What Explains China’s Rise? — Part 3

Samuel Johnson (1704 – 1789), the great lexicographer, noted that “knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it.”[1] Although I know fancy little about China, I do know where that knowledge can be had. There are very credible experts on the subject of modern China’s growth. It is best to learn from their scholarship. Fortunately for us, all we need is an internet connection and time. Here I will list some of the resources I found interesting.

Fear of China

Seen from the broad perspective of human history in the context of material prosperity, the astonishing story of China post the Mao era (starting around 1978) is heartening. From a narrower perspective though — that of an American or an Indian or Japanese or European — the China story is likely to be a cause for alarm. The prospect of China replacing the US as the global hegemon is chilling: it threatens the liberal world order.

China induces more fear than respect. That is revealed by persistent predictions that China’s progress cannot last much longer and that it is about to implode any day now. Though much hoped for, China has continue to defy the dire predictions. Here’s a list of headlines of articles:

1990. The Economist. China’s economy has come to a halt.
1996. The Economist. China’s economy will face a hard landing.
1998. The Economist: China’s economy entering a dangerous period of sluggish growth.
1999. Bank of Canada: Likelihood of a hard landing for the Chinese economy.
2000. Chicago Tribune: China currency move nails hard landing risk coffin.
2001. Wilbanks, Smith & Thomas: A hard landing in China.
2002. Westchester University: China Anxiously Seeks a Soft Economic Landing.
2003. KWR International: How to find a soft landing if China.
2004. The Economist: The great fall of China?
2005. Nouriel Roubini: The Risk of a Hard Landing in China.
2006. International Economy: Can China Achieve a Soft Landing?
2007. TIME: Is China’s Economy Overheating? Can China avoid a hard landing?
2008. Forbes: Hard Landing In China?
2009. Fortune: China’s hard landing. China must find a way to recover.
2010: Nouriel Roubini: Hard landing coming in China.
2011: Business Insider: A Chinese Hard Landing May Be Closer Than You Think
2012: American Interest: Dismal Economic News from China: A Hard Landing.
2013: Zero Hedge: A Hard Landing In China.
2014. CNBC: A hard landing in China.
2015. Forbes: Congratulations, You Got Yourself A Chinese Hard Landing.
2016. The Economist: Hard landing looms for China.

I got that list from a comment to a Youtube video (below). I am too lazy to do the research to vouch for the veracity of the claimed headlines. With that disclaimer, here’s the video of a talk by Louis-Vincent Gave – China: Mythis, Propaganda and Realities. The video is published Jan 2017 by Skagen Foundation.

The China Model

The next video is of a presentation by Prof. Zhang Weiwei in Berlin in July 2017. The video description says that he’s the founder of the Centre for China Development Model Research at Fudan University in Shanghai and “is perhaps uniquely capable of familiarizing the Western public with the reasons for the success of the Chinese economic model and international Belt and Road Initiative.”

Directed Improvisation

Professor of political science at the Univ of Michigan in Ann Arbor, Prof Yuen Yuen Ang has an interesting take. This video is from August 2018 at the Foreign Correspondents’ Club in Hong Kong — “The Real China Model: It’s Not What You Think It Is.”

There is a June 2018 Foreign Affairs article by Yuen Yuen Ang (which is probably behind a paywall.) Here’s an extended quote from it:

Most explanations of the China model highlight qualities that prevailed only in certain locations at certain points of time. This does not mean there is no China model, however. Since 1978, the most consistent feature of China’s development has been the governing system that has allowed continuous change to emerge, often in unexpected ways.

This adaptive system, bequeathed by Deng, is what I call “directed improvisation.” Three disastrous decades under Mao Zedong’s dictatorship taught the reformists who took over about the limits and dangers of top-down control. Although Deng rejected Western-style democracy, he was also determined to remove ideological shackles and liberate bottom-up initiative within China’s vast bureaucracy.

Under Deng, Beijing became a director, not a dictator. Instead of trying to command their way to rapid industrialization and growth, reformers focused on creating the right conditions for lower-level officials to kick-start development in their own communities using local resources. This entailed more than just decentralization. Simply allowing localities to do whatever they pleased would have bred chaos; Beijing was highly involved in setting boundaries, initiating reforms across policy areas that complemented one another, and defining the criteria of bureaucratic success. Later, it also began intervening to balance rich and poor regions by encouraging the domestic transfer of industry and capital.

Although the Chinese leadership did not grant formal political rights to civil society, these changes liberated China’s vast civil service, which is as populous as a midsize country, to take initiative and innovate. In this environment, regions across China collectively improvised a large variety of development models that were tailored to local conditions and needs.

It was not simply single-party rule and state ownership that fueled China’s dramatic economic rise.

Once the full picture is revealed, it becomes clear that it was not simply single-party rule and state ownership that fueled China’s dramatic economic rise. To be sure, Beijing has swerved back and forth on the control barometer over the last several decades, and Xi now exercises more control than his predecessors. But experience has shown that imposing tight political oversight and relying on top-down commands have usually backfired for Beijing. For example, in an attempt to save falling stock prices in 2015, Xi’s administration rolled out a series of dictates, such as making state banks pledge to buy stocks and not to sell them. In the end, these efforts not only failed, they wasted billions of dollars. For the ruling elites, this was a fresh reminder that markets can be guided, but they cannot be precisely controlled.

Then there’s the Jan/Feb 2019 article, again from Foreign Affairs, titled, “The Stealth Superpower — How China Hid Its Global Ambitions” by Oriana Skylar Mastro. Quote:

Until now, China has succeeded in growing without provoking. Yet there is a limit to how powerful a country can get without directly challenging the incumbent power, and China is now reaching that point. Under Xi, China has begun confronting American power head-on. Given the country’s internal challenges, China’s rise could still stall. But history has shown that in the vast majority of cases in which a country was able to sustain its rise, the rising power ended up overtaking the dominant power, whether peacefully or through war.

And more:

Great-power competition is not just about military calculations or economic pull. The United States also needs to recommit to protecting its values. Some in the Washington establishment speak longingly about Beijing’s ability to get things done, thanks in part to its disregard for liberal norms. Indeed, this sort of agnosticism does give China an advantage. It is able to win over Asian governments by doling out money with no strings attached, its state-owned enterprises receive not just state support but also proprietary information through espionage, and its authoritarian political system makes it far easier to control the narrative about its goals and missions both at home and abroad. But China has an Achilles’ heel: its leaders have failed to articulate a vision of global dominance that is beneficial for any country but China. That is why, unlike the United States, it prefers to work with weak partners that can be easily controlled.

To Conclude

I am not a “China watcher”. I have only a limited interest in China because I am what you’d call a theoretician. I try to understand the principles involved in economic prosperity. Therefore actual events and experiments, though interesting and important in their own right, are of limited utility to me. Certainly what happens in the world matters but only in their ability to test the various hypotheses about the causes of economic progress.

Like all stories of economic progress, the China story (actually China stories) is also a just-so story. The actual play is nice but what really matters to me are the rules of the game of economic development.

There are major lessons Indian leaders can learn from China, much more than from the advanced industrialized economies of today. China and India shared some major features: large populations, socialism, great poverty, massive policy mistakes. China broke through the chains it had forged for itself. It took the capitalist path of markets and economic freedom. India’s leaders lacked the understanding and wisdom that made China the behemoth that it is today.

It’s all karma, neh?

NOTES:

[1] The Life of Samuel Johnson by James Boswell, published 1791. Thomas Babbington Macaulay (that same that Indians love to hate) said of Boswell, “Boswell is the first of biographers. He has no second.”

Post script:

The topic of this post has caused me some distress. I find the topic in equal measure fascinating and uninteresting. But having embarked on answering the question, I could not bring myself to drop it and move to other more interesting subjects. The longer I waited to complete the task, the less I grew inclined to it.

Samuel Johnson (again) had observed that “It is always observable that silence propagates itself, and that the longer talk has been suspended, the more difficult it is to find any thing to say.” I hope to end that silence today.

The previous two parts of this series are here and here.