Modernising China's Industries: Lessons from Wool and Wool Textiles - by Colin G. Brown, Scott A. Waldron and John W. Longworth
Modernising China's Industries: Lessons from Wool and Wool Textiles , by , and ( Edward Elgar , Cheltenham, UK , 2005 ), pp. 237 .
Modernising China's Industries analyses the transformation and modernisation of China's industries through a detailed investigation of the wool and wool textile industries. The thesis of the book is that the devolution of economic decision-making powers resulting from market-orientated reform poses enormous challenges for industries, and industries need to adapt in order to achieve the objective of modernisation. Accomplishing the task of industrial transformation therefore requires microlevel change in management structures and processes within economic units, and close coordination between units across industry sectors and across national and international boundaries.
These two microlevel changes constitute the core of the so-called third phase of economic transition which, according to the authors, has lagged behind the first two phases of transition. (The first two phases relate to macrolevel ownership, administrative reforms, and technological upgrading.) The book, through the window of the Chinese wool textile industry, explains why reform in the third phase of transition has lagged behind and points out ways of moving towards a smoother and more complete transition. In so doing, the book makes the following contributions.
The book fills an important gap in understanding the process of economic transformation by providing a comprehensive and in-depth microlevel analysis of industrial transition. The rational for carrying out an in-depth study of a particular industry is that findings from such studies and insights that they offer highlight many facets of the process of transition not evident from the more common macrolevel studies based on aggregate empirical modelling. For example, this structured approach enables the reader to trace the development path of industry transition ranging from marketing channels, restructuring and modernisation of textile mills, to industry standards and inspection systems, and reorganisation of domestic wool production. It also provides a detailed account as to how specific institutions such as government administrative units, industrial associations and economic agencies work in the process of transition. In discussing the interactions between different institutions, the book brought out some crucially important dimensions of economic transition in China including ownership reform (privatisation), openness to trade, spatial development, and the role of local government.
The information on which the book is based came from fieldwork and interviews over an extended period involving hundreds of industry participants. Their first-hand information and detailed knowledge of the wool textile industry and its operational environment enable the authors to provide invaluable information regarding the unique path of industrial transition in China. Such information and knowledge will also be useful for private firms in developing their business strategies within China. The interested reader can also gain detailed knowledge about the different stages of wool processing (p. 26).
A key element in the process of industry transition as identified in the book is the state of ‘economic chaos’ in the wool textile industry. Industry participants often act individually, speculatively, passively and through informal means. Second, with the shift towards greater market orientation, those government bodies that exerted direct controls on the industry have been disbanded. At the same time, the delineation between public and private roles becomes blurred and serious conflicts of interest can arise, resulting in lack of coordination of industry activities across marketing and processing stages, and across regions and activities. Third, as the book argues, the transition towards a market-based system does not simply mean a movement towards market-determined prices, but also an establishment of market support services and structures that facilitate the smooth running of the market and enable widespread participation. The ‘chaotic situation’ in the wool textile industry in China right now is very much a result of the lack of market support services and structures.
The book makes an important point with respect to the role of ownership reform and technological changes in transition by arguing that the ‘ownership fix’ and the ‘technological fix’ can be seen as vital but not sufficient for a successful transition. The technology must match the resources and skills of the firm as well as the market environment for the firm's inputs and products. Furthermore, a blind drive towards the technological frontier without rigorous analysis could lead to overcapitalisation associated with the uptake of inappropriate technology which can be an overwhelming liability. This is also because modernisation of management practices and operational procedures are needed. This can be seen as a separate and challenging phase in the overall transition process.
To tackle the third phase of economic transition with respect to operational and managerial reform, the book proposes to develop the proactive and strategic planning capacity, which involves adopting a more analytical approach to development, increased coordination between actors, and the development of enabling institutions.
The book raises a number of issues, which may require further elaboration.
It is true as pointed out by the authors that there has been a lag between the demise of centrally planed institutions and the emergence of non-governmental and market institutions to replace them in China (p. 68). However, the existence of the lag does not mean that there is an institutional vacuum in the process of transition in China as was observed in Russia's earlier phase of reform. In other words, the partial reform system has continued to allow China to work through various reform programs including a gradual process of establishing market-based institutions, which in turn will impact on the process of transition at industry-level.
The categorisation of state-owned enterprises (SOE) and collective and foreign firms in describing the process of restructuring in wool textile mills (figures 5.1–5.3) is not accurate as it does not capture the role of private firms. Furthermore, it is also difficult to treat ‘collective’ as ‘true collective’ firms because a majority of these firms are in fact private firms. Omitting private firms from the calculation may partly explain the surprising results reported in figure 5.1 where foreign firms had a higher proportion of loss-making mills than collective firms and figure 5.3 where foreign firms have higher value of output of wool textiles than both SOEs and collective firms. These are inconsistent with the sources of investment reported in figure 5.6, which shows that domestic investment accounted for 74 per cent of total investment.
Converting to shareholding companies by SOEs can reduce the differences between SOEs and other ownership types such as private and joint ventures in terms of competitive advantage. However, such change may not necessarily lead to the conclusion that the ability of mills to make a transition is based ‘less on ownership than on the ability to adopt new technology and management practices’ (p. 115).
The book argues that industry transition has not always aligned with government and societal objectives, and that there have been many incomplete, suboptimal and adverse aspects of the transition (p. 221). This argument raises an issue of the relationship between private and public goals, namely whether industry transition aimed at moving towards more commercially orientated activities is required in order to meet society objectives or whether those objectives should be met by the implementation of public policy.
The book is highly recommended for those who are working on or studying the Chinese economic transformation focusing especially on industry and its transition. The book's comprehensive industry analysis also provides a valuable reference for those specialists interested particularly in wool and wool textiles.
