From Dirigisme to Realism: Chinese Industrial Policy in the Era of Globalisation

The 2012 "Fortune 500" classification of the world's largest companies includes 73 Chinese firms (32 for France and 68 for Japan), whereas there were none only 15 years ago. Meanwhile, Chinese firms are increasing their overseas operations with nearly $60 billion of foreign direct investment per year, on average since 2008, compared to less than $1 billion annually before 2000. Fifteen years ago, Chinese exports were mainly composed of primary products and goods with a low technological content. Today they are rapidly concentrating on products in the information industry. Research and development (R & D), which was totally lifeless in the early 1980s, has also experienced brisk development since the late 1990s: China is now the world's second largest publisher in scientific journals and ninth in the number of patents filed in the United States in 2009. These signs of the emergence of China's industrial power raise a number of questions in the fields of economics and industrial policy, as well as in growth theory. After the Japanese and Korean miracles, the temptation is indeed very strong to apply to China – the civilisation at the origin of the Confucian political and cultural basis of Asia – explanations related to the omnipotence of the State and the effectiveness of industrial policy (Johnson, 1982). What is really the truth? Has China followed the virtuous industrial policy footsteps of its Asian neighbours? What have been the terms of the industrial policy since 1978 and what effect has it had on China's economic takeoff? What directions might industrial policy take in the coming years, given the context of the increasing openness of China's economy? This paper aims to provide some answers to these questions. Section 1 recalls some aspects of the historical legacy of the period before 1978, as well as some features of the first steps to economic reform in the late 1970s and early 1980s. These had a major influence on the objectives, the strategy and the efficiency of Chinese industrial policy. The second section presents the main outlines of China's industrial policy until the late 1990s, focusing primarily on the policy of creating "national champions", and the rationalisation of industrial structures, as well as on the development of the technological capabilities of firms. Industrial policy during this period was often characterised by excessive ambitions, given the mode of socialist institutions and businesses, along with the chronic underdevelopment of human and financial resources that plagued China until the mid-1990s. Policies launched during this period were largely imbued with socialist planning. They led to mixed results depending on the sector, but were often disappointing in terms of objectives. Other elements of the reform policy during this period which were not, strictly speaking, industrial policy, did in fact help transform corporate behaviour and the functioning of institutions, to increase the financial and human resources available. Finally, Section 3 looks at the transition from dirigisme to realism in the second half of the 1990s. This development