Crouching Tiger, Hidden Dollars
China is an economic superpower. Its sheer size, population, natural resources, and human capital mean that it will drive fluctuations in the global economy through both demand and supply linkages — Chinese consumer spending grew 6.2% in 2018; China exported $350 billion worth of goods in 2018 — for years to come.
However, there is a key tension inherent in the means by which China has gotten to this point: China has for years operated under a system of “state-managed capitalism,” combining aspects of free markets with aspects of state control in order to achieve its twin goals of (1) prosperity and (2) a powerful Communist Party with a firm grip on power and an unrivaled dominance over an ultimately subdued population.
China has thus far been able to balance these fundamentally opposing goals by riding a wave of export-driven growth and allowing just enough free agency to unleashed its so-called growth “miracle” — lifting billions out of poverty over the past two decades.
This idiosyncratic brand of state-managed capitalism that began with a first round of economic reforms in the late 1970s has continued through until today. The Communist Party has been able to manage this economic transition well, pivoting from traditional manufacturing to higher value-added, tech-enabled industries. But throughout the process, the Party has struck a delicate balance: on the one hand, harnessing the power of markets to incentivize productive activity and stimulating enough growth to keep the populace happy, while on the other hand severely limiting social freedoms; engineering and investing in infrastructure that has helped make Chinese airports, roads and bridges among the most modern and impressive in the world, while issuing corporate dictates that have distorted markets, led to “ghost cities” and spooked away foreign investors.
As higher GDP has leads to higher standards of living, this will tend to create an additional thirst for luxury goods — most important among these, a right to individual expression needed to accumulate a western-style sense of “status” reflecting a mobility and individualism that has (to this point) been anathema to Communist Party leadership — and at some point, China must decide whether to fully embrace this and move towards a system of truly free market capitalism paired with liberal democracy (which would entail painful loss of supremacy for the Party), or crack back down on free markets, risking a destabilizing series of popular revolts in order to uphold its status as the standard-bearer for “state-managed” capitalism.
Which of these alternatives is ultimately more palatable to Partly leadership depends, critically, on the anticipated responses of their global trading partners in the region and in the West. To be sure, the Global Financial Crisis and subsequent rise of populism across the globe has made China’s system of state-managed capitalism appear much more attractive — there are benefits to having an overarching “big brother” who can take corrective action if free markets run off the rails. But having a truly dynamic and open society (something that history suggests “the people” will ultimately demand) requires operating without this type of “overlord” government and suggests that the cracks which China has been able to paper over by selectively using free market forces will eventually show through.
Sources
1https://www.chinadaily.com.cn/a/201901/21/WS5c456529a3106c65c34e59f2.html
3 https://www.businessinsider.com/how-china-went-from-communist-to-capitalist-2015-10
4 https://www.forbes.com/sites/peterpham/2018/03/07/what-will-chinas-future-look-like/#4cd271637488
6 https://www.dragonsocial.net/blog/chinese-consumer-behavior-7-key-features-for-brands-to-know/
