Sorry, but mainland is far from being a market economy

PUBLISHED : Thursday, 05 April, 2012, 12:00am
UPDATED : Thursday, 05 April, 2012, 12:00am


The economists within the liberal ranks understand that market economics forms the foundation of China's success. Yet their economic position has been hijacked by political ideologues who insist on linking market economics to the political system of liberal democracy. They believe the market cannot function without voting, blind to the fact that a vibrant market economy has been growing by leaps and bounds under one-party rule.

Eric X. Li, commentator
Insight page, April 3

I sympathise with Mr Li's quest for a place where market economics is the foundation of a spectacular success and no political ideologues interfere with it or try to make it subject to the ballot box.

I knew such a place once. It was old colonial Hong Kong. We even had a name for this separation of state and market. We called it 'positive non-interventionism', which was a fine way of saying 'benign neglect' or simply 'Can't be bothered. What horse do you favour tonight?' I heartily recommend this form of government to Mr Li.

But while old Hong Kong showed it is indeed possible to have a successful market economy without the vote, I don't see a parallel to present-day China here. The real foundation of a liberal democracy is not so much the vote as it is civil liberties. Freedom of speech, freedom of association and freedom from arbitrary imprisonment, among others, are the core values. The vote is a way of guaranteeing them. The one civil liberty of greatest interest here is the freedom of the market - the right to buy and sell goods, services and securities with the counterparty of your choice at prices you agree without artificial control of price or supply.

I think it as valuable a right as any other civil right and the foundation of economic success. Mr Li thinks so too. He not only attributes China's economic success to it but says it exists under one-party rule without liberal democracy.

I hesitate there. Hong Kong's success under the colonial equivalent of one-party rule was an anomaly that existed largely because colonial administrators were the servants of democratic Britain. They were never minded to interfere much. These were Whitehall's instructions. It is not so in Beijing.

How can Mr Li call China a market economy when its currency, the framework on which a market economy is built, is not open to the market? There have been some small-scale openings of the capital account but nothing to threaten central control. The man on the street is not able to exchange the yuan for other currencies. Yuan interest rates and exchange rates are centrally determined in Beijing, and bank lending is still tightly directed. How is this a market economy?

In monetary matters it is so little of one that China's export industries use US dollars to transact and finance their efforts. They cannot be properly priced in yuan and the result is that, while Chinese workers make the products, foreigners own the rights to them and make the big money.

Most of China's economic success over the last 30 years comes from having started from a low base and having then been able to take advantage of world peace, easy technology transfers, modern communications, foreign investment and an army of 200 million unlicensed workers who can be underpaid in foreign-controlled factories. This may yield success in headline production figures but it does not make a market economy.

On the domestic side, the government has undertaken massive infrastructure investment without proper study of real need. The result is ever less real benefit for the citizen for every yuan invested. The banking system has now also been weakened by it.

I would be happy to entertain Mr Li's argument that a market economy can succeed in a one-party state, but China's economy is not an example of it. Let's measure success for a change by the living standards of a production slave in one of those awful assembly barns.

I remain proud to be an old- fashioned liberal democrat in these matters. Civil rights, including a market economy, are the foundation of a happy and successful civilisation and election by universal suffrage is the best guarantor of civil rights.