Shanghai

This year is the 30th anniversary of China’s policy of ‘reform and open up’. What has happened to China’s strategic industries and how competitive are Chinese big businesses today?

Since the country began to integrate with the world’s economic and business systems, a consistently stated goal of China’s industrial policy has been to construct internationally competitive companies.

China began liberalising the post-Mao economy in the late 1970s, when the world was embarking on a course of globalisation, forming close international trade and business links. Since the country began to integrate with the world’s economic and business systems, a consistently stated goal of China’s industrial policy has been to construct internationally competitive companies.

Dr Jin Zhang at Judge Business School has been closely studying the transformation of China’s strategic industries – aerospace, oil, telecommunications equipment and, most recently, banking – in the epoch of globalisation. Through extensive field work and in-depth case studies, her research explains China’s attempt in a rapidly changing international business environment to build its own internationally competitive firms, many of which are state owned and still central to China’s economic and political system.

Revolution versus evolution

In the past three decades, the world’s leading firms have undergone a revolutionary transformation, often described as the ‘global business revolution’. In order to survive and prosper, the nature of large firms based in high-income countries has had to alter greatly. Business and organisational structures have been fundamentally changed through mergers and acquisitions, facilitated by advances in information technology. In almost every sector, a small number of focused global producers have occupied the majority of the global market share, and this process has been cascading down their supply chain. The result is that leading firms in almost every industrial sector have become ‘conductors of an orchestra’, bringing together their supply chain to compete as a system in the world market.

By contrast, in the same period, China’s large firms have undergone more of an evolutionary process of restructuring, responding to the challenges of the global business revolution. They have made progress in improving operational mechanisms and corporate governance systems and have gained substantial understanding of international financial markets through public listing. They have become sought-after joint venture partners for global leading firms. However, they have also encountered a wide array of problems and difficulties associated with the transition of the vast economy.

With forces of globalisation and transition also at play, the attempt to construct competitive large firms in China has been all the more challenging. Indeed, when China joined the World Trade Organization (WTO) in 2001, China’s large firms in strategic industries lagged behind the world’s leading firms in each of the sectors.

The future is dynamic

The first phase of China’s attempt to develop large competitive firms in strategic industries was about introducing market forces. Now, China has entered the second phase of industrial restructuring. It is learning lessons from the global business revolution and is trying to construct effective industrial policy in the post-WTO era. Through a combination of state industrial policy and market mechanisms, China is consolidating firms in the strategic industries. Instead of breaking the country’s ‘big four’ state-owned banks into smaller entities, each of these four banks has restructured into share-holding companies and has successfully listed on international markets in the past five years.

China is also in the process of consolidating its aerospace industry, led by the project of producing a ‘big commercial jet’ in the next 20 years. These developments have been closely watched by leading global firms. The intertwining of changes in China’s internal business system with the revolution in large global firms has always been a protracted and complicated process. It is far from over. Interesting times lie ahead in the study of the development of China’s large firms in strategic industries as the country explores its way between state and market: the future is truly dynamic.

For more information, please contact the author Dr Jin Zhang (jz208@cam.ac.uk)at Judge Business School.


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