Which way now for China’s Economy?
The latest Chinese reforms might seem to herald a shift to the right. BEN CHACKO digs below the surface to uncover a more complex picture. This article first appeared as a feature in the Morning Star 03/12/2013
Concern over the direction of China’s economy has risen on the left since the Communist Party’s central committee plenum last month.
In my previous piece on the reforms announced at the meeting, I focused on changes to the hukou registration system and how it relates to social security, but many have questioned the concessions made to private capital in the broader economy.
There were certainly some alarm-bell moments for socialists. Party general secretary Xi Jinping referred to the “decisive” role of the market in allocating resources, while only last week the National Development and Reform Commission (NDRC) said it was “relaxing the level of enterprise investment that requires [Beijing’s] approval” – surely indicating a reduction in state planning as a cornerstone of the economy.
How does that square with Xi’s declaration that “only socialism can save China, while only reform and opening up can develop China, socialism and Marxism”? Are these empty words?
Dig deeper and we find that things are a little more complex. It’s true that the plenum increased the number of state-owned enterprises in which private capital can invest, while also creating leeway for workers to be allocated shares in the businesses they work in to boost the co-operative economy.
But it also expressed a commitment to “maintain the dominant role of public ownership, with the state-owned economy playing a leading role” while improving management of state-owned companies to ensure they serve “national strategic goals and invest in the lifelines of the national economy.”
Cut through the jargon that seems a trademark of politicians in almost all societies, capitalist or socialist, and this would appear to mean an increase in planning.
A lack of accountability among huge state enterprises is a major problem in China. It has led to serious corruption scandals in the Railways Ministry (now part of the Transport Ministry) and PetroChina, among others.
But the anti-corruption drive is not the point in this document. The state sector controls the commanding heights of the Chinese economy, but if its various parts are not working together in accordance with national policy then it can lead to deadlock or worse.
To take one example, in 2003 the State Council set up the National Co-ordination Committee on Climate Change, tasked with ensuring economic growth was sustainable and reducing the impact of industrialisation on the environment.
To emphasise how important Beijing considered this it appointed Ma Kai, then chairman of the NDRC which is responsible for economic planning, to chair the new climate change body.
But the committee still found that the mighty state enterprises controlling coal, oil and transport were not interested in submitting their plans and records for environmental impact assessments.
Used to being judged purely on their contribution to growth, some officials decided that complying with the new climate change goals wasn’t important.
In the end then prime minister Wen Jiabao had to step in and start chairing the climate change meetings himself to make sure the department heads took them seriously, and since then we have seen progress in reducing emissions per unit of GDP and in developing green technology.
So part of the changes in management are simply to ensure that the state sector starts to work coherently for national development rather than pursuing narrower departmental goals.
It’s tempting for the coal industry, for example, to measure its success by how much coal it produces – but with air pollution a serious problem in many cities it’s important that fuel production and use is better regulated.
It’s connected to the decision to double the proportion of state firm profits that have to be transferred to the government for investment in welfare – the overall logic is to make state firms work for the public, so their successes benefit everyone rather than simply their sector.
Similarly if we look at the NDRC’s latest comments on reducing the state’s role in approving enterprises, hailed by the Western business press as reducing regulation, we find that that isn’t quite the case.
For one thing, it’s explicit that industries relating to “national security, eco-safety, exploitation of strategic resources or of vital public interest” will still need the nod from Beijing.
Decentralisation is as key a part of these reforms as any loosening of restrictions on private capital.
This ties in with the pledges to reform government finances to allow province and city-level governments to meet their social security obligations.
There is, though, the encouragement being given to the private sector to invest in state firms.
But then there’s the whole question of “market socialism” in the first place. The role of the market as China builds the “primary stage of socialism” has been part and parcel of policy for decades.
In fact the “bird-cage” model where the “bird” of the market is free to move within the “cage” of state planning was first announced by Chen Yun in 1956, when Mao was still in charge, though it’s fair to say the chairman wasn’t too keen on it.
The idea is to develop China’s productive forces, and in these terms it has been a great success.
The overwhelmingly rural and localised economy of the Mao years was not a suitable base from which to build an advanced socialist society. Modern China looks increasingly adapted to do so.
This “primary stage of socialism,” Chinese planners say, could last for 50 years or more.
We could see such a timescale as an attempt to kick any deviation from current policy into the long grass.
Perhaps it is – but we ought to remember that such timescales are not unusual in Chinese planning.
There is a 75-year plan in progress to reforest the country, the famous “green wall of China,” while proposals for a tunnel between the Yangtze and Yellow rivers are billed as a 50-year plan.
Chinese officials think long-term, and huge swathes of the country remain backward and underdeveloped.
Western visitors wowed by the glittering skyscrapers of Shanghai or Nanjing may believe China is as advanced as the West – and in some areas it is – but it still has a lot of catching up to do.
There are serious problems with seeing China’s reforms as a shift towards capitalism.
Why, if a capitalist class is pulling the strings, is the party massively increasing investment in health care, pensions and benefits, when capitalist classes elsewhere are doing the opposite?
Why did the plenum commit to a widespread redistribution of wealth, both through “increasing work remuneration in primary distribution” – code for raising wages as a share of economic output – and through higher taxes?
What of the new comprehensive care systems announced this autumn for the elderly, for children whose parents both work, for people with disabilities?
None of these are capitalist policies. It would be foolhardy to claim to know exactly where China’s strategy will lead it over coming decades.
But only a highly selective view of its reform programme could bill it as a lurch to the right.