Victor Shih, one of my favorite China scholars, has a post at his Elite Chinese Politics and Political Economy blog that I hope he’ll expand on in the near future:

When people ask me about contemporary China, I find myself describing something that is a mix of socialism, state capitalism, and crony capitalism. Of course, China has the socialist legacy of state ownership of strategic firms and the entire financial sector (except for underground banks and trust products….etc.).

Outside observers underestimate the outsized role of SOEs and the role of China’s state-dominated financial system in channeling domestic savings to politically-favored entities:

Because these SOEs face competition within China and in the global market, some of us call this phenomenon state capitalism. Of course, China endowed itself with capitalist competition by deliberately opening its market in many sectors to global competition, which set it apart from autarkies like North Korea. Increasingly, however, we see interest groups with strong state connections trying to influence state policies in order to obtain private gains. Crony-influenced state policies tax the households, as in the case of forced evictions, create oligopolies, as in the case of oil companies in China, and stall further reform in various sectors.

This kind of cronyism is not unique to China, as Shih understands. Yet China’s closed political system may well exacerbate its ill effects:

In the case of England, it might have been some form of state capitalism, as was the US. However, in both cases, institutions eventually developed to allow different interest groups to influence policies in a more transparent way. Powerful interest groups still drive policies in both of these countries, but the media and the public provide some (I emphasize “some” here) checks against crony capitalist tendencies. Eventually, some institutions (not necessarily a constitution) develop to protect the property rights of ordinary citizens.
In China, leaders with regime-wide influence used to check against cronyist tendencies. Today, I see less clear stance against powerful interest groups, and more inaction dressed up as reform. I would agree with the assessment that institutional development is lagging, although I hesitate to call this “fascist,” as some have done.

Part of the reason Shih might see a less clear stance against powerful interest groups could be that there are fewer leaders with the regime-wide influence and the stature to take positions that challenge politically-connected economic elites. As the Long March veterans fade from the scene, the Chinese are left with a generation of soft meritocrats and princelings who’ve collected obligations and vulnerabilities as they’ve risen through the ranks. This encourages institutional conservatism and that could prove problematic as China’s political and economic environment grows more unstable.

In another post, Shih points to a troubling sign of growing instability.