Policy, Regulation, and Innovation in China's Electricity and Telecom Industries, edited by Loren Brandt and Thomas G. Rawski.

• Author: Pollitt, Michael G.

Policy, Regulation, and Innovation in China's Electricity and Telecom Industries, edited by Loren Brandt and Thomas G. Rawski (Cambridge University Press, 2019) 529 pages. ISBN13: 978-1108480994.

Since China's electricity system is the largest in the world, by far, this edited volume is a great read for anyone interested in the electricity system in China. In spite of its title, of the nine chapters that follow the introduction no less than seven discuss energy. The other two--on telecoms and semiconductors--contain much of interest to the energy economist. It is written by a well-qualified team of authors.

One of the main themes of the book is the contrasts that Chinese policy gives rise to: excellence and failure. China is both to be feared for the awesome scale at which success is possible when it gets things right and to be pitied for its apparent inability to replicate the open competitive ecosystems that require market based liberal democracies to flourish. Thus, China leads the world in ultra-high voltage (UHV) power grid design and building, but in spite of decades of effort has struggled to make much headway on semi-conductors.

Chapter 1 (by Brandt and Rawski, the editors) sets the scene looking at the policy, regulation, and innovation in China's electricity and telecoms industries. As they nicely comment 'China's industrial policy is routinely viewed as both ineffectual and threatening, sometimes on the same page' (p.1). They suggest that the book is about: how the upgrading of these two sectors is being promoted; what the regulatory, institutional and structural barriers to upgrading are; what is happening to productivity; and what the innovation prospects are. A key observation is that in spite of huge progress in catching up, only Huawei (in telecoms) has reached a position of such innovative leadership that it is now suing OECD firms for infringement of its intellectual property. Overall, within the huge increase in R+D in China, expenditure is heavily focused on development, and shows continuing weakness in fundamental research. It also appears that--looking across generation equipment, transmission equipment, wires and cables, telecom equipment, solar materials and equipment, and wind turbines--total factor productivity (TFP) has fallen in recent years. The chapter makes the point that the fall in TFP was largely--apparently--the result of reallocation of output away from incumbents to low productivity entrants, with the suggestion that this is possibly a result of politically motivated favouritism of inefficient public sector entrants.

In Chapter 2 (by Wu) the evolution of electricity and communications regulation is examined. In spite of strong evidence that independent regulation is key to balancing incentives and the public interest in...