Why the China model hasn't stumbled as yet

It certainly is amazing how China has mastered the latest management methods, accounts and policies of market economy so deftly since the eighties, after building up skilled workforce and institutions on socialist principles and policies after the 1949 revolution. Not only have they mastered the methods, but have also stood up to the old tried-and-tested powerful capitalist market economy, subjecting their own economy to reforms and ensuring speedy growth.

According to simple annual GDP records, China now is the world's second largest economy after the US, the size of its economy being around USD 17 trillion and per capita income around USD 12,000.

And if comparative purchasing power is taken into account, then China has crossed the US and is the world's largest economy, at around USD 27 trillion, with a per capital income of around USD 19,000. All these figures are sourced from China and IMF.

While China may have clinched the top place in income, it lags behind around 80 countries in per capital income, and behind 72 countries in PPP considerations. Its burgeoning population is one of the reasons behind this. China is largest in global trade, its trade amounting to around USD 5 trillion. China has the dubious reputation of resorting to corruption, sub-standard products and dumping in almost all countries, Bangladesh certainly no exception.

China has the largest foreign currency reserves, over USD 3 trillion. China is the largest too, when it comes to an influx of investment totalling over USD 1 trillion. And China’s investments overseas are on a steady rise too. They are also increasingly buying out various foreign companies. Had the US not created political obstacles, by now China would have bought up various multinational firms, including large oil companies.

Latest reports have it that US security bonds worth USD 2 trillion are now in China’s ownership. It owns the same amount in treasury bonds. In that sense, China is the US’ biggest lender at the moment. Of course, over the past decade China’s own debts have been rising. Of the world’s biggest 10 banks, the first three are China’s – Industrial and Commercial Bank of China, China Construction Bank, and Agricultural Bank of China.

How China achieved such high growth and has managed to hold on to it year after year, how it so speedily became the second biggest economy in the world, how market-oriented economic reforms did not create any disruption in such a large a country, has become a vital question in all finance and economic-relates research as well in discussions. The world’s super powers want to explain it like this. They say that this rapid growth was possible due to the Washington Consensus or neo-liberalism, or the liberalization of the economy as advocated by the World Bank and IMF or the growth of individual wealth. Therein lies the question.

Many countries have followed the World Bank model, but no other country has seen such results. Many countries of Africa, Latin America, Bangladesh, India and Pakistan have taken up liberal market-oriented reports based on the World Bank-IMF model. The outcomes have been varied. Many countries have stumbled, floundered in all sorts of crises. They have been gripped with debt, unemployment, inflation, inequality and crises of varying degrees. Why was there no serious crisis or disaster in the case of China?

Broadly speaking, in most countries there appears to be two trends even within the capitalist-leaning reforms. Renowned economic analyst Kavaljit Singh carried out research on the comparative picture of the two. Due to fundamental differences between China’s economic reforms and those of others, Kavaljit differentiated this from the ‘Washington Consensus’ and termed this the ‘Beijing Consensus’.

Given all the facts and figures, the characteristics of the China model can be identified thus:

Firstly, by the time China began economic reforms in 1978, it had already established a strong foundation. Earlier, after the revolution, China’s extreme poverty had significantly decreased. There had been significant success in education and healthcare, communications, institutions, etc. Rather than totally obliterate these successes, the reform programmes was built up upon these.

Secondly, in many other countries like India, Pakistan or Brazil, these reforms began within various financial crises (debts, devaluation, transactions, etc). The reforms were taken up as means to extricate themselves from these crises. But China did not adopt the reforms due to any financial pressure, but completely on its own accord to accelerate its development, with ambitions of becoming a global power. The other countries did not have their own planning and authority when it came to reforms. That is why, unlike in the case of other countries, the World Bank or IMG did not exercise their authority here. That is why there were no discrepancies in their plans, pace or priorities.

Thirdly, China has gone ahead with its reform programmes in phases. It started with agriculture, then international trade and finally industry. While the private sector has been expanded in a planned manner, it was ensured that state control remained strong on the financial sector. That is why when the financial sectors of East Asian countries were crashing in 1997, China remained untouched by international monetary manipulations.

Fourthly, programmes for economic reforms or the expansion of the private sector were not taken up sweepingly for the entire country in one go. China went ahead gradually with pilot projects in various regions. It took up, for example, investment in coastal areas and areas of East China, limiting tax system reforms to only certain special economic zones.

Fifthly, while Russia and East Europe distributed their state institutions among a handful of certain groups with no legal safeguards in place, leading the spread of a capitalist mafia, China did no such thing. The state institutions were reformed in phases. The important institutions remained with the state.

Sixthly, the flow of foreign investment had significantly increased in China. But unlike other country, this did not lead to the dominance of multinationals. At first foreign investment was only accepted in special economic zones from expatriate Chinese in Hong Kong and Taiwan. There are all sorts of restrictions in place on foreign investors from outside these areas.

However, despite all sorts of precautions, controls and successes, China is facing the inevitable backlash of capital-oriented reforms. These include the rural, urban and class disparities, unemployment, corruption, concentration of wealth and environmental pollution. China is seeing a rapid deterioration in various aspects of inequality. A large chunk of China’s investments are in its eastern and southern coasts, regional disparities are exacerbating. While official figures show per capita income has increased 8.5 per cent in the cities, this stands at 4.2 per cent in the villages.

Actually, the gap between the rich and the poor is even wider than it was in the pre-1949 revolution China. Unemployment rates have gone up too. Investigations indicate that around 120 million (12 crore) people are coming to the coastal regions from the villages in search of work. Another reason for this is that in 1998 around 40 million (4 crore) people were laid off from various state-owned establishments. Unemployment has crossed 10 per cent in urban areas.

However, the state structure remains effective through all sorts of trials and transformation, because the party structure continues down to the rural level on the lines of the revolution, with people of various organisations in the remote areas having space to express their views and decisions. There is debate and even resistance to various projects taken up in the name of development.                                           

* Anu Muhammad is a teacher, writer and editor of the quarterly Sarbojonkotha

* This column appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir