China: The Middle Kingdom in the Middle
China is the greatest enigma of all. Its economy is the least transparent and the most heavily managed of any we have examined. No doubt this secrecy hides some embarrassing facts about China's government and economy. With the passage of time, those facts almost certainly will be exposed. However, Chinese leadership probably believes that this information would damage China's competitive trade position if it were known today, and so they will do their best to hide it. This fear will keep China cautious and its trade liberalization slow, for the time being.
To some extent, China is correct. The world will use information it finds out about the Chinese government and economy, and the information will cause second thoughts about China. But this result need not be adverse. For China is the last, large communist state and clearly is caught between state socialism and capitalism. On the other hand, China has the third largest economy in the world (at $2.8 trillion annual GDP). So there is every reason for industrialized and emerging economies to hope that the modernization and liberalization of the Chinese economy succeeds. After all, marginalizing China only contributes to the instability of Asia and risks alienating a growing body of new consumers. It would be absolute folly for the developed world not to do everything in its power to swiftly integrate China into the world economy. Indeed, it could well be the test case for other illiberal or depressed economies entering the "global" marketplace; for example, Russia, India and Africa. 1
That said, there are powerful forces resisting a too-rapid or too-complete market opening. In China, there really is no separation between business and the state. Many of its business are state-run. In a communist system, these businesses are used as much for social purposes as they are to compete