Forging Reform in China
The Fate of State-Owned Industry
By Edward S. Steinfeld
Publisher: Cambridge University Press
Print Publication Year: 1998
Online Publication Date:January 2010
Chapter DOI: http://dx.doi.org/10.1017/CBO9780511625831.005
Subjects: Economic development and growth
THE best way to understand the “nested problems” dynamic and related dilemmas of SOE restructuring is to delve into the operations of the individual firm. This chapter will do that by focusing upon the Anshan Iron and Steel Company, a 220,000-employee integrated steel operation based in Liaoning Province, the heart of China's Manchurian “rust belt.”
Anshan Iron and Steel, known informally as “Angang,” once stood at the commanding heights of China's planned economy. The whole point of command economics was to foster firms like Angang. Indeed, command planning was so appealing precisely because it could direct resources to heavy industrial producers in ways that markets never could. Without the plan, such firms could never have survived in China. In the heyday of the command era, Angang received virtually all of its investment capital and inputs from the plan, and it produced virtually all of its output for the plan. The system set clear managerial incentives: output was to be maximized at given levels of state-allocated inputs. The clear goal was to match annual production targets.
Needless to say, staggering changes have swept across Angang since the days of command planning. Over the past fifteen years, the entire system of state allocation has essentially been dismantled, and the industrial behemoths that once served that system now struggle to negotiate a transition to the market. For the most part, goods now flow freely between producers and consumers. Prices, even for many basic industrial inputs, have been liberalized.