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China economy

Government think tank’s defence of China’s economic model points to reluctance to change tack in face of US pressure

  • A State Council-affiliated think tank has urged the government to stick with its state-run economic model ahead of key trade war talks with the US, which is demanding changes
  • Researchers say evidence suggests there is no need for China to adopt Western-style democracy to become a high-income country
PUBLISHED : Friday, 07 December, 2018, 7:11pm
UPDATED : Friday, 07 December, 2018, 9:46pm

A government research team in Beijing has vigorously defended the country’s state-directed economic model from foreign criticism – in a further sign that China may not give too much ground to US demands for changes to its economic model.

In an 87-page report released on Thursday, the Development Research Centre, a key governmental think tank linked to the State Council, attributed the country’s massive economic progress over the past four decades to its cohesive political governance and an embrace of an open economy.

The researchers also said their study did not support the contention that China needed to become a Western-style democracy to become a high-income country.

The release of the report comes shortly before the US and China are expected to begin detailed negotiations to address US complaints about Chinese business practises following the agreement on a 90-day trade war ceasefire negotiated by Chinese President Xi Jinping and US President Donald Trump on Saturday.

The US is demanding changes to China’s state-run economic model, saying it distorts competition and is biased against foreign firms, although there have been few signs so far that China would be willing to make significant changes.

“Currently, all high-income countries are Western-style democracies. Will China be an exception, or is it doomed to fail?” Chen Changsheng, head of the centre’s macroeconomic research department, said at a launch ceremony for the report at the Peking University.

“If we succeed, similar stories [to China’s] could be seen in Africa and Latin America,” he said.

The report came one week ahead of China’s celebration of its reform and opening up movement, initiated in 1978 by former paramount leader Deng Xiaoping, that successfully transformed a poor agricultural country into the world’s manufacturing workshop and top exporter.

The report argued that country’s economic success over that period serves as an answer to growing overseas questions over the government-directed growth model.

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A key finding of Chen’s team, based on data from more than 200 economies worldwide, is that political systems, either authoritarian or democratic, have a neutral impact on economic growth.

“Our research does not support the conclusion that China will fail [to become a high-income country] without Western-style democracy,” he said.

Instead, the openness of an economy and cohesiveness of its political governance are the two decisive factors for economic success.

Each of the 200 countries was graded based on these two factors, including how well the government balances the interests of different parties in growing its economy and whether its policies benefit the vast majority of its people, the report said.

According to the think tank’s calculations,,China’s economic openness, measured based on ease of engaging in domestic production as well as foreign access through direct investment and trade, was ranked 42 out of 200 countries in 2015, one place behind the United States.

Chen argued that the government should take further steps to improve its economic openness to prevent the country from sliding backwards.

China is now trying to move the economy up the economic value chain so that it can become a high-income country – a challenge exacerbated by the US trade war.

Washington has heavily criticised Beijing’s state-led industrial policies and the continued importance of state-owned enterprises, which it says are being given preferential treatment.

The US objection to the Chinese growth model is one of the core issues that the US wants China to address to resolve the trade conflict.

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China, on the other hand, has laid out a vision for a so-called Beijing Consensus based on its state-run economic model – in contrast to the Washington Consensus that champions liberal democracy as a key component of economic success – and is trying to export its model to poor countries throughout the world through its Belt and Road Initiative.

The Chinese government has rejected Washington’s criticism of state capitalism, saying it has been a success because of its commitment to market-oriented reforms and continued measures to open up its economy.

“For the purpose of meeting its political needs at home and containing China, the US side has produced an entire policy logic that distorts the truth about China-US economic and trade relations,” the Commerce Ministry said in a statement in early July.