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2:38pm

Mon February 27, 2012
Planet Money

From Cell Phones To Cigarettes: The Long Arm Of The Chinese Government

The streets of Beijing and Shanghai feel like an entrepreneurial free-for-all, full of mom-and-pop stores and street vendors selling snacks and cheap toys.

But when you pull back the curtain, you see a different picture: a country where the government still controls huge swaths of the economy.

When you're in China, there's a good chance you're doing business with the government every time you:

  • make a call on your cellphone (the government owns the country's biggest cellphone network)
  • buy gas for your car (the two biggest oil companies are owned by the government)
  • smoke a cigarette (biggest tobacco company, also state-owned)
  • get money from an ATM (from any of the nation's four biggest banks, all of which are state owned)
  • fly on a plane (the government owns the country's three biggest airlines)

This system, known as state capitalism, has worked well for China so far. Over the past three decades, the country's economy has grown by an astonishing 10 percent per year.

But that kind of growth can't last forever, and it becomes particularly hard to sustain as China's economy reaches what economists call the "technological frontier" — the point at which growth comes from new innovations, rather than from adopting innovations created elsewhere.

So in the coming years, the Chinese government must loosen its grip or risk strangling the economy.

This is not just the prescription of outsiders: Its the core message of a report released today and co-authored by the Chinese government's own think tank along with the World Bank.

The report, called China 2030, says China needs to allow for more competition and innovation, but acknowledges that this may be tough — not least because of the all the vested interests getting rich in the current, state-run economy.

For More: Listen to our podcast, From Cellphones To Cigarettes: The Long Arm Of The Chinese Government

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

AUDIE CORNISH, HOST:

The streets of Beijing and Shanghai can feel like an entrepreneurial free for all. Restaurants, furniture stores, guitar stores.

UNIDENTIFIED MAN: (Foreign language spoken).

CORNISH: This man is walking around Shanghai with a PA system strapped to his back. He's selling tours. When you pull back the curtain on China's economy, you see a different picture. An economy where many of the largest companies are owned by the Chinese government. A new report released today by the World Bank warns that could be a problem.

David Kestenbaum and Jacob Goldstein with our Planet Money team were in China and found the hand of the government everywhere.

DAVID KESTENBAUM, BYLINE: Say you have a cell phone in China. Good odds your cell phone network is China Mobile. That's the biggest cell phone network in China. It's owned by the Chinese government.

JACOB GOLDSTEIN, BYLINE: You get in your car to go for a drive. You get in your car and you need some gas. You see two gas stations, PetroChina and Sinopec.

KESTENBAUM: The two biggest Chinese oil companies, both owned by the government.

GOLDSTEIN: Maybe you want to fly instead. You can take China Southern Airlines, China Eastern Airlines or Air China, the three biggest airlines in the country, all owned by the government.

KESTENBAUM: Get off the plane, light up a cigarette. China National Tobacco Corp. Yes. Also, state-owned. Go home, turn on the TV to watch the evening news. Turn on channel 16, also channel 17, also 18.

GOLDSTEIN: This is CCTV, also owned by the government. Not hard to find.

KESTENBAUM: Also channel 20, also channel 21, channel 22, also channel 23 and 24, but not on 25.

GOLDSTEIN: The four largest banks are also owned by the Chinese government. In fact, if you look at Fortune magazine's list of the 10 biggest companies in China, they're all controlled by the Chinese government.

KESTENBAUM: In the U.S., people sometimes complain about businesses being too cozy with government, about subsidies and lobbying and bailouts. Here in China, a lot of big businesses, they are the government. If you've heard that wonky phrase, state capitalism, this is what it means.

GOLDSTEIN: When we were in China, we talked with Huang Gong(ph), an economist who works closely with the government. We asked him about the banks. Why does the government own the banks?

HUANG GONG: (Foreign language spoken).

GOLDSTEIN: He said that during the financial crisis when banks in the West almost imploded, China's state-owned banks did just fine and, after the crisis, he said, they helped China recover quickly.

KESTENBAUM: That is the argument for state capitalism. Yes. The government runs all these things. It's doing what's best for China.

GOLDSTEIN: But that World Bank report out today, it's called China 2030. And it says, if the Chinese government does not start to loosen its grip, it could strangle China's economic growth.

KESTENBAUM: Here's a quote: The role of the government and its relationship to markets in the private sector need to change fundamentally.

GOLDSTEIN: The World Bank report was produced with the help of a Chinese government think tank. This suggests that, internally, the government is wrestling with this question: Just how far can state capitalism take China? I'm Jacob Goldstein.

KESTENBAUM: And I'm David Kestenbaum, NPR News. Transcript provided by NPR, Copyright National Public Radio.

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