ABSTRACT
This chapter starts from the proposition, expounded in the next section, that Chinese economic policy has largely failed in one very important respect: the ambition to develop strong domestic technological capability, or (to put it another way) to build up mainland Chinese firms in medium and high technology industry capable, now or soon, of competing on technology with the best in the world. It is clear that a contribution to mainland Chinese weakness has been made by the mistakes of government policy in selecting a ‘national team’ of large ‘insider’ firms that were given excessive favour and protection from competition (Lu and Feng, 2004); further, that the national team policy suffered from incoherence and conflict between different ministries and levels of government (Nolan, 2001). This chapter does not seek to deny the effect of those factors, but it argues that defects of corporate governance and finance played an important role too – defects that in some form persist, while the protection from competition is now, with World Trade Organization (WTO) entry, largely a thing of the past. It sets out a theoretical framework appropriate for the task. It shows how a theoretical framework developed for advanced economies (Tylecote and Visintin, 2008) can be adapted for the circumstances of a developing economy, specifically that of China.
