China’s embrace of marketization and global integration is described by neo-liberal economists as an improvement, not a repudiation of the Washington Consensus. However, the Chinese Communist Party (CCP), which led the market-oriented economic transformation of China after Mao’s death, never accepted the WC. China has a completely different economic model.
In understanding the China model, it is best to listen to what the Chinese themselves and the CCP are saying about it. In this regard, one good reference material was the report produced by the China Institute of Reform and Development in 2000, or 20 years after the launching of the “Four Modernizations” of Deng Xiaoping (CIRD, China’s Economic Transformation Over 20 Years, Beijing: Foreign Languages Press, 2000).
The CIRD’s report was surprisingly straightforward in its criticisms of the WC. CIRD wrote that in drawing up a plan for reform, “it is important not to indiscriminately copy western economic theory of laissez faire.” Further, CIRD argued against “giving up macroeconomic control on the side of the government” in the reform process and in the transition to marketization. In short, China never gave up the State’s “visible hand” in guiding economic development and in controlling the commanding heights of the economy.
On guiding economic transformation, CIRD wrote that Russia and other East European countries paid “exorbitant prices” when these countries implemented the “shock therapy” policy package (sweeping privatization and deregulation/liberalization of the economy) advocated by Western economists such as Lawrence Summers and Jeffrey Sachs. The said therapy halved the Russian gross domestic product in three years (45 percent), set back Russian development by 20 years, and caused massive unemployment and poverty. CIRD wrote that the assumption of the Western economists and the International Monetary Fund that the shock therapy would lead to rapid economic transformation and growth for Russia was baseless and “based on pedantic wishful thinking.” Was this not the same assumption used by the IMF-WB team and the Filipino technocrats when they pushed for the so-called economic reforms in the 1980s, which were bundled into a “structural adjustments program” (SAP) with the goal of transforming the Philippines into a roaring export-oriented economy?
On control of the commanding heights of the economy, it should be pointed out that the CCP-led government never gave up their control over state-owned enterprises in strategic sectors such as power, telecommunications, transport, mining and so on. China limited the privatization program to the downsizing or auction/closure of several hundreds of SOEs, primarily those engaged in non-strategic areas and/or were too weak and inefficient to survive under marketization.
What is the size of the SOE sector today? In 2019, the US Congressional Research Service (China’s Economic Rise, Washington, June 2019), reported that China is one of the world’s “most active users of industrial policies and administration.” Accordingly, China had 150,000 SOEs, which collectively account for 50 percent of non-agriculture GDP. Some of these SOEs have now become global behemoths and are assisting Xi Jinping in fulfilling China’s dream of encircling the world through its global Belt-and-Road Initiative (BRI). One big SOE is the China State Grid Corporation, which owns 40 percent of the Philippines’ National Grid Corporation.
Now back to the CIRD report, another feature of the China reform process cited is the policy of “gradualism” or step-by-step implementation of reform measures (called “walking across the river by feeling the stones”). Thus, the modernization program started in the rural areas, with the dismantling of the backward commune w and the introduction of the “self-responsibility system” among individual farm families. The price system was also placed on “double-track,” meaning prices of essential commodities such as rice remained under the control of the government while other commodities were gradually loosened. On opening up China to the world market and establishing special economic zones, the process started with the coastal provinces before involving the interior regions. As to the development of the “non-state sector” or private and enterprises industries, this was also allowed to flourish gradually but with the “state sector” maintaining overall dominance (still as much as 70 percent in 2000).
With the foregoing market reforms, CIRD concludes that what China was (and still is) trying to accomplish in the first two decades of China’s economic transformation was the development of a balanced “mixed economy” led by the State based on the original Deng’s vision of “Four Modernizations.”
Now, has the CIRD’s outline of the China model in 2000 changed in the succeeding decades? Apparently not.
In 2017, two high-ranking Chinese political economists, Cheng Enfu and Ding Xiaoqin, listed the “eight principles” to explain China’s “miracle economy.” These are: 1) sustainability led by science and technology, 2) orienting production to improve the livelihood of the people, 3) public ownership precedence in national property rights, 4) primacy of labor in the distribution of wealth, 5) market principle steered by the State, 6) speedy development with high performance, 7) balanced development with structural coordination, and 8) economic sovereignty and openness. These eight principles are the main features of China’s “socialist political economy with Chinese characteristics” (Cheng Enfu and Ding Xiaoqin, “A Theory of China’s ‘Miracle,’” in Monthly Review, New York, January 2017).
There is no space here to discuss in detail each of these eight principles. But it is clear that the China model is clearly the opposite of the Washington Consensus. On the last principle, sovereignty and openness, Enfu and Xiaoqin wrote:
“China should insist on the state policy of two-way opening that integrates domestic and international politics, developing a higher-level open economy by taking advantage of domestic and foreign markets. It entails tailoring trade policy to find and exploit mutually beneficial deals, while protecting China’s development and actively guarding against risks to national economic security.”
From the foregoing, it is abundantly clear that China’s model holds China’s national interests first and foremost. These interests are at the center of economic planning, investment promotion, and so on.
In the case of the Philippines, an original WC guinea pig, assertion of the national interests and building up national capabilities are hardly taken up in the economic planning workshops. They are not reflected in the IMF-WB’s SAP program, a program which is continuously being pursued by Neda despite four to five decades of Philippine mal-development under neo-liberalism.
One explanation to the stubborn adherence of our economic planners to the failed WC/SAP program is the obsession of some economists to strategize growth based on one factor only—the “comparative advantage” of the country. More on this in the last installment of this series on BC vs WC.
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