During China’s annual political congress this weekend, a slew of the country’s officials are expected to step down. Most prominent among them is the embattled premier Li Keqiang, as well as top economic adviser Liu He.
Over their decades-long careers, the current cadre became experts at marketing China’s opportunities to western investors. Two months ago, Liu prompted glowing headlines from Davos, when he said that China was back at the table.
Now, Liu and his cohort are retiring. They were a generation of policymakers defined by their experience of the Reform and Opening Up era, spearheaded by Deng Xiaoping in the late 1970s.
The new group of leaders “does not have a strong commitment in that direction”, says Arthur Kroeber, author of China’s Economy. Instead, what unites them is their loyalty to president Xi Jinping. Their economic ideologies, if any, are difficult to discern.
Many in China are heralding the end of the reform era. Some observers predict the repeat of a cycle lurching between liberal markets and state planning. But this prediction ignores the country’s economic history. To look ahead, let us first look back.
The death of Mao in 1976 cleared the way for a new mix of economic ideas. That decade brought exchanges with western economists, such as World Bank ambassadors, who championed abstract models of perfect competition.
China’s future leaders, however, maintained a healthy scepticism of pure theory. Isabella Weber, author of How China Escaped Shock Therapy, calls theirs a “dual identity”: a generation that had an awareness of the price-setting role of the market, but were also shaped by real-world experiences of experimentation and gradualism. In Deng’s words, they were “feeling the stones to cross the river”.
Beijing created its own “developmentalist” mixture: it kept the focus on production over consumption, but prioritised light industry, helping the country climb on to the manufacturing value chain. Private markets were expanded from the 1980s onwards, and China said it would endeavour to continue doing so in order to join the World Trade Organization in 2001.
“Since the beginning of reform, China has used the market as a tool that coexists with planning. Rather than switching from Stalinism to neoliberalism, China has embraced a mix of elements that has at times confounded foreign observers into thinking it was undergoing wholesale westernisation,” says Weber.
In China’s authoritarian capitalist regime, both the state and the market dominate all spheres of life. My experience of living in Beijing in the 2010s reflects this. There used to be a lucrative business for people paid to queue on your behalf at oversubscribed state hospitals. But if you knew the right officials, you didn’t need to queue at all. To some extent, money can substitute for state connections — or buy them.
Earlier this month, in his last government report, Li called for Beijing to “give priority to the recovery and expansion of consumption”.
But the new group of leaders will be familiar with the opposite tendency from their local government days: the prioritisation of production. China’s economy in recent decades has been characterised by an attachment to GDP growth targets, and to meeting them through debt-financed infrastructure stimulus.
“Too much of China’s elite power structure is built around transfers from the household sector to businesses and governments. Now we need a reversal of those transfers,” says Michael Pettis, professor at Peking University.
What is missing from China’s authoritarian capitalism is social infrastructure and purchasing power in the hands of the people. State enterprises get the bulk of access to credit, and private enterprises compete with state enterprises on an uneven playing field. Private-sector workers suffer as a result, but ordinary state employees aren’t doing so well either.
Unlike in Europe, China’s economists skipped straight from Marx to the free market theories of von Mises without a Keynesian interlude. From the 1980s, Beijing dismantled social infrastructure while insufficiently developing services such as national healthcare, a robust education system and unemployment credits.
Investing in these would address the dire human capital problems documented by Scott Rozelle and Natalie Hell in their book Invisible China, such as rural anaemia and cognitive stunting. It would also help workers through shocks like the pandemic.
It is sad to see the end of the reform era. If Beijing can grasp the opportunity, an even better age might beckon. It would mean breaking policymaking taboos and the grip of vested economic interests. But it would be a return to pragmatism.
yuan.yang@ft.com
Source: Economy - ft.com
