Elite Chinese Politics and Political Economy

My friends and I recently engaged in a short discussion on whether China is a fully functioning market economy, which is increasingly trendy among the authorities in our field. Below are some excerpts.

My friend Matt Rudolph, current a post-doc at Princeton:

First, yes, let them argue it's a market economy. Conceding the narrow
point that product market competition has now yielded to some inter-firm
competition may help "our" cause, if I am right in presumptuously assuming
that those on this email list disagree with the broader thrust of the
Naughton/Steinfeld/Nolan/Yang claims.

Conceding this paints them into the corner of narrow economism. Those who
miss the power-political forest for the economistic trees. Lau and those
guys were guilty of this in 2002/2003 with their "dual economy, no losers"
story.

Second, I have been claiming all along that the "Leninist Capitalism" model
and motive of the CCP does not at all contradict or obstruct the development
of highly marketized zones of the economy. On the contrary, it requires
them for growth, efficiency, and expanding economic activity that keeps
citizens busy and occupied with matters non-political. I've argued that
the "Leninist Capitalism" model will increasingly emphasize finance-based
control tending toward veto-enabled cross-holding structures of ownership
and corporate decision making on matters relating to property right and
industrial organization of major industry. Everything else will be allowed
large margins of freedom.

Then a friend who shall remain anonymous:

What I don't understand is - what do they have to gain by gambling on what
they must know to be a bit of a dicey forecast of China's "marketization" process? I can understand why Yang Dali would claim that China has a regulatory state, but to equate the rise of the regulatory state with a market economy would be like saying that civil society emerges from getihu and quasi-autonomous peak associations. What is their academic agenda?

I am of course deeply skeptical that the oil industry or the mushrooming "private" highway construction companies are in any way moving toward better corporate governance and financial independence. Hard budget constraints? Yes, under some politicized circumstance. But surely Matt and Victor can explain better why that does not result in marketized financial intermediaries. Furthermore, the more I
learn about the intended use of forex reserve to fund Chinese firms' acquisitions abroad, the more I can't imagine that Chinese MNCs operating abroad could be
seen as conforming primarily to market principles.

Me:

Completely agree with "the "Leninist Capitalism" model will increasingly emphasize finance-based control tending toward veto-enabled cross-holding structures of ownership and corporate decision making on matters relating to property right and
industrial organization of major industry."

They only need to control financial and fiscal policies to get their way in most things. They don't really care about the small stuff any more. I still attribute this evolution to the likes of Chen Yun and Zhu Rongji. With soft-budget, they can intervene in sectors in which they want to intervene, and withdraw at any time. All of this work because contrary to the typical developing country, there is plenty of capital sloshing around.