Beijing’s crackdowns usher in a new era of Chinese capitalism
- China is now at the stage of capitalism when market forces can’t be counted on to deliver upward mobility to the masses. So the state is stepping in to rebalance economic growth and income distribution
To see the winds of change, it may be useful to review the state of Chinese capitalism.
First, the private sector has been the key engine for innovation and growth, and provides the main base for employment. Second, the economy is open to foreign investment, albeit in a graduated manner, with restrictions in some sectors.
Third, the state dominated strategic industries such as banking, energy, transport, telecommunications and the media – until the emergence of big tech. Finally, local governments – much more than the central government – have played pivotal roles in promoting economic development.
In contrast, regions that were part of the state-owned industrial base, such as Shanghai and the northeastern provinces, have seen far slower growth.
Township and village enterprises with ambiguous ownership interests were another key growth impetus in the early days. They, too, have faded away or been privatised. Most state-owned enterprises have been privatised, leaving the largest and strategically most important in the state’s hands.
Large online platforms provide efficiency, and also represent a tremendous concentration of economic power and social influence. At the same time, the rivalry with the US has forced China to become more self-sufficient in critical upstream technologies.
Through economic reform, capitalism has unleashed powerful productive forces – propelling China to where it is today. But in a China where later-stage capitalism now prevails, prospects for entrepreneurial success and upward mobility have become dimmer. Over time, social tension has built up.
In a winner-takes-all economy, market forces cannot be relied on to improve the lot of the masses. Thus, the state may see a greater need to step in to resolve internal contradictions and overcome external challenges.
This may be understood as a delayed implementation of the “Scientific Outlook on Development”, championed by president Hu Jintao. Chinese society is now sufficiently affluent, and its social contradictions so acute, that an era of “scientific” economic balancing has become necessary and possible.
Capitalism with Chinese characteristic has produced a vibrant economy, albeit with persistent social problems. Can such problems be addressed without sacrificing economic vibrancy? Could a new regulatory environment solve problems without creating more serious ones?
Corporate ESG (environmental, social and governance) engagement is laudable. But encouragement can look like coercion when carried too far.
Unlike some local governments, China’s central government, with its huge asset base, should not be predatory. It also cannot be seen as confiscatory, which would undermine the foundation of productive capitalism.
Since reform began, Beijing has focused on driving regional development. But, in a departure from the past, it will now play a more active role in guiding, coordinating and regulating the economy.
It will understandably focus on national giants. But, mindful of any adverse social impact, it is also reining in land-based financing among local governments.
Nor does China want to see the intractable social problems typical of South Korea’s oligarchic economy, which is dominated by a handful of chaebol.
Capitalism and socialism are not dichotomous, but instead sit along the same spectrum. The most successful economies often find a balance between the two.
Can China find a more humane form of capitalism? The achievements of small affluent economies may be difficult for a large country to emulate. Germany, perhaps the biggest such success story, has had a long history of industrial development and a highly skilled workforce.
These welfare states are also constrained states with a transparent rule of law. An unconstrained interventionist state could breed corruption and inefficiency.
Even after all the progress in fighting corruption, a more interventionist state (without adequate legislative and judicial checks) could dial back China’s anti-corruption campaign. In its next stage as a more activist state, can China avoid the fate of bureaucratic capitalism and achieve more fruitful social capitalism?
Winston Mok, a private investor, was previously a private equity investor