The myth of China's state-capitalism

In an article for Asian Horizons in The American Interest, May/June 2012 edition, John Lee, Michael Hintze Fellow for Energy Security at the Centre for International Security Studies, the
University of Sydney, and a scholar at the Hudson Institute in Washington, DC., outlines what he believes is the true nature of China's state capitalism, which he brands "China's corporate Leninism."

Download China's Corporate Leninism-John Lee, Asian Horizons, The American Interest, May-June, 2012

A number of observations are in order.

First of all, the role of the state in Western capitalism is not as separate as the John Lee article asserts. Think of the “military-industrial complex” forwarned by President Eisenhower and the current Occupy Wall Street Movement driven by the 1% and 99% American economic divide.

What the article doesn’t explain is why China’s model of state-capitalism has so far proved to be rather successful.

The answer is that first, for a vast developing country in rapid transition, physical infrastructure is the foundation for economic development. By concentrating power, the state is in a much better position to mobilize resources to build essential highways, power grids, and new cites from scratch, driving the country’s ongoing industrialization and urbanization.

Second, learning from South Korea’s “chaebols”, China wants to grow her own “national champions” that hold sway in the international marketplace and are in a better position to acquire the resources and skills to underpin on-going development.

Third, contrary to what the article asserts, the strategic industries reserved for state-owned enterprises are actually part of a broader “defence of the realm” concept. Nascent strategic industries like aviation and finance are liable to be decimated if foreign competition is left entirely unchecked. Memories are still fresh of the economic havoc in Latin America and the former Soviet Union played by indiscriminate liberalisation quick-fixes under the so-called Washington Consensus. What is more, sectors like energy and telecommunications are also regarded as having national security implications by Western countries. That's why China's earlier attempts to acquire equity stakes in these sectors in the United States got back-fired.

Last but not least, as China’s economy evolved, so did her political power structure. A relatively recent change was formalized through President Jiang Zemin’s “Theory of the Three Represents”. This is a political code-word to ensure that the interests of the business sector and new intellectual elites (the “advanced productive forces”) along with the majority of the masses are brought into China’s body politic so that they also become beneficiaries of China’s state-driven development.

This inclusiveness is almost inevitable if only to pre-empt the kind of eventual collapse faced by  "extractive intitutions" which characterized early Western autocracies like the ancien regime of Louis XIV or past Western colonial empires, as described in Daron Acemoglu and James A Robinson's thought-provoking book, Why Nations Fail, Profile Books, London, 2012.

The article in question mentions that three-quarters of the Chinese Communist Party now consist of the business, professional and academic elites. This is extremely instructive as this changed composition makes the political system relatively more inclusive.

The fact remains that the vast majority of the Chinese people are more satisfied with the way the country is developing, according to a new 21-nation survey in July 2012 of the PEW Research Centre’s Global Attitudes Project. According to the study, "The Chinese, in particular, are positive about their economic situation, with nine in 10 saying they’re better off than the previous generation, eight in 10 satisfied with current national economic conditions, seven in 10 feel financially more prosperous than they were five years ago and more than two-thirds happy with their own personal economic circumstances." "The outlook for the long term is bleak in most places with the exception of China, the only nation surveyed where a majority of respondents expressed confidence that their children’s future would be brighter". Click here   

By allying the interests of the vast majority with the long-term interests of the state, the Chinese Communist Party is turning the Party into a government for the people, though not, as yet, of or by the people.

Nevertheless, after years of breakneck growth, all is not well. China is now at an inflexion point with rising levels of social discontent, sharpening inequalities, lack of social justice, rampant corruption, dwindling profit-margins, inefficient allocation of capital by state-owned enterprises, a looming aging population profile, ecological strains in an age of resource scarcity, and the rising aspirations of a more educated, economically more independent and internet-savvy middle-class.

Hence, China is now changing tack rapidly, as evident from the latest Five Year Plan (2011-15) and a recently-released 468-page World Bank report “China 2030: Building a Modern, Harmonious, and Creative High-Income Society". The latter has been jointly undertaken with the Development Research Centre of the State Council. It is an open secret that Li Keqiang, China’s likley next Premier-in-waiting, is a strong supporter of the Report. Amongst its main recommendations are proposals to address the repressive "hukou" system, reform of the state-owned enterprises, promotion of civil society including NGOs, and moves towards a more balanced, more creative, more equitable, more tolerant and more environmentally-sustainable society. Click here

President Hu Jintao mentioned openly the D-word more than 60 times at a Party Congress in October 2007. What is unlikely to happen, however, is a simple downloading of Western adversarial and often dysfunctional multi-party democracy. All said, China is likely to continue quest for her own form of democracy best suited to her unique economic, social, cultural, political and historical circumstances, in keeping with the changing times. 

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