Selling China: Foreign Direct Investment During the Reform Era; From Mao to Market: Rent Seeking, Local Protectionism, and Marketization in China

Huang boldly challenges the standard view of why China has been a leading recipient of foreign direct investment (fdi). Because of state interference in Chinese banks -- especially the requirement that they fund state-owned enterprises that rarely pay back loans -- the domestic financial sector is unable to allocate capital efficiently. In contrast, foreign investors are not so constrained and hence can operate profitably. Thus, Huang argues, high fdi, long considered a sign of China's success, actually reveals serious problems in the Chinese economy.

Wedeman examines in detail many of the same problems but, by tracing the evolution of these problems over time, comes to a surprisingly optimistic conclusion. In a complicated but rigorously argued analysis, he demonstrates that the unintended consequence of government policies has often been market reform, often against the wishes of central planners. When the state corruptly encouraged rent-seeking, for example, it inadvertently forced competition among rent-seekers. Wedeman's argument is driven by theory, so the reader must be prepared for rigorous economic analysis.

Together, these books make clear that China is far from an integrated social and political system. Researchers can find evidence to support contradictory theories; only with time will we know whether the optimists or the pessimists are right.