Capitalism with Chinese Characteristics

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DECEMBER 10, 2019

Capitalism with Chinese Characteristics

by WALDEN BELLO

China’s experiment with socialism was chaotic and failed to produce the much-desired transition to development and prosperity.
When the country broke with socialism and cautiously ventured into market-led development in the countryside in the late 1970s, China was one of most equal societies on earth. It was also quite poor, with over 30 percent of the population living under the poverty line, much like the Philippines then.
Today, with its gini coefficient, a measure of inequality, at .50 or above, inequality in China matches that of the Philippines. However, the number of Chinese living in poverty are down to around 3 percent of the population, while over 20 percent of Filipinos are still poor. Inequality has increased, but in terms of lifting people out of poverty, China is regarded as an unqualified success story — probably the only one in the world.
An acquaintance with the key characteristics and vulnerabilities of China’s contemporary economy will enable us to get a sense of the dynamics and direction of China’s economic relationships with the Philippines and the rest of the Global South.
For instance, it is easy to mistake the vaunted Belt and Road Initiative (BRI) as a grand plan for China’s global hegemony, as many have, if one does not take into consideration China’s massive industrial overcapacity problem, for which the BRI has been devised as a solution. And one cannot understand the overcapacity problem without referring, in turn, to one of the central features of China’s economy: the decentralization of economic decision-making, which has led to a great number of competing projects, much waste, and tremendous surplus capacity.
China’s economy is a capitalist economy, though one that is uniquely Chinese. It might be called “capitalism with Chinese characteristics,” to give a more accurate spin to Deng Xiaoping’s puzzling description of his project as “socialism with Chinese characteristics.” Deng, Mao’s pragmatic successor as the dominant personality in Chinese politics, led China’s integration into the global capitalist economy in the 1980s and 1990s.
China’s contemporary political economy has four key features:

1) It is largely liberalized or market driven.
2) It is largely privatized but with state intervention in areas considered strategic.
3) Its cutting edge is export-oriented production sustained by “financial repression.”
4) And it is decentralized, with a great deal of autonomy for local decision-making while central authorities focus on broad national-level macroeconomic strategies and policies.

Liberalization
Liberalization, or the removal of state controls on production, distribution, and consumption, took place in three stages over the 1980s and 1990s.
Market reform started with de-collectivization and restoration of a market-based peasant economy in the countryside in the early 1980s, followed by urban state-enterprise reform and price reform in the late 1980s. In the 1990s, reform of state-owned enterprises (SOEs) accelerated, with the aim being the transformation of these enterprises into profit-oriented capitalist corporations.
Throughout these phases, the main thrust of the reform was, as Ho-Fung Hung, a leading authority on China’s economic transformation put it, “to decentralize the authority of economic planning and regulation and to open up the economy, first to Chinese diasporic capital [Overseas Chinese] in Asia and then to transnational capital from all over the world.”

Privatization with Strategic State Intervention
While market signals stemming from local consumer demand and global demand became the dominant determinant of resource allocation, the visible hand of the state did not disappear. It just became more discriminating. While departing from central planning, the Chinese state did not follow the so-called Northeast Asian developmental state model pioneered by Japan, South Korea, and Taiwan that restricted foreign investment and favored domestic enterprises across the board.
In contrast, in China, non-strategic sectors of the economy were opened up to competition among private enterprises, local and foreign, while those areas considered strategic from the point of view of national security, national interest, and overall “national competitiveness” were subject to significant state regulation, with much production controlled by state-owned enterprises (SOEs) that were, however, allowed a degree of competition with one another.
In other words, the government permitted large-scale foreign direct investment to allow local businesses to access and diffuse foreign technology across a whole range of industries, while maintaining exclusive control and focusing state resources on those industries considered vital for the comprehensive development of the economy.
Given the massive pullback of the state from large swathes of the economy, there is justification in describing China’s political economy as “neoliberal with Chinese characteristics,” as the Marxist economist David Harvey does. But perhaps, it is better characterized as a market economy with strategic islands of state-controlled production and with broad macroeconomic surveillance exercised by the central state.
This is a far cry from the centralized micromanagement of the economy of the pre-1978 socialist state.

Export-Oriented Production with Financial Repression
While the greater part of domestic production was directed at the local market, the strategic thrust of the Chinese economy post-liberalization was rapid industrialization via production for export, a feature captured in the saying that China became “the manufacturer of the world.”
Exports at their peak in the first decade of this century came to a whopping 35 percent of gross domestic product, a figure that was triple that of Japan. China became, as Hung puts it, the “hub for a global production network that begins with design studios in the United States and Europe; proceeds through producers of specialized components and raw materials in East and Southeast Asia; and ends up in China, where designs, materials, and components are brought together in finished products that are then sent all around the world.” (In this “Sino-centric” division of labor, the Philippines was integrated as a food producer, a source of raw materials, and a provider of industrial components like computer chips.)
Making export-oriented production the cutting edge of the economy meant restraining the growth of domestic consumption, a feature that was underlined by the policy of financial repression — that is, the interest rate on savings from consumers was deliberately kept low in order to keep the interest rate of loans to state-owned enterprises and private enterprises engaged in production for export low. From 2004 to 2013, the average real deposit rate was an extremely low 0.3 per cent.
A third key ingredient of export oriented manufacturing was a policy of keeping the value of the renminbi low relative to the dollar. From 1979 to 1994, the renminbi steadily depreciated against the dollar, from 1.5 to 8.7, as China moved away from its old Mao-era import substitution model towards an export-oriented model that required an undervalued renminbi to make China’s exports competitive on global markets. Then, in 1994, the renminbi was deval‎ued 33 percent relative to the dollar, followed by a peg of 8.3 renminbi to the dollar over the next nine years, greatly boosting the competitiveness of Chinese goods in global markets.
In his trade war with China, U.S. President Donald Trump has called China a “currency manipulator,” allegedly deliberately keeping the value of the renminbi low to flood the U.S. with its exports. However, most economists say that China has let market forces largely determine the value of the renminbi since over a decade ago.
The fourth ingredient in the export-led model, its “indispensable fuel’” according to Hung, was the “protracted low-wage labor released from the countryside since the mid-1990s.” While there was a “demographic windfall” in the form of large rural surplus labor force that allowed China to take advantage of low-wage labor longer than other Asian economies, the latter was also a result of government policies that, in contrast to the 1980s, funneled resources from the rural areas to the urban areas and generated a continuous exodus of the rural population since the 1990s.
The combination of favorable financial policies for the export sector, an undervalued currency, and low wage labor was a formula that unleashed a flood of cheap Chinese goods on the world that proved to be deeply destabilizing not only for the industrial sectors of economies in the global North but also of those in the global South like Mexico and Brazil, which had higher wage levels.
In these areas, China was not only as a source of competing imports but a cause of deindustrialization, as some corporations uprooted their labor-intensive industrial facilities and moved them to Southeastern China and others simply subcontracted the making of their products to cheap-labor Chinese firms. Not surprisingly, working class resentment built up in places like the so-called “rust belt” of the U.S. that Trump was able to harvest in 2016 with his anti-China rhetoric in his drive to the presidency.

Decentralized Authoritarianism
Contrary to the popular image of China’s development being the product of centralized direction, a decentralized character has, in fact, been one of its key features.
Decentralization has been one of the key ingredients of China’s growth formula, dating to the 1990s. Decentralization was a spur to intense competition among localities since Beijing, according to one account, “started eval‎uating local officials by how quickly the economy grew under their watch” — and they, in turn, “competed with each other to woo firms, offering them cheap land, tax breaks, and low cost labor.”
Described as essentially like turning the bureaucracy into a “large start up business,” decentralization sought to decisively break the command economy as well as force local authorities to “own” the reform process both by giving them the responsibility for coming up with the resources for investment and allowing them to reap the rewards of successful capital accumulation.
Provincial and local authorities have thus had a great deal of power in interpreting and implementing general strategic directives from Beijing. The economic authority of the central government has been deliberately weakened, its role being transformed into that of an “indirect player“ focused on managing the macroeconomic backdrop such as interest rates, exchange rates, and preferential policy toward certain regions and sectors. Indeed, China has been described as the “most decentralized country on earth,” with the share of revenue of local government being more than twice that common in developed countries — and also much bigger than that typical of developing countries.
It is important to note, however, that strong local authority and command of resources in the capital accumulation and development process covered mainly the nonstrategic sectors of the economy. Important agents of central control across provinces were some key state owned enterprises (SOEs) in the designated strategic sectors, such as energy, heavy industries, railways, and telecommunications that were directly controlled by Beijing, though they themselves enjoyed a great deal of autonomy. Here it must be qualified, though, that the majority of the country’s 150,000 SOEs — and two thirds of all SOE assets — were controlled by provincial and local governments, not by Beijing.
The relationship between the local and the center has oscillated between decentralization and recentralization over the years, with the latest phase of recentralization, though limited, taking place under the current leadership of Xi Jinping.
In most other countries, the extent of decentralization would probably have led to a permanent weakening of the center. China, however, has an advantage over other countries that makes the system work and not fly apart — and that is the Communist Party structure that parallels the government structure at all levels and across all regions. While allowing factional conflicts to a significant degree, the party structure and its attendant discipline are what makes possible the paradox of “decentralized authoritarianism.”
Liberalization, privatization along with strategic intervention in key industries, export-led industrialization with currency management by the state, and decentralized authoritarianism — these were the ingredients of the so-called Chinese miracle. They were also responsible for generating the problems now faced by the economy, a topic to which we will turn in the next installment of this series.

This series is based on the recently published study by Focus on the Global South titled China: An Imperial Power in the Image of the West? on the occasion of the 70th anniversary of the founding of the People’s Republic of China this year.
This essay first appeared in Foreign Policy in Focus.

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More articles by:WALDEN BELLO

Walden Bello, a columnist for Foreign Policy in Focus, is the author or co-author of 19 books, the latest of which are Capitalism’s Last Stand? (London: Zed, 2013) and State of Fragmentation: the Philippines in Transition (Quezon City: Focus on the Global South and FES, 2014).

https://www.counterpunch.org/2019/12/10/capitalism-with-chinese-characteristics/



Capitalism with Chinese characteristics

John Gittings

Tackling the contradiction between unrestrained growth and the deteriorating environment is the key to China's future.

Wed 12 Jul 2006 16.32 BST
First published on Wed 12 Jul 2006 16.32 BST



For those who wonder where China is heading (and perhaps like myself find it hard to give a definite answer) there are some interesting arguments around.
Jonathan Fenby in his latest blog has looked sceptically at predictions of China's "inexorable rise". Here are some more challenging ideas from documents published recently:
1. The World Bank says in its China Quarterly Update that it now expects Chinese economic growth (GDP) of 9.5 per cent this year. This would actually mean - amazing as it may seem - a slight slowdown since growth for this year's first quarter was 10.2 per cent.
The WB urges China to "take structural measures in medium term to rebalance its economic growth", particularly by shifting government spending from investment to "health, education and the social safety net". Such appeals have been made in vain before but they do chime with what is now being said by President Hu JIntao and Premier Wen Jiabao.

The Chinese media has also picked up on a World Bank calculation that "China has overtaken Britain by the tiniest of margins to become the world's fourth-largest economy" (China Daily, 4 July). This is not very meaningful because of the disparity in population, but it does remind us that the Great Leap Forward was supposed to "catch up and overtake Britain" - so they've finally done it!
2. Chinese economist Hu Angang has an important article arguing that we need to take into account the negative effect on the environment of the Chinese economic boom (environmental capital loss). "The proportion of China's loss of natural capital in (its) GDP" is shocking, he says, quoting another set of WB figures.
China has now overtaken the US to become "the country with the biggest natural asset loss". Hu calls this "black development" and argues that "green development" is now the only feasible policy for China. China must be firm in following this path so that man and nature can live in harmony.
Hu is often consulted by the Chinese government. This article appears to be a revised version of one originally written by him in 2001 which was circulated internally by then Premier Zhu Rongji.
3. Peter Kwong, professor of Asian American studies at City University of New York, has an article in CounterPunch titled "The Chinese Face of Neo-Liberalism". In it, he describes how in 1980 he attended a lecture in Beijing by Milton Friedman, high priest of neo-liberal economics: the audience was packed with top communist officials.
Kwong argues that the Chinese leadership embraced neo-liberalism very early on with enthusiasm, and that "the secret of China's economic miracle is its browbeaten working class."
Are we beginning to see in China a reaction to the uncritical adoption of market economics? Certainly the current leadership talks a different language from that of the Deng Xiaoping/Jiang Zemin era. And if Beijing is attempting to throttle back on damaging hyper-growth, can it succeed?
These questions about China's development strategy are more urgent than those which we ask about the future of its political system. Whether Beijing can effectively tackle the contradiction between unrestrained growth and the deteriorating environment will be the key to China's future. And I don't think that either "socialism with Chinese characteristics" or "capitalism with western characteristics" has the solution.

https://www.theguardian.com/commentisfree/2006/jul/12/capitalismwithchinesecharac



Capitalism with Chinese characteristics

January 5, 2016 9.58am AEDT

Antipodemia


Capitalism is, as the Marxists used to say, full of contradictions. It may well be the greatest wealth-generating machine ever invented. But it is famously volatile, unpredictable and prone to cyclical booms and busts – just ask West Australian Premier Colin Barnett.
But while political leaders in countries like Australia may not be too happy when the occasional downturn inevitably comes along, they generally recognise that this is the price that must be paid for capitalism’s inherent dynamism. Market forces are undoubtedly effective in encouraging the sort of “creative destruction” that Joseph Schumpeter thought was such a necessary part of economic expansion. But this is little comfort to those on the receiving end of capitalism’s vicissitudes.
One of the more remarkable features of capitalism these days is that even the most serious crises pose remarkably little threat to the overall system as a whole. The misnamed global financial crisis of 2008 may have been the biggest economic shock since the Great Depression, but the proletariat was strikingly quiescent in the US and Europe where the crisis was most deeply felt. Even when the principal culprits in the financial sector largely went unpunished, there was remarkably little popular outcry.
The renewed gyrations in China’s stockmarket will provide an important test of the Chinese government’s ability to manage both the technicalities of a capitalist-style economic crisis and a public unused to economic turmoil of this sort. Crises of capitalism are not supposed to happen in the People’s Republic after all.
True, the possibility of actually existing socialism may be an anachronism that only a few diehards believe in. But the state in China is still theoretically supposed to be preoccupied with the welfare of the working class above all else.
A key rationale for abandoning central planning was the recognition that capitalism was clearly capable of underpinning more rapid economic development and lifting living standards. Uncomfortably for China’s elites, this possibility was demonstrated in the remarkable success of Japan and Taiwan.
As Deng Xiaoping famously observed it doesn’t matter whether a cat is black or white as long as it catches mice. Until recently, the pragmatic compromise between ideological purity and faster economic growth looked to have been unambiguously vindicated by China’s unprecedented economic rise. Now, however, things look rather more uncertain.
Not only are some of China’s key economic institutions either looking rather wobbly, under-performing, or burdened with debt, but there are growing levels of inequality between those fortunate enough to be members of China’s growing capitalist class – or connected to those that are – and the rest.
Inequality – and the closely associated problem of corruption among the rich and powerful – induces feelings of indignation and outrage among China’s masses at the best of times. Try as they might, it has proved difficult for the central government to silence an increasingly vociferous online community from drawing attention to corruption and the gulf between insiders and outsiders that demarcates the real beneficiaries of China’s development from some of the also-rans.
It is possible to argue that millions have undoubtedly benefited from the transformation of the Chinese economy in general. But this may not be enough to overcome a sense of unhappiness about the way some aspects of the capitalist game appear to have been rigged in favour of well-connected elites. Ironically, corruption may thrive when there is more wealth to distribute.
This possibility is undoubtedly part of the reason that Xi Jinping has unleashed his far-reaching crackdown on corruption. Unfortunately for Xi, even well-intentioned reforms take time to have an effect.
Not only is Xi making potentially powerful enemies among some “tigers” in the meantime, but many of the “flies” are paralysed with fear and not acting for fear of attracting unwanted attention.
Managing a full-blown crisis of capitalism is a challenge even for those countries that have been through them before. Given that China is in the midst of what is possibly the biggest government-led shake-up since the Cultural Revolution, it is a double challenge. China’s internal mechanisms of governance are already feeling the strain and under-performing. It is not obvious that the government’s heavy-handed style of market intervention is appropriate or likely to be effective.
China’s leaders have already demonstrated that they have a remarkable capacity to manage rapid capitalist development without major political or social upheaval. It would be unwise to bet against them successfully managing capitalist crises, too. As the dramatic end of the resource boom reminds us, it is not just the Chinese who have a stake in the outcome.


http://theconversation.com/capitalism-with-chinese-characteristics-52738





China: An Imperial Power in the Image of the West?


DOWNLOAD, DOWNLOAD

02/10/2019
Under: Asia/World, China, Publications

by Walden Bello

On the occasion of the 70th anniversary of the founding of the People’s Republic of China, Focus is releasing a comprehensive study that seeks to answer the question: Is China an imperial power in the image of the West in its relationship with the global south?
Over the last 15 years, there have been increasing accusations of Chinese state enterprises and private companies being involved in unfair labor practices, environmentally damaging projects, land-grabbing, locking borrowing countries into debt, and indirectly providing support for dictatorships. many of these accusations parallel similar criticisms of the behavior of state-owned enterprises, private capitalists, and local authorities within China itself. China has also drawn criticism for its unilateral moves in seizing disputed maritime formations and violating the territorial and economic rights of its neighbors in the south China sea. Many of these criticisms are valid, and unless China addresses them in a positive fashion soon, these questionable behaviors and practices could congeal into structures of domination similar to those that have marked the relationship of the West with the global south.
Perhaps, equally worrisome is that China’s expansion has its own complex of worrisome characteristics that are not reducible solely to reproducing western patterns but can also lead, if unchecked, to hegemonic behavior. Foremost among these is a technocratic top-down approach to development with a cross-ideological appeal that is resistant to democratic control and insensitive to environmental considerations, fully on display in Beijing’s Belt and road Initiative.
Frank and fearless criticism of China’s disturbing practices, the study argues, is the best way to help prevent it from following in the footsteps of the West.

“Walden Bello has been one of the most powerful intellectual warriors against Western hegemony and an empathetic advocate of independent development in the Global South for decades. Now, confronting the rise of China, Bello pulls no punches in critiquing this new hegemon and analyzing its origins and weaknesses.”
Ho Fung Hung
Wiesenfeld Professor in Political Economy, Johns Hopkins University; author of The China Boom: Why China Will not Rule the World.

The study is available for download in normal resolution and high resolution for printing