IS CHINA THE CRONY CAPITALIST OF THE EAST ?

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Nishant Singh Introduction of Crony Capitalism Tarun Aggarwal Chinas Economy History of Crony Capitalism in China Iman Roy Crony Capitalism in China
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Abhishek Kundu Crony Capitalism in other Eastern countries Mohd. Alam Khan The Road ahead for capitalism in China Sahabuddin Sk. Chinas Princelings Conclusion

Group FA3 Submitted to Mr. Sray Agarwal

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The word crony means a close friend or companion. Capitalism is an economic system that is based on private ownership of the means of production and the creation of goods or services for profit. Crony Capitalism- A description of capitalist society as being based on the closed relationships between businessmen and the state. Here, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.
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What is Capitalism ?
Economic System Characterized by the following: private property price mechanism freedom of enterprise

competition

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Financing Constraints and Cronyism

Financing constraints have caused and helped support cronyism throughout economic history. Incumbent corporates feel especially threatened by free financial markets. Banks may be reluctant to lend to new entrants for entirely rational reasons such as lack of collateral or uncertainty-aversion.
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Inefficient v/s Efficient Crony Capitalism

The protected incumbents in most developing economies not only fail to explore but are exploitatively inefficient. The exploitatively inefficient crony capitalism of most developing economies is easy to identify. Paradoxically, efficient crony capitalism goes hand in hand with higher unemployment and lower prices.

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China The Red Dragon

Formal Name Peoples Republic of China

Capital Beijing
Head of State President Hu Jintao

Land Size Third largest country after Russia & Canada

Population 1.34 billion (Census 2011) Currency Renminbi (Yuan) Political Parties The Communist Party of China(CPC)
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Highlight on Economy of China

GDP - $7.316 trillion (Census 2011)

Per Capita - $7,600 (Census 2012)

HDI 0.687 (2011) Labor Force 795.5 million (2011) Inflation Rate 2% (Aug. 2012)

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Some Facts about China

China after 1980 has grew tremendously Worlds Second Largest Economy GDP of almost double digit Largest Exporter of the World Taking power from West to East

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Economy of China
GDP composition by Sector (2011) Agriculture 10.1% Industry 46.8% Services 43.1% Exports - $1.76 trillion (July 2012) Number of Enterprises - State-owned enterprises : 1,92,000 - Collective enterprises : 4,56,000 - Private enterprises : 19,80,000

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15th Century and Earlier:The Shang Dynasty 16th -17th Century:The Ming Dynasty 17th -18th Century:The Qing (Ching) Dynasty

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20th Century till date:The Communist Party of China (CPC)

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Crony Capitalism in China

Flow Chart explaining how China is governed

National Peoples Congress is the most powerful organ of the state.

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 Top Companies in Each Sector

Top 500 Chinese Companies were more profitable than Worlds Top 500
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 All the companies are SOEs

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Eastern Side
Russia China India South Korea North Korea Japan Burma Indonesia Mongolia

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The countrys top political and business figures have closed ranks, protecting a system where self-interest takes precedence over the national interest. Corruption has penetrated through most levels of government and the military is still needed to preserve control.

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Japans nuclear industry has been a product of crony capitalism. The government offers the nuclear energy industry loans that are a full percentage point below commercial levels. The mother of all subsidies is the liability cap that nuclear enjoys.

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Taiwans increasingly independent legislators are vetoing these plans, incurring the wrath of the bigbusiness elite. In fact, the countrys entire political structure is in transformation.

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The telecom, aviation, coal, oil, gas and power sectors are some of the areas where crony capitalism functions in this country. Crony Capitalism operates at five different levels in the various sectors. At the first level, it is about appropriating an asset at low or below market price. At the next level, it is about pricing and profitability.
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Third, after obtaining an asset at as low a price as you can get away with, you will then lobby to ensure that you dont have to pay much for even this cost from your own pocket. Fourth, in a competitive scenario, it is not enough to just get an asset at low cost. Fifth, in industries that are heavily regulated, you not only have to manage the politicians, but the exbureaucrats manning the regulatory agencies, too.

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Telecom sector:Airtel, Reliance Communications, Idea Cellular, BSNL, MTNL

Aviation sector:Kingfisher, Privatization of Delhi and Mumbai airports

Oil sector:ONGC, BPCL, HPCL, Indian Oil
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Coal sector:Coal blocks allocation scam

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First, the country has a long way to go in improving the structure of corporate ownership, though nonstate sectors have made great progress. Second, apart from a small number of SOEs in special industries, businesses controlled or partly owned (but not controlled) by the state should not have any special privileges. Third, the constitution and the law must declare that property gained legally will be protected and that all economic sectors will receive equitable treatment.
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Fourth, China after entering the WTO in Dec 2001, will participate in global economic cooperation and competition under the principles of free trade, represented by the rules of the WTO. Fifth, the socialist principle of social justice and common prosperity must be observed. Sixth, the government must regulate its own behavior to regulate the behavior of economic entities in the market and to create a good market environment.

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Seventh, as a country with a "strong tradition of feudal autocracy and a weak tradition of democratic legality, China has a great and formidable task in implementing the rule of law and creating a constitutional democracy.

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About 90% of China's billionaires are the children of high-ranking government officials. Some of these "princelings" may be billionaires not because they used their government connections to help their business, but because of good genes, good parenting, or good schooling.

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Fascism is the political system most closely aligned with cronyism. Communism is all about the community, so no surprise the people support their cronies. Capitalism is the opposite of cronyism. Crony Capitalism is an oxy-moron, an invented concept that simply cannot exist because its existence means its not Capitalism.

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The reality is probably far worse than what we hear. China may not even know itself how bad things are. The system of cronyism that appeared to work so well for so many years may now be crumbling in China. We are witnessing what has been a slow (to date) unraveling of a world economy which to a large degree is based on lies and obfuscation.

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