In an interview with David Barboza of the New York Times, Nicholas R. Lardy reviews the findings from his latest book, Markets over Mao. In stark contrast with the popular notion that China has discovered the magic elixir that allows the state to play a large role in business and be competitive and productive, Lardy shows that profitability and employment growth is in fact being driven by private firms. Although the Chinese government still retains a nontrivial role in certain sectors such as telecommunications and financial services, those sectors are also slowly being opened to private, and indeed in some cases foreign, competition. Of the few large, globally competitive firms from China, such as Huawei and Xiaomi in the telecommunications sector, most are privately run. Even in China’s heavy industrial sector, which is typically still dominated by the state in many former command economies, private businesses are increasingly important; in the steel sector, private firms account for two-thirds of national output, up from nothing just three decades ago. Furthermore, in many service sectors such as retail, and real estate, and indeed even in many manufacturing sectors, private firms are dominant in terms of output and employment.
The key findings of Lardy’s book are that, first, China’s economic transformation since the late 1970s came about because market forces were introduced into the economy; second, the oft-cited view that the state’s role increased dramatically during the Hu-Wen era of leadership is unsupported by the evidence; and third, the major source of China’s future growth in employment and productivity will come from the private sector. While the latter finding is encouraging, it also underlines the importance of the Xi-Li administration's reform efforts, which in most cases call for the market to play a “decisive role” in the economy. As Lardy remarked in the interview with the New York Times, “for now and the foreseeable future, capital efficiency and productivity are the focus of China’s leadership; the enhancement of market forces, by allowing private firms to compete on a level playing field with state firms, is the way to go.”