The Illusion of China’s Economic Liberalization

China has become an economic superpower by  Author and academic Andrzej Bolesta, author of China and Post-Socialist Development 

Dr Andrzej Bolesta

The leading theme of the proceedings of the Chinese rubberstamp legislature – the National People’s Congress – is always reforms.

Recently, hopes have been high. The administration of president Xi Jinping and premier Li Keqiang has been promising more market forces in China’s economy. Despite this, in recent times, China’s economic liberalization has been an illusion rather than a fact and this will not change any time soon.

The assumption has been that the interventionist model, characterized by the state’s heavy involvement in the economy, which dominated the first 30 years of reforms and opening up has come to exhaustion.

Why? The implementation of the state interventionist model has led to a growth in social inequalities, significant damage to the natural environment and, perhaps most recently, an almost three percent drop in economic growth – the lowest in 24 years.

Market forces

The logic has been that if a lack of market forces has brought upon China these, to put it mildly, worrying trends, then we need to introduce more market forces to amend the situation. “We need more market forces” – has been the message of the current state administration. And what has happened since the calls for more market reforms began? In terms of economic liberalization, not much.

Since the commencement of economic transformation by Deng Xiaoping in 1978 China has undergone an extensive process of liberalization. A somewhat market-based economy was constructed. But with the administration of president Hu Jintao and premier Wen Jiabao from 2003 the liberalization process essentially halted and China has since only reluctantly been fulfilling its obligations related to its WTO membership.

“The authorities have little intention of continuing economic liberalization”

The current drive towards economic liberalization is also an illusion. Some reforms will continue but the progress towards a greater role of the market in economic affairs will be slow, painful and perhaps full of retrenchments. The authorities have little intention of continuing economic liberalization. There is an important reason for this.

Shanghai – economic capital of China Photo credit – wikipedia

The higher echelons of the Chinese communist party long ago chose the model of China’s development and since the beginning of transformation the general idea has hardly been altered, despite the plethora of analyses that claim to the contrary.

This model can essentially be summarized as an attempt to employ the systemic, institutional and policy solutions used by Japan and Korea during their high growth periods.

East Asian development model

It is true that China is very different from both countries. It is much larger and more decentralized; it has a different historical institutional background as it was a socialist country; and finally, it attempts to imitate Japan and Korea at a time when the advancements of globalization in a way impose a great deal of openness on national economies, thus making some of the Japanese and Korean historical policies incompatible with the arrangements of the contemporary world.

Nevertheless, with all its indecisiveness and reform retrenchments, China’s leadership has vigorously implemented the East Asian development model as extensively as the internal and external conditions have allowed – a model responsible for the most spectacular developmental advancements of mankind in the second half of the twentieth century.

“In this model, however, there is hardly any space left for further economic liberalization”

This implementation is clearly visible when we examine China’s trade policies to support export and to discriminate import, when we observe the deliberate policy of development of certain sectors of export-orientated production; when we see economic nationalism becoming, next to political nationalism, the leading state ideology; and when we see how the leadership wants to keep the society subordinate and obedient and at the same time supportive of the national development trajectory, and does so by keeping the social sphere weak and unorganized and by, nevertheless, creating conditions for gradual improvements in the welfare.

This model has largely been a success. China has become an economic superpower. In this model, however, there is hardly any space left for further economic liberalization. Further liberalization will only be possible once domestic companies reach the level of sophistication that enables them to control the domestic market in the free market environment, and to effectively compete on the global arena, as was the case of Japanese keiretsu and Korean chaebols.

This moment has yet to arrive. Chinese authorities continue to believe that more competition from foreign actors will negatively affect the domestic business sector. Chines authorities also believe that the social and environmental problems their country is currently facing cannot be solved by market forces. And this is the perfect excuse to continue following its long-term model of development with an intrusive and interventionist state. Chinese leadership will talk about economic liberalization as it plays the global game, for China is a part of the global economy. And the global game is to praise more market, more free trade, more economic liberalization. But it will not liberalize.

Dr. Andrzej Bolesta
@a_bolesta

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