Capitalism with Chinese Characteristics: Entrepreneurship and the State

by Yasheng Huang

The minuscule share of private plots in the Soviet Union suggests that a better measure of the changes in the policy environment should be based on an input allocated to private sector rather than its share of the output. The most appropriate input-based measure is the fixed-asset investment capital. Fixed-asset investments are equivalent to purchases of plants, property, and equipment in the Western accounting system. There are two reasons why this is a better measure of policy. One is that fixed-asset investments remain substantially controlled by the state; thus, changes in the patterns of fixed-asset investments are a more accurate reflection of the policy preferences of the Chinese state. The second reason is that in a poor country, capital is scarce relative to labor. So capital allocation is more indicative than labor allocations of the fundamental orientation of the economic system.