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The following article was published in the Global Times on 18 March 2010

By Stanley Crossick

By now, China’s economic success over the last 30 years is an accepted fact and does not need the citing of statistics. But what are the main characteristics of the Chinese development model, and is it sustainable?

It is not possible to define the Chinese development model in simple terms. It is really a process rather than a clear policy statement. Its origins lie with Deng Xiaoping, who famously said that one must “seek truth from facts” (and not from dogma) and that “It doesn’t matter if a cat is black or white, so long as it catches mice.”

The model is unique, and has been developed in a country with a long history of civilization, a very difficult modernization experience and the largest population in the world.

The key features are pragmatism, trial and error and gradual reform. The model is not based on ideology but practical steps, first testing the effectiveness of policies and then, when proven, implementing at a fast rate.

However, overall the reforms are in fact gradual without any “big bangs.”

First came the easy reforms and rural reforms; difficult reforms and urban reforms followed.

Experiences in implementing the first reforms helped create the necessary conditions for further reform.

Labels do not help satisfactorily describe the model, which the Chinese say is based on socialism with Chinese characteristics. It can be described as a mixed economy with socialist and capitalist features or, less flatteringly, autocratic capitalism.

The model has a number of key characteristics. The State controls the strategic direction of the economy and therefore its strategic sectors. The State-owned enterprises still dominate industry.

The government can thus set and direct its economic priorities.

From the outset, foreign direct investment was encouraged, as was the education abroad of young Chinese at foreign universities, particularly in science and technology. These thousands of students put to good use their acquired knowledge back in China.

Successive generations of leaders have been able to ensure continued public support for modernization and, at the same time, macroeconomic stability.

Beijing has succeeded in adapting its institutions and managing huge and fast changes.

The Chinese model has delivered several hundred million people out of poverty. This model, despite its shortcomings, has been more effective than, say, the exported American model based on ideology and democratization, with scant attention to local circumstances.
Without the rule of law, a better educated people and a substantial middle class, premature democratization can have adverse consequences.

The Chinese development model now faces three major challenges: correcting its uneven development, coping with the unsustainability of export-led growth, and handling the value of the yuan.

The 10th National People’s Congress in 2004 recognized that too great an emphasis was placed on GDP growth and a more “people-oriented” approach was needed. However, the difference in economic development since then has not been noticeable.

Regarding the second challenge, China relies massively on exports to achieve its growth. The US trade deficit has continued to rise ($378 billion in 2009 while the EU deficit was $169), as do the Chinese currency reserves ($2.273 trillion at the end of February 2010). Thus, China is lending the US money to buy its exports. This situation is not sustainable and indeed is dangerous.

There is broad agreement that it is in China’s own interests to promote consumer spending so as to produce domestic demand-led growth.

The huge incentive package is being spent mainly by State-owned enterprises and on infrastructure projects. While spending has increased, in the absence of a comprehensive welfare system, the Chinese remain big savers.

Calls for a revaluation of the yuan are again getting louder. The continued pegging of the yuan to the dollar upsets both the Americans and the Europeans.

Discussions of “models'” is somewhat artificial.

Historically a model marked by clear goals and ruthless pragmatism usually succeeds because of the determination of political leadership.

Examples are Charles de Gaulle in France after 1958, the Ministry of International Trade and Industry in post-war Japan and, of course, Deng Xiaoping 30 years ago.

Success generates domestic legitimacy and external challenge, but at the potential cost of both corruption and excessive reliance on exports.

The author is a senior fellow of the Brussels Institute of Contemporary China Studies.

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Comments

  1. I think you overemphasize the importance of the value of yuan (effect). This issue/challenge is only trivial in comparison to the other two (causes) which are fundamental.

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