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Monday, May 27, 2013

China: Empire Demands Capitalism

Communism, for lack of a better word, has somehow morphed into capitalism, at least in China, as if a genetic mutation had taken hold through mitosis. Although this is an exaggeration, it does capture an important trend that can be traced back to Deng Xiaoping (1904-1997), who “abandoned many orthodox communist doctrines and attempted to incorporate elements of the free-enterprise system into the Chinese economy” beginning in the late 1970s, according to the Encyclopedia Britannica. Decades later, upon becoming prime minister, Li Keqiang announced in 2013 that the central government would reduce the state’s role in the economy. As reported by the New York Times, the Chinese government issued a set of policy proposals to reduce “government intervention in the marketplace” and give “competition among private businesses a bigger role in investment decisions and setting prices.” According to the proposals, a tax on natural resources would be expanded, market forces would play a larger role in determining bank interest rates, and, according to the government, policies would be enacted to “promote the effective entry of private capital into finance, energy, railways, telecommunications and other spheres.” Foreign investors would be given more opportunities to invest in finance, including banking, logistics and healthcare. Foreign exchange controls would also be loosened further.
 
The proposals were enough for Stephen Green, an economist with Standard Chartered, to remark, “This is radical stuff, really.” Huang Yiping, chief economist at Barclays, pointed to lower growth projections and massive amounts of debt as giving the Chinese government a rather practical motive in continuing the trend of refurbishing communism. At the time of the proposals, many experts doubted, however, whether the Communist Party would “abandon the state capitalist model, break up huge, state-run oligopolies or privatize major sectors of the economy that the party considers strategic, like banking, energy and telecommunications.” Additionally, corrupt government officials would doubtlessly resist losing what the New York Times calls their “secret stakes in companies,” not to mention all the bribes.
 
Even so, it is astounding that the prime minister, a communist, would say: “If we place excessive reliance on government steering and policy leverage to stimulate growth, that will be difficult to sustain and could even produce new problems and risks. The market is the creator of social wealth and the wellspring of self-sustaining economic development.” Marx and Lenin would hardly recognize the Chinese Communist Party. Because China has over a billion people, the old “command-and-control” economic model based on centralized directives on production quotas and prices would at the very least be difficult to coordinate. The result would doubtlessly include bottlenecks in supply, and thus shortages on the shelves (as evinced in the U.S.S.R.).  The sheer scale of China, an empire of former kingdoms, renders centralized control highly inefficient.
 
                           The Emperor Kangxi of the Qing Dynasty. He ruled for 60 years, greatly expanding the size of the empire.      Source: Chinahighlights.com
 
Interestingly, even as Emperor Kangxi (1654-1722), the second emperor of the Qing Dynasty (1644-1911), expanded the empire by taking over central Asian Muslim kingdoms, he resisted the preceding Ming Dynasty’s laissez-faire policy on internal trade and industry by turning some crucial industries into monopolies. Interestingly, John D. Rockefeller would probably have concurred, based on his own theory that the coordination in a monopoly in a vital industry such as oil could put an end to destructive competition. In any case, Kangxi apparently saw no contradiction between expanding the empire and centralizing some important sectors of the economy. Similarly, Mao saw no internal tension in collectivized consolidation on a large scale.

Source:

David Barboza, “China Plans to Reduce the State’s Role in the Economy,” The New York Times, May 24, 2013.