Re: [Salon] A sarcastic critique of China's current policies plus a bit of useful Chinese politico-economic history in charts



There's signifcant autocracy in the US also. It is reflected in the state-local relaionship. It is something that is shared with UK and all former British colonies. 

And, there is a lot more freedom in Chinese local governance than in US.  



On Wednesday, December 27, 2023 at 08:40:36 PM GMT+5, Chas Freeman via Salon <salon@listserve.com> wrote:



Time once again to make superhero of China economy

‘Industrial party’ leaders see the economy as best engineered from the top down; let US rivals do the math

"Han Feizi,"   December 27, 2023
In 2012 Chinese author Chi Wang teamed up with illustrator Jim Lai to create "Captain China." Other superheroes have followed. Photo: GMA Network

The order is rapidly fadin’

And the first one now

Will later be last

For the times they are a-changin’.

 Bob Dylannone

China’s economy is currently on the operating table, hunched over by surgeons, chest cavity splayed open, hooked up to a cardiopulmonary machine, surrounded by nurses staring at monitors flashing vital signs. It all looks rather grim.

This surgery, however, is not an emergency bypass. That would be too easy. China has had many of those already – stimulus packages, grand infrastructure projects and many rounds of directed lending.

Every two decades or so, going all the way back to the founding of the PRC in 1949, the surgeons get ambitious. These guys are mad scientists attempting a comic book trope – to create the ultimate superhero.

They want to inject super serum, replace skeletal calcium with adamantium and dose the patient with gamma rays, giving China the powers of shazams out the wazoo.

Deng Xiaoping’s agricultural reforms, privatization and special economic zones of the early 1980s kicked off 20 years of market driven growth.

In the late 1990s, Premier Zhu Rongji performed surgery at least as invasive as what is currently being attempted. Zhu’s reforms broke the “iron rice bowl,” laying off 27 million workers from state owned enterprises. This paved the way for another 20 years of growth.

In the lamented “pre-reform” era, China’s mad scientists engineered spectacular growth by increasing investment from a prewar 6% of GDP to 20% in the first Five-Year Plan, covering 1952-1957. This led industrial output to register a compound annual growth rate.

The Great Leap Forward accelerated this growth to 66% in 1958 and 39% in 1959 before crashing and burning in 1961 when mismanagement of communal farms and “backyard blast furnaces” caught up with the mad scientists.

Course correction starting in 1962 recovered all lost ground by 1965. According to economist Cheng Chu-Yuan, China’s GDP growth averaged 11% between 1952 and 1966, the eve of the Cultural Revolution. (T. C. Liu of Cornell and K. C. Yeh of the Rand Corporation have a lower estimate: 8%.)

More importantly, China built a full kit of infrastructure, machinery and equipment capable of driving future industrialization.  

Mao Zedong threw a wrench into China’s economy during the Cultural Revolution (1966-1976). But through the chaos, as the mad scientists attempted to substitute ideological inputs for material ones, China was still able to achieve GDP growth averaging 5.2%.

Many analysts have a tabula rasa understanding of China’s reform era, as if there had been no economy before Deng Xiaoping. In reality, China’s industrialization started right after the formation of the PRC with some of the fastest growth recorded in the 1950’s and 1960’s. Even during the “low growth” Cultural Revolution, resources directed towards public health (for example, barefoot doctors) and primary education doubled life expectancy and quadrupled adult literacy by 1980 from pre-PRC levels. 

The mad scientists are now at it again. They have about twenty years of new data not just on China but from the rest of the world. When Zhu Rongji was head surgeon, history had ended and markets reigned supreme. This time around, the surgeons are correcting for market irrationality and negative externalities. The next twenty years is again being determined on the operating table.     

Three years ago, the surgeons pried open China’s chest cavity with the three red lines credit limits, instantly seizing the speculation driven property sector. Since then, they ripped out unnecessary organs like education companies, clamped the Ant Financial artery and eviscerated the video game industry.

All of this has caused spasms in vital signs from lackluster growth to rising youth unemployment. Wondering whether China will or will not stimulate the economy next quarter or next year is missing the forest from the trees. For the next few years, China’s economy will still be under the knife and whatever adjustments will merely be anesthesiologists and technicians nominally dialing the drugs up and down and adjusting the heart-lung machine to maintain vital signs.  

What are these mad scientists trying to achieve? We believe President Xi Jinping’s 2020 target of doubling China’s GDP by 2035 stands. That is an average growth rate of 4.7% for 15 years. But beyond just a numerical target, it is important to figure out what superpowers China is trying to acquire. And just as importantly, what Kryptonite factors China is attempting to inoculate itself against.

Image: Superhero Businessman Chinese Stock Market Concept

China wants America’s Silicon Valley, but regulated; Japan’s car companies, but electrified; Germany’s Mittelstand, but scalable; and Korea’s chaebol conglomerates, but without political capture. It wants to lead the world in science and technology, but without cram schools. A thriving economy, but with common prosperity. Industry, without air pollution. Digital lifestyle, without gaming addiction. Material plenty, without hedonism. Modernity, without its ills. This is, of course, a wish-list and unrealistically ambitious. But these mad scientists sure as hell are going to try. They’ve developed a taste for it.

In college, early into the semester, we went through a ritual called course exchange. Students gathered in an auditorium to swap classes after sampling lectures for three weeks – satisfaction was not guaranteed. The strategy passed down to underclassmen applied to both course exchange and significant others: “Add before you drop.”

China is undergoing – but perhaps botching – the same process with a more party-esque slogan, “Establish the new before abolishing the old.”

The surgeons have been on a tear gutting the old. The big kahuna is, of course, the property sector. But right behind are platform monopolies, private education, financial services and video games. The new has been playing catch-up, with 5G equipment, electric vehicles, photovoltaics and wind turbines being leading examples.

From all appearances, the Industrial Party is in ascendance and China will double down on climbing the manufacturing value chain. The Industrial Party is a political identity that believes industry, science and technology should determine China’s future. Adherents believe that China’s strength lie in the technical skills of her population and thus favor hard-science, high-tech industries as opposed to services and business model innovations. 

Therefore, Chinese politicians, whatever their predisposition, must find a way to create space for this next generation of scientists and technicians to develop themselves. They cannot be confined to a production line at a Foxconn plant. Maintaining social stability means finding a use for future scientists and technicians, which means pursuing industrialization. Is there any other way? The key variable for determining the course of China’s future development is thus the massive number of talented technical and scientific workers.

If mistakes were made, it would have been in sequencing and in faith – dropping before adding is a poor strategy in both love and course exchange. China’s mad scientists may have been too confident that electric vehicles and renewable energy would be followed quickly by semiconductors, pharmaceuticals and commercial aircraft.

Perhaps they have reason to be confident. Planning for this surgery has been in the works since 2015 with the Made in China 2025 project. China has been steadily eroding imports of high value added intermediary goods like batteries, precision parts and electrical components, flipping trade with South Korea from deficit to surplus.

This has caused much analyst hand wringing over the feasibility of sustained growth, given China’s economic imbalances. Surely countries like South Korea will not take this lying down. China, they say, accounts for 18% of global GDP but only 13% of consumption and a massive 32% of the world’s investment. Continued growth at 4.7% will surely swamp the world with manufactured goods as China’s imbalances, through trade, become an ever larger distortion of the global economy.  

This is erroneous. China never properly transitioned from its Soviet era Material Product System (MPS) of national accounts to the United Nation’s System of National Accounts (UNSNA) standard, leaving out much of services from reported GDP.

We calculate that China accounts for 22-24% of global GDP and 20-23% of global consumption. We also calculate that household consumption is 50-55% of China’s GDP, in line with global averages. China should easily be able to grow at 4.7% through 2035 with only a modest increase in consumption’s GDP share (5 percentage points over 10 years) without upsetting global economic balances.  

In the reform period prior to Xi, everything was sacrificed at the altar of economic growth. In the new era, growth has been walked down from 9.6% in 2011 to an average of 4.7% in the Covid years (2020-2023) as an increasing litany of issues were given precedence. Debt however, soared over this time from 175% of GDP to over 300%. What exactly did all that debt buy?

When Xi assumed leadership of China, he declared that inequality could not be allowed to increase further. Inequality is perhaps the major Kryptonite factor of the American economy which China wasted no time in matching as the economy roared with market reforms.

While still problematic, inequality, as measured by the Gini coefficient, has steadily fallen since 2010 largely as a result of massive investment in urbanization, pushing people into cities and pushing cities up the tiering ladder.

Today, it would not be strange to consider Chengdu, Chongqing and Hanzhou first-tier cities and peers of Beijing, Shanghai, Guangzhou and Shenzhen. Tier-two cities like Xiamen, Kunming and Suzhou are often considered more livable and trendy in their own quirky ways. Dark-horse cities like Hefei and Ningbo have exploded out of nowhere to become rising tier-two stars. With the installation of high speed rail, tier-three cities like Dali, Lishui and Zibo compete to become the next “it” tourist destination.

China also poured resources into stamping out last-mile poverty. While most poverty alleviation in China was through economic growth, recalcitrant extremely poverty could only be eradicated by concentrated marshaling of resources, from relocating entire villages to weekly visits by social workers.   

In 2015, journalist Chai Jing produced the documentary Under the Dome and released it online. The documentary, in the style of Al Gore’s Inconvenient Truth, was a polemic against China’s ghastly air pollution. The impact was seismic. Fortunately for the rest of China, Beijing’s geography, a basin surrounded by mountains, is notorious for trapping smog. Out of sight, out of mind was never going to work – senior leadership got to enjoy some of the most polluted air in China.

Since peaking in 2012, air pollution in Beijing has been cut by over 60%, with Shanghai falling over 50%. China, which used to dominate the list of most polluted cities, now only claims one spot in the top 20. None of this came cheap, from installing scrubbers in smoke stacks to increasing renewables to moving heavy industry to strict emissions regulations for cars.

During the Great Leap Forward and Cultural Revolution, economic planners theorized that ideological fervor could substitute for material inputs like labor and capital. It worked better in theory. In recent decades, as ideology took a back seat to economic growth, long-brewing problems became existential.

Before Hu Jintao handed the reins to Xi, Hu warned delegates to the 18th Party Congress in 2012 that “[corruption] could prove fatal to the party… and [cause] the fall of the state.” The popular opinion in the West is that Xi ended China’s highly successful reform era because of an ideological bent. This is off the mark. Xi was brought in to clean house as the wheels were coming off from excesses of the reform era.

Throughout Xi’s decade in office, there has been no letup in his anti-corruption campaign. In 2022, a record 638,000 officials were punished for corruption. While there haven’t been any large scale ideological appeals to the public, it’s a different story within the 98-million-member party.

During this time, free market capitalism and liberal democracies also faced their own existential tests. Success or failure going forward will depend on whether liberal institutions remain intact in the West and whether party discipline can be maintained in China.

What the PRC has had since 1949 is a governing party with the political autonomy to play mad scientist. In comic book world, whenever mad scientists try to create the ultimate superhero, things tend to go awry. Deadpool isn’t exactly what his creators had in mind. Serpentor turned out to be a bust. The only success, which we attribute to wartime propaganda, appears to the be Captain America.

Of course we live in the real world, not a comic-book world. The question in the real world has always been whether the economy can be engineered by mad scientists from the top down or is it best left to the invisible hand of the market? The conventional wisdom on this has been problematic.

The standard economic opinion – against all evidence – is that China was economically stagnant before Deng’s market reforms. The thinking on this for the American economys is undergoing a transformation in egghead land – just how has neoliberal economics benefitted the American people over the past few decades?

In a Q&A exchange at a conference in Malaysia, Eric Li, the barbed-tongued venture capitalist, was asked, “Do you think top-down directives are sustainable in the long run?”

To which he replied, “It’s the only thing that’s sustainable.… That’s why America is failing today.” After World War II, Li said, the Americans “lost the ability to do top-down design.”

Han Feizi’ is a Beijing-based financial industry veteran.  [The original Han Feizi was the foremost philosopher-advocate of autocratic government in the 3rd century BCE.]

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