The Political Economy Of Privatisation In China, India

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: China and India provide contrasting examples on the role of privatisation in economic restructuring. Economic reform in the Chinese system started in the late 1970s under the leadership of Deng in conditions where a fair amount of core production already took place outside the planning system. Prior to his reforms, China already had unplanned, semi-market industrial activities under local government systems. Factors such as the entrepreneurial and financial skills of Chinese communities overseas, and also in Hong-Kong and Taiwan, made possible a steady flux of investment.

China started with a much smaller private sector than India, hence the scope for rapid expansion and experimenting with new forms of management was much greater than that of India. China’s other main thrust was its opening up to foreign investment, which apart from being an important signal to investors, was also an important internal signal on its seriousness and commitment to economic reforms and an invitation to the principal groups concerned to benefit from it. The industrial expansion in China was also labour-intensive, which made the private sector more socially acceptable, and this is an important difference with India.

Contrary to India, however, privatisation didn’t imply an automatic shrinking of the public sector. The nature of these reforms, which enabled wealth creation among important sections of the population, probably muted and lessened the possibility of any strong demands for political change. A set of institutions and incentives were created that very effectively mimicked capitalism, by increasing competition internally, creating autonom-ous decentralised decision-making units and opening up to external competition.