One of the objectives of Yasheng Huang's book Selling China: Foreign Direct Investment in the Reform Era is ‘to gain a better understanding of the operations of the Chinese economy in the 1990s as well as its FDI patterns’ (p. 69). We have no disagreement with Huang's general argument that for much of the 1990s domestic Chinese firms were less competitive than they would have been if the Chinese government had not favoured state-owned enterprises (SOEs).

Similarly, while acknowledging the positive impact of FDI on China's development, Huang has real concern with FDI's disproportionately large role in the economy. He further feels that ‘some of China's FDI patterns may reflect institutional inefficiencies and weaknesses’ (p. 67). Again, we have no real disagreement that this was the case in the 1990s.

Yasheng Huang presents a detailed and meticulous analysis of foreign direct investment (FDI) in China during the reform period. The author should be commended for collecting and analysing descriptive information on China-based FDI that is useful to practitioners as much as to researchers, and for arguing a seemingly intriguing thesis about China's economic ascent. He also presents a number of industry cases, some of which, like that on the Chinese handicraft industry, are particularly captivating. Yet, at the end of the day, what this book does best in my mind is illustrate the confines of traditional academic paradigms when faced with real-life phenomena that are too broad and complex to be captured by a single lens. This is, it itself, an important service.

Yasheng Huang is a thoughtful, articulate observer of China's political economy, who has gained international respect. Many high-level conferences benefit from his insights, and this reviewer is indebted on a variety of issues.

Selling China is essentially two books. One is a very impressive, very carefully documented review of the negative consequences for the Chinese economy of laws and policies that advantage state enterprises at the expense of private enterprises – particularly of a financial system that allocates financial resources overwhelmingly to relatively inefficient state enterprises, and proportionately disadvantages private enterprises. As Huang details, the current Chinese system allocates advantages and disadvantages to firms according to a political pecking order rather than by credit quality. China's markets are highly fragmented and locally protected. China's banks allocate capital disproportionately to state enterprises. Its stock and bond markets are largely restricted by policy, although not by law, to state enterprises. Implicit government guarantees of loans to the biggest state enterprises (SOEs), together with weak private-sector accounting standards, make it irrational for the banks to lend to private firms rather than to big SOEs.

Beamish and Delios write an eminently reasonable review. I agree that the environment for private sector has improved. Selling China describes some of these developments (pp. 202-204) and predicts that the overall role of FDI will decline, which is exacdy what happened. The FDI/domestic private investment ratio has fallen. This decline is the other side of the mirror as the rising ratio: suppressing the domestic private sector, everything else being equal, can raise this ratio; supporting it can reduce this ratio. There are no logical or empirical inconsistencies. I believe that I overstated the ideological rigidity of the Chinese state and that I was vague in specifying the ideological constraints. In the 1990s, the ideology was of an industrial policy kind, rather than Communism.