Forging Reform in China: The Fate of State-Owned Industry by Edward S. SteinfeldReview by: Lucian W. PyeForeign Affairs, Vol. 78, No. 2 (Mar. - Apr., 1999), p. 156Published by: Council on Foreign RelationsStable URL: http://www.jstor.org/stable/20049257 .

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Recent Books

command great interest. Possibly mindful

of this prospect, 26 former presidents, secretaries of state, prime ministers, and foreign ministers have already

provided blurbs of unstinting praise for Lee. The praise is well deserved; the readers will come away feeling that

they have come to know an exceptionally

brilliant political man.

The Chan's Great Continent: China in

Western Minds, by Jonathan s pence. New York: W. W. Norton,

1998, 279 pp. $27.50.

Spence is unquestionably the best story teller of all historians of China, and he

never fails to come up with intriguing

topics viewed from original perspectives. This time he recounts the image of

China in the Western mind. From

Marco Polo in the thirteenth century to

Jesuit missionaries and Enlightenment

philosophers to contemporary China

watchers, Spence shows how Western

observers have used both positive and

negative fantasies of Chinese civilization

to reflect the state of Western civilization.

For some, China was a superior civilization

with elegant manners and ancient wisdom; for others it offered dark visions of cruel

rulers and hordes of devious tricksters.

Henry Kissinger was as awestruck on

meeting Mao as Marco Polo was before

Kublai Khan. Spence's interest is purely

narrative; he relates his 48 "sightings" of

China rather than advancing any theoreti

cal or moral lessons. His fascination lies

with each particular imagined China, not

with potential conclusions for the Western

mind?although China as a distant Other

has clearly served multiple purposes for the

Western psyche. Even today, exaggerated

swings in U.S. policy toward China reflect

American vacillation between images of

a "good" and a "bad" China.

Forging Reform in China: The Fate of State-Owned Industry,

by edward s.

steinfeld. New York: Cambridge

University Press, 1998, 300 pp. $44.95. Much has been written from a macro

economic perspective about China's

huge, inefficient, state-owned enterprises

(soes), which drain banking resources

and threaten to bring down the Chinese

economy. In contrast, this is the first

detailed microeconomic examination of

the firms' management. Benefiting from

remarkable access to three mammoth

steel corporations, Steinfeld illustrates

how the managers, confronted with an

array of irrational constraints, make

decisions that are logical from their

perspective but disastrous for the economy.

They may, for example, expand production of unneeded steel because they can use

the numbers to borrow more from the

state bank. Accountability is also missing: the enterprises are

technically "state

owned" but actually lack a clear

"owner" because decentralization has

meant that managers are not held liable

to anyone. Efforts at privatization further confuse the ownership issue,

while the general solutions for the

soes proposed by both reform-minded

Chinese officials and foreign observers

will not work without far more funda

mental changes. As no foreigner has

ever had such access to the soes before, Steinfeld's report is ground-breaking for all who have an interest in the Chinese

economy. The study also provides a solid

basis for theorizing about more general issues in transition economics.

[156] FOREIGN AFFAIRS-Volume 78 No. 2

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