From Cellphones To Cigarettes: The Long Arm Of The Chinese Government

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The streets of Beijing and Shanghai feel like an entrepreneurial free-for-all, full of mom-and-pop stores and street vendors selling snacks and cheap toys.

But when you pull back the curtain, you see a different picture: a country where the government still controls huge swaths of the economy.

When you're in China, there's a good chance you're doing business with the government every time you:

  • make a call on your cellphone (the government owns the country's biggest cellphone network)
  • buy gas for your car (the two biggest oil companies are owned by the government)
  • smoke a cigarette (biggest tobacco company, also state-owned)
  • get money from an ATM (from any of the nation's four biggest banks, all of which are state owned)
  • fly on a plane (the government owns the country's three biggest airlines)

This system, known as state capitalism, has worked well for China so far. Over the past three decades, the country's economy has grown by an astonishing 10 percent per year.

But that kind of growth can't last forever, and it becomes particularly hard to sustain as China's economy reaches what economists call the "technological frontier" — the point at which growth comes from new innovations, rather than from adopting innovations created elsewhere.

So in the coming years, the Chinese government must loosen its grip or risk strangling the economy.

This is not just the prescription of outsiders: Its the core message of a report released today and co-authored by the Chinese government's own think tank along with the World Bank.

The report, called China 2030, says China needs to allow for more competition and innovation, but acknowledges that this may be tough — not least because of the all the vested interests getting rich in the current, state-run economy.

For More: Listen to our podcast, From Cellphones To Cigarettes: The Long Arm Of The Chinese Government

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