China Seems Determined To Destroy The Things That Have Made It Relatively Successful
/Is China in the process of “winning” the battle for the future of the world? Certainly, Xi Jinping thinks so. So does everyone else in China if you believe what they say. (But then, nobody in China is allowed to dissent on this point, so in truth you don’t really know what they think and you have no way to find out.).
Zillions of statism-loving American journalists and pundits also think that China, through its tightly-state-and-party-controlled crony capitalist model, represents the wave of the future. As a prominent example, there was the unforgettable Tom Friedman of the New York Times back in 2009:
“[W]hen [a country] is led by a reasonably enlightened group of people, as China is today, it can . . . have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century.”
Or, to consider something from a pundit on the right, there was David Goldman of PJ Media writing in March 2021 in a piece titled “Why China Is Winning.” Goldman’s answer, in a word, was “meritocracy.”
But in several pieces over the years, I have offered a different perspective. As examples, in September 2018 I had a post titled “What Are The Long-Term Prospects For China?” More recently in March 2021, I had one titled “Is China About To Win In The Battle For The Future?” A summary of those pieces is that China’s one-party authoritarian model has numerous features that undermine the country’s continued ability to advance economically. Among the counterproductive features of China’s model mentioned in those pieces were the ways in which a requirement to report economic success undermines good information flow, and the systematic mis-allocation of capital and resources through state-directed investment decisions.
But now the last few months have seen China suddenly doubling down on the most counter-productive aspects of its economic system. Two major journalistic pieces describe the latest developments. Yesterday, the Wall Street Journal had a big front-page story with the headline “Xi’s Goal: Restore Mao’s Economic Vision.” (different headline in online version, which is probably behind paywall). In the Epoch Times today its “Communist China Unleashes Sweeping Bid To Remold Society.” (may also be behind paywall).
Both the Journal and the Epoch Times reference recent significant business stories coming out of China, including regulatory crackdowns on some of the giant Chinese tech companies, like Alibaba, Tencent, and Didi Global. But both pieces describe these particular initiatives as part of a much broader effort to rein in private capital and re-establish socialism as the fundamental basis of the Chinese economy,. From the Journal:
“China has entered a new stage of development,” Mr. Xi declared in a speech in January. The goal, he said, is to build China into a “modern socialist power.” . . . An Aug. 29 online commentary circulated by state media called [Mr. Xi’s plan] a “profound revolution” for the country. “Xi does think he’s moving to a new kind of system that doesn’t exist anywhere in the world,” said Barry Naughton, a China economy expert at the University of California, San Diego. “I call it a government-steered economy.” . . . Before this year, Mr. Xi was distrustful of capital, but he had other priorities. Now, having consolidated power, he is putting the whole government behind his plans to make private business serve the state.
From the Epoch Times
Be it e-commerce, entertainment, education, or gaming, few areas of Chinese society have been left unscathed amid Beijing’s torrent of regulatory activity in recent months. As authorities clamped down on the offending actors, stock markets tumbled with hundreds of billions wiped out, while companies and individuals have scrambled to assess the new rules, lest they tread on the regime’s toes. . . . A “profound revolution” is underway in China, declares nationalist essayist Li Guangman, a former editor for an obscure state newspaper. In a recent commentary quickly promoted on prominent Chinese state media websites, he hailed the regime’s campaign as a “return to the original intent of the Chinese Communist Party (CCP) … and the essence of socialism.” . . . It looks like the “opening days” of a cultural revolution, said June Teufel Dreyer, a political science professor at the University of Miami.
All I can say is that the United States continues to be remarkably blessed by the incompetence of its geopolitical adversaries. It seems that Xi is just too impressed with his own genius and filled with his own self-importance to take the time to look around to see what makes some countries get ahead and others fall behind. And I guess that none of the yes-men surrounding Xi is willing to risk a career on telling the pooh-bah something that he doesn’t want to hear.
For what it’s worth, I’ll offer up the official Manhattan Contrarian list of pointers for a country to achieve economic success. Fortunately I can do this with complete confidence that China will pay no attention at all, and will continue plowing forward to create their “new kind of system that doesn’t exist anywhere in the world.” After all, they are way too smart to study what actually works in the world. Here are the pointers:
Respect private property. If people don’t get to keep the fruits of their creativity when they come up with a successful new business idea, then somehow the successful new business ideas just disappear.
Allow a well-functioning price mechanism to allocate resources. Without it, no one know what to produce or where to look for new ideas. A well-functioning price mechanism is pretty much the opposite of what Xi has in mind.
Trial and error beats “meritocracy.” With a trial and error system, all 1.4 billion people in the country become part of the program to enhance the economy. China is going all-in on the opposite system, exam-driven “meritocracy,” where leadership positions, in a party with no dissent allowed, get handed to the people who score the best on tests and consistently voice loyalty to the regime. Sorry, Xi, but the “smartest” people aren’t all that smart. Your legions of “smart” yes-men will make every kind of mistake.
It’s essential to have a method to self-correct. Mistakes need to be identified and corrected. Business that don’t catch on, or that have over-expanded, need to shrink and/or fail. A price mechanism and a trial-and-error system accomplish this naturally. State-controlled finance to favored crony capitalists suppresses these natural processes and leads to stagnation and decline.
Even as I write this, China is hard at work deciding whether and to what extent to bail out property giant Evergrande. Those are the people behind hundreds of empty apartment towers and some entire “ghost” cities. They have some $300 billion of debt, with large interest payments coming due. Will China allow them to fail? This is only the first of many such tests that will be presented in coming months and years.