36   14.68
    enterprises
  SHMEs/SOSHEs%
  SHMEs/MEs%

Public industry (total)
Public-owned and public-holding      42.99   26.57
  enterprises
Privately owned and controlled       56.69   73.16
  enterprises
Total

Note: Sub-groups are composed as follows:

Public enterprises
SEs: SOEs+SJOEs+SSCs
FPubNSEs: COEs+COOP+CJOEs+JSCEs+OJOEs
FPEs: SETs+FPubNSEs

Private enterprises
PrivEsT: DPrivEs+HKMTEs+FFE
FDIEs: HKMTEs+FFEs

Mixed enterprises
MEs: OLLCs+SHCLs
SHMEs: SOSHEs-State total
PriVMEs: MEs-SHMEs

Public industry (total)
PubOHEs: SOSHEs+FPubNSEs

Private industry (total)
PrivOCEs: PrivET+PrivCMEs

Source: CSY (2008)

Table 3: Productivity and profitability indicators

                                              10,000 yuan

                                   O/L           K/L          P/L
                                  Labor         Assets       Profit
                               productivity   per worker   per worker

Public enterprises
State-owned enterprises            56.3          84.7         4.1
State enterprises (total)          54.8          84.7         4.0
  Fully public non-state           41.2          24.8         2.5
    enterprises
    (coops, collectives)
  Fully public enterprises         51.3          69.4         3.6
    (total)

Private enterprises
Private enterprises (total)        48.1          32.5         2.7
  Domestic private                 41.7          23.7         2.2
    enterprises
  Foreign direct investment        54.2          41.0         3.2
    enterprises

State controlled enterprises
State-Owned and state-             68.7          90.8         6.2
  holding enterprises

Mixed enterprises
Mixed enterprises                  59.6          57.3         5.1
  State-holding mixed              88.0          99.2         9.2
    enterprises
  Private-controlled mixed         41.6          30.9         2.4
    enterprises

Public industry (total)
Public-owned and public-           64.1          79.7         5.6
  holding enterprises
Privately owned and                46.8          32.2         2.7
  controlled enterprises

Total (Average for the whole       51.4          44.8         3.4
  industrial sector)

                                        Yuan

                                    P/K         K/O
                                  Capital      Ratio
                               profitability

Public enterprises
State-owned enterprises            0.05        1.50
State enterprises (total)          0.05        1.55
  Fully public non-state           0.10        0.60
    enterprises
    (coops, collectives)
  Fully public enterprises         0.05        1.35
    (total)

Private enterprises
Private enterprises (total)        0.08        0.68
  Domestic private                 0.09        0.57
    enterprises
  Foreign direct investment        0.08        0.76
    enterprises

State controlled enterprises
State-Owned and state-             0.07        1.32
  holding enterprises

Mixed enterprises
Mixed enterprises                  0.09        0.96
  State-holding mixed              0.09        1.13
    enterprises
  Private-controlled mixed         0.08        0.74
    enterprises

Public industry (total)
Public-owned and public-           0.07        1.24
  holding enterprises
Privately owned and                0.08        0.69
  controlled enterprises

Total (Average for the whole       0.08        0.87
  industrial sector)

Source: CSY (2008)

Table 4: US, China, and EU 27: R&D indicators

Million        Compound annual growth rate

I R&D personnel (total)

          2002    2003    2004    2005    2006

US        NA      NA      NA      NA      NA
China     1.06    1.09    1.15    1.36    1.5
EU 27     2.08    2.09    2.12    2.19    2.28
Japan     0.86    0.88    0.9     0.92    0.94

Million        Compound annual growth rate

          2002    2003    2004    2005    2006

US        NA      NA      NA      NA      NA
China     8.2     5.8     5.3     18.4    10.1
EU 27     1.7     0.7     1.6     2.9     4.4
Japan     NA      2.9     1.6     2.8     1.5

% of GDP        Compound annual growth rate

II. GERD: % of GOP and growth rate

          2002    2003    2004    2005    2006

US        2.66    2.66    2.59    2.62    2.66
China     1.07    1.13    1.23    1.33    1.42
EU27      1.77    1.76    1.73    1.74    1.77
Japan     3.17    3.2     3.17    3.32    3.39

% of GDP        Compound annual growth rate

          2002    2003    2004    2005    2006    Av.2002-2006

US        -2.1    2.4     0.9     4.2     4.3     1.94
China     22      16.1    19.7    16.6    15.8    18.04
EU27      1.8     0.8     1.1     2.7     5.1     1.02
Japan     1.6     2.5     1.7     7       4.6     3.48

          IE      GOV

III. GERD: Financing by sector (% of total, 2006)

US        65      29
China     69      25
EU 27     55      34
Japan     77      23

Government    Business enterprise sector

IV. GERD: Performing by sector (% of total, 2006)

          GOV     HE      IE      PNP

US        11.3    13.5    71      4.2
China     19.7    9.2     71.1    0
EU 27     13.4    22.3    63.1    1.2
Japan     8       13      77      2

GOV       Government
IE        Industrial enterprises
HE        Higher education
PNP       Private non profit

Source: Authors' elaboration based on OECD (2008b), Main science and
technology indicators.

NA = Not available.

Table 5: R&D activities of large- and medium-sized enterprises, 2007

Status of registration                          % of total full-time
                                                  equivalent of R&D
                                                personnel (man-year)

Total
  State-owned and state-holding enterprises             49.73
    (SOSHEs)
  Domestic-funded enterprises                           76.65
  State-owned enterprises                               11.87
  Limited liability corporations                        36.43
  State sole funded corporations                        11.26

Other limited liability corporations                    25.17
Share-holding corporations Ltd.                         18.21
Private enterprises                                      7.97

Enterprises with funds from Hong Kong, Macao,            8.35
  Taiwan
Foreign funded enterprises                              15.00

Mixed enterprises (MEs)                                 43.38
State-holding MEs (SHMEs)                               26.61
  Private MEs (PrivMEs)                                 16.78

SHMEs/MEs                                                0.61

SHMEs/SOSHEs (%)                                         0.54

Status of registration                           Expenditure
                                                   on R&D
                                                (10,000 yuan)
Total
  State-owned and state-holding enterprises         47.60
    (SOSHEs)
  Domestic-funded enterprises                       70.88
  State-owned enterprises                            8.62
  Limited liability corporations                    33.59
  State sole funded corporations                    11.84

Other limited liability corporations                21.75
Share-holding corporations Ltd.                     17.88
Private enterprises                                  6.99

Enterprises with funds from Hong Kong, Macao,        8.68
  Taiwan
Foreign funded enterprises                          20.44

Mixed enterprises (MEs)                             39.63
State-holding MEs (SHMEs)                           27.14
  Private MEs (PrivMEs)                             12.49

SHMEs/MEs                                            0.68

SHMEs/SOSHEs (%)                                     0.57

Source: CSY (2008).
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Author:Gabriele, Alberto
Publication:Comparative Economic Studies
Article Type:Report
Geographic Code:9CHIN
Date:Sep 1, 2010
Words:11233
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