The Chinese Economic Model Is a Model for Success

From: English Edition of Qiushi Journal Updated: 2011-09-20 12:49
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 An Interview with Professor Pan Wei of Peking University

 There has been a lot of discussion among theoreticians recently about “the Chinese model.” Professor Pan Wei of the School of International Studies of Peking University has made a thorough study of this issue, and he believes that, compared with the progress made by the West over the past 300 years, the achievements made by China over the past 60 years, which did not rely on aggression or control of other countries, represent the more progressive force in the world. China has succeeded because it has followed the road of “the Chinese model,” developed through the struggles of the past 60 years since the founding of the People’s Republic of China, and when the country experienced crises it was because the country deviated from this road. Pan Wei holds that the Chinese model consists of three core components, an economic model, a political model and a social model. The interview this reporter conducted with Professor Pan Wei mainly concentrated on the subject of “the Chinese economic model.”

 Reporter: How do you see the debate about the Chinese model among theoreticians?

 Pan Wei: First, we should be clear about what a model is. Unlike describing a historical road or drawing lessons from history, a model is the result of inducing the reasons for success. What is the Chinese model? The Chinese model is a theoretical interpretation of the road leading to success for the People’s Republic of China over the past 60 years. What is the basis of the Chinese model? It is China’s history of a hundred years of struggle, a history of 3,000 years of dynasties and a history of 5,000 years of Chinese civilization. In particular, it also includes the civilizations of other nations that have been absorbed to become an organic component of Chinese civilization.

 Chart released June 18, 2010 by Xinhua News Agency shows the World Bank continues to forecast 9.5% growth for China’s economy in 2010. / Supplied by Xinhua

 Some scholars hold that a model is fixed. The past 60 years since the founding of New China was a period of great changes and those changes are still continuing. Since reform is still underway how could there be a Chinese model? However, the world has always been changing, and precisely because of this, we must have theoretical knowledge. Solid theories come from dynamic history. They interpret the dynamic present and inspire future actions. In other words, a model provides a definition for the present, knowledge for making comparisons and guidance for the future.

 There are also people who believe that the achievements of China have come at too great a cost and that the Chinese model is therefore not worthy of emulation by other countries. Where does the Chinese model come from? Here I should first of all point out that the Chinese model was not designed for other countries to emulate. Whether or not other countries get some ideas from the Chinese model is up to those countries themselves to decide. Secondly, the historical cost for the development of the Chinese model truly has been heavy, but all progress comes with some cost. The development of the model of the US and Europe, the model of the Soviet Union and the Japanese model also came at a heavy historical cost. History has clearly recorded wars of colonization, genocide of native Americans, slave trading and ownership, two bloody world wars and legal racial segregation, which existed all the way to the mid-1960s, not to mention the continuous wars of aggression.

 Still others hold that the West of today is China’s future so why do we need to analyze the Chinese model? In the eyes of these people, the first 30 years of the People’s Republic of China were a failure and the last 30 years have been a success, attributing the change from failure to success to China “making up for missed lessons” and “getting in line with international practices” as China made a 180 degree turn to take the “universally applicable” Western road. This judgment is not only superficial but dangerous as well. No country that has become developed in recent times has successfully reproduced the Western model. The foundation of the Western model is comprised of aggressive military, political and economic machines. China has never had and should never have this kind of foundation. China has developed its own path of successful development through brave struggles carried on by several generations. To forget history would be frivolous and to distort history would be a betrayal. 

 We were opposed to blind faith in the dogma of the former Soviet Union in the past, and for the same reasons, a pressing current task for China today is to oppose blind faith in Western dogma and prevent blind faith in foreign dogma from leading China into a trap. Through analysis of the Chinese model we can gain fresh knowledge and promote greater awareness of the civilization of their native land among Chinese theoreticians, thereby promoting formation of a “Chinese system of discourse” and the emergence of a “Chinese school of thought.”

 Reporter: You mentioned three subsidiary models, economic, political and social, in the Chinese model, but why do you deduce a Chinese economic model?

 Pan Wei: Success in the economic sphere is the most obvious sign of China’s success and the economic model is also the outermost layer of the Chinese model.

 Within the framework of modern popular knowledge, economic progress is considered the main sign of human progress. There is almost no disagreement with the fact that an economic miracle has taken place in China. But when it comes to interpreting that miracle, people in academic circles in China fiercely debate over it. The debates involve the direction and path of China’s future development and whether or not China’s progress will be sustained and stable.

 Some scholars interpret China’s economic success as the result of “privatization plus marketization.” However, there are many underdeveloped countries in the world that practice a private ownership system and market system, including Russia, the successor to the Soviet Union. So why haven’t these countries enjoyed the same success as China has done?

 For many people, the outbreak of the international financial crisis in 2008 destroyed their superstitious belief in “the invisible hand” as well as the belief that “less government means more progress for the people.” Reviewing the economic development of the People’s Republic of China, we find that the achievements it has made are achievements made in the 60 years since the founding of the People’s Republic of China. China’s state-owned economic sector was created during the first 30 years of New China. During these 30 years, only looking at the period between 1953 when the First Five-Year Plan was launched and 1978, not counting the very rapid rate of growth during the 1949-1953 “period of recovery,” China had an annual average GDP growth rate of 6.5%. This laid a solid foundation for the rapid development of the next 30 years with an average annual leap-frog growth of 9.8%. China’s industrialization policy has all along been consistent. Thanks to the unremitting efforts of the past 60 years, the world’s largest small-scale peasant country has become one of the world’s largest industrialized countries. Only a prejudiced eye would negate the achievements of the second 30 years with the achievements of the first 30 years and negate the achievements of the first 30 years with the progress made in the second 30 years. Only with this understanding can one analyze the success of the Chinese economy. Only with this understanding it is possible to diagnose and treat the deep-rooted maladies caused by superstitious belief in private ownership and the market. 

 China has learned a great deal about modern economies from the experience of Britain, Japan, Germany and France in the 19th century and the Soviet Union and the United States in the 20th century, but the “cost of tuition” has not been cheap.

 China is not against markets per se, but it is against “market fundamentalism.” China does not support “statism,” but does support state regulation of the market and does support state ownership of the means to regulate the market. China’s classic economic approach stressed “managing society to help the people,” with the core value as “the well-being of the people.” Given the global market competition and the pressure posed by the modern international structure, development is essential. Competition is essential for economic development. But competition also brings inequality, struggles for power and money and dissimilation of goals. Precisely for this reason, the market must adhere to a principle of “managing society to help the people” more than ever and it is even more important for the government to interfere to suppress the drawbacks of market competition and safeguard the well-being of the people. Traditionally, China has always pursued “universal peace” and does not yield to the so-called “equality” based on the outcome of gaming and still less believes in “basing everything on capital” and making profits the foundation for everything. This approach has been handed down from generation to generation to the present day. Agrarian China has been able to adapt to the industrial era and rapidly develop precisely because the government has the ability to interfere in the market to counter market forces.

 Reporter: How would you summarize this “Chinese economic model” you are discussing?

 Pan Wei: The four factors of an economy, labor, land, money and enterprises are the basic starting points in analyzing economic activities. Starting with these four basic factors of an economy, we can summarize the Chinese economic model as being composed of four pillars.

 One is the power of the state to control land, viz. public ownership of land, with private individuals and businesses possessing limited land use rights. The actual situation is more complicated, since arable land in the countryside is collectively owned, but the collectively owned arable land is controlled by the state and can not be turned into land for non-agricultural purposes without government authorization. Land in China is publicly owned but can be privately used by private individuals and enterprises when they buy land use rights for a set period of time.

 Two consists of financial enterprises owned by the state or financial enterprises where the state is the majority stock holder and large state-owned non-financial enterprises and institutions and agencies. China’s financial industry is mainly state-owned or state controlled. The state regulates and controls the financial market through various types of large financial institutions to counter internal and external financial risks. The state also owns a number of large enterprises which engage in building the economic infrastructure and producing the means of production, such as petroleum, railways, electricity, telecommunications, roads, airlines, and water supplies. In addition, the state owns certain “institutions,” which mainly refer to education, scientific research, medical care, sports and culture organizations. These organizations are basically non-profit, but some of them make enough profit to be self-sustaining. 

 Three is a free labor market. China has a highly competitive labor market with large numbers of workers employed by cottage industries and community-based collective enterprises. These small and medium-sized industrial and commercial enterprises account for over 99% of the enterprises registered with China’s administration of industry and commerce, and their method of employing labor is one of the freest in the world. Moreover, the free labor market has forced state-owned enterprises to be competitive in their use of labor as well. 

 Four is the free commodity and capital markets. China has a highly competitive commodity market and a liberal capital market is rapidly taking shape. China’s small and medium-sized enterprises are the main suppliers for the commodity market, so there is a great deal of competition in commodity production. At the same time, the highly competitive commodity market is stimulating rapid development of China’s capital market. There is no ideological contradiction in China opening its capital market to foreign countries. The problems are mainly technical. China’s industrialists used to believe that Western capital markets were very open, but in the past two years they have discovered that there are many technical and political limitations to that openness. China may very likely soon become one of the most important proponents for the development of a free capital market in the world, just as China has replaced the United States as the strongest proponent of free trade today. The reason is quite simple: a free commodity market inevitably promotes growth of a free capital market.

 The four main pillars of the Chinese economy can also be divided into two parts: a “state-owned” part, which is mainly the first two main pillars, and a “people-owned” part, which is mainly the other two main pillars. The two parts support each other, so the Chinese economic model can be called a “national model” (because the Chinese word for “national” is composed of two characters, one meaning the state and one meaning the people).

 Reporter: Can you please explain the functions of “the state-owned” sector and “the people-owned” sector?

 Pan Wei: “The people-owned” sector of the economy, with its function as two of the main pillars, is playing a major role in China’s development, in particular by providing job opportunities and ensuring efficient competition, which is apparent to everybody. But what quite a few people are failing to see is the function of the state-owned sector as the other two main pillars.

 The state’s right to control land has several important functions: 1. By equally distributing arable land and land for housing, the state can ensure social stability in the countryside. 2. The state can ensure relative fairness in the ownership of the means of production for all people. 3. The state is able to keep the tax rate low for the industrial sector of the economy. 4. The state is able to keep the cost for developing industrial infrastructure low.

 State ownership of various types of large enterprises and institutions also has several important functions: 1. State ownership of enterprises and institutions ensures stability in the financial and banking system so it can concentrate on supporting industrial production and, through ownership of enterprises and institutions, the government can prevent financial departments from deteriorating into independent “money grabbing empires” or being manipulated by external financial empires. In addition, this gives the state effective means for implementing macroeconomic regulation. 2. The state-owned industrial sector is mainly responsible for building expensive industrial infrastructure facilities and for high-tech and defense industries, which the private sector would find difficult to do. In addition, the state-owned industrial sector builds and controls public-use infrastructure facilities which are naturally of a monopolistic nature to keep prices stable. 3. The government arranges for construction of facilities for non-profit organizations in education, scientific research, health care, sports and culture, which would be difficult for the private sector to handle. This ensures that these organizations develop rapidly and thrive far better than those of other underdeveloped countries.

 It could be said that the state and people-owned sectors each have different functions, that they complement and support each other and that their development is balanced, thus forming the “national” economic model. If any one of the four main pillars were weakened it would inevitably destroy the Chinese economy and lead to economic failure.

 Reporter: What’s the difference between the Chinese economic model and other economic models?

 Pan Wei: The Chinese economic model is unique. The “national” model is not the “product economy” of the Soviet Union, because it does not completely rely on “public ownership.” The “national” model is not “a market economy” as practiced by Britain and the US, because it is not based on private property rights. The “national” model is neither a “social market economy” as practiced in countries in western and northern Europe, because China does not have a high tax rate and high level of welfare, nor the “state capitalism” in German or Japanese history, because the Chinese economy is not dominated by a few large private enterprises, which are not the main employers of Chinese labor. There are major differences between the Chinese economic model and “the East Asian model” because the Chinese economy is not simply export-oriented and the government only interferes in a limited way in the economic activities of enterprises. The Chinese economy is very open and is rapidly evolving into the world’s largest market. The Chinese economy is one in which the “state” and the “people” support each other, in other words, “a socialist market economy with Chinese characteristics.”

 China’s “national” model in which Chinese officials and civilians cooperate with a set division of labor has successfully helped to resolve the problem of the lack of initiative in a planned economy, the lack of mercy in a market economy and the lack of efficiency in a welfare economy by mobilizing workers in industry and commerce as never before, stimulating fierce competition among enterprises and bringing about rapid strengthening of the productive forces in society, thus promoting rapid industrialization.

 In so far as the operating mechanism is concerned, the state and the people constitute an integral whole with both common and conflicting interests. The state and civilian sectors are continuously adjusting to adapt to each other and thereby maintain a dynamic balance. When the state becomes too powerful, leading to a “struggle with the people over interests,” the state-owned sector of the economy can be appropriately reduced to allow more growth of the private sector. When the private sector starts to struggle because of inadequate infrastructure, the state has the resolve and means to improve that infrastructure. When the civilian sector becomes too powerful, even seeking to monopolize the market for basic goods to charge unreasonably high prices thus threatening the well-being of the people, the state intervenes to stabilize prices in housing, highway tolls, water, public transportation, hospitals and schools. On this basis we can conclude that the Chinese economic model is one in which there is a division of labor between the state and private sectors, which cooperate to ensure the well-being of the people.

 Reporter: Some people think that China’s economy should develop in the direction of “letting the private sector grow and the state sector shrink,” and there has been a great deal of debate in China on this issue since the outbreak of the international financial crisis. How do you see this issue from the perspective of the “Chinese economic model?”

 Pan Wei: We can use comparative history to get a better understanding of this issue. The right of the state to control land and development of the large state-owned financial institutions and other government institutions and enterprises originated in the period of the planned economy. The deregulated labor market and the commodities and capital markets developed during the institution of the reform and opening up drive, but markets for agricultural products have existed for thousands of years and they have also played a role. The Chinese economic model is a road naturally formed by environmental pressure, and is the result of continuous evolution during the two 30-year periods since the founding of New China. Even more significantly, the Chinese model represents a victory for our tradition of “seeking truth from facts” under the leadership of the Communist Party of China.

 The marrow of the Chinese economic model is the state-owned sector, which was born and developed during the period of the planned economy in the first 30 years of the People’s Republic of China. Emphasizing the role of state ownership of the means of production is actually related to the theory of surplus value developed by Karl Marx. However, China did not indiscriminately apply the original ideas of Marx or mechanically copy the Stalinist model of the Soviet Union in establishing the country’s planned economic system. For the most part, China developed its planned economy to meet practical needs. China’s planned economy was divided into the two major sectors of the state and the collectives, and the level of economic planning was far lower than that of the Soviet Union. The planned economy of the first 30 years laid the foundation for Chinese industry and built up a strong national defense. The driving force for the planned economy waned as workers became less willing to diligently work and national security issues became less severe. It would have been impossible for China to close off the country’s land area, encourage people to emigrate to other countries, plunder other countries or start wars of aggression as Western countries have done. On the other hand, it is China’s firm intension to catch up with the West and raise its overall national strength through modernization. Therefore, it was inevitable that China would sooner or later resume making use of market forces. China retains two valuable treasures left over from the planned economy after returning to the use of market forces, the power of the government to control state-owned land and large state-owned enterprises and government agencies and institutions. These two treasures have enabled the country to successfully develop China’s unique economic model, which has enabled China to have a strong ability to cope with risks.

 Some people criticize China’s state ownership of land, demanding that China open up everything to market forces as is done in Europe and the US. Why won’t China rescind the power of the state to control land? Land is not an ordinary commodity and the supply of land can not be increased in response to an increase in demand; it can only be traded around. China has a much smaller area of habitable land than the United States, but China’s population is five times that of the United States. The arable land is controlled by the state and the collectives, which periodically regulate land-use rights in accordance with shifts in population so that every citizen has a place to live. This is the most important pillar in China’s economic model. If land were to be privatized, it would concentrate in the hands of a few people, which would ultimately result in utter chaos, with large numbers of homeless people across the country and collapse of the government. State ownership of land in rural areas means that “farmers have land to farm,” in urban areas it means “residents have housing” and for small and medium-sized enterprises it means a low tax rate. State ownership of the land is precisely the reason why China has been able to maintain social stability and good order with people able to live and work in peace in spite of the country’s low level of economic development and government welfare.

 Still other people criticize the state-owned sector of the economy for its effect on the national economy and people’s lives. These people have coined an “academic” term _ “absentee owner,” and all the reasons they give for the various privatization policies they propose are related to the issue of the “absentee owner.” Small and medium-sized enterprises account for China’s current free labor market and commodity and capital market, but fierce competition makes it difficult for small and medium-sized enterprises to develop into large enterprises that can compete with enterprises in the West. The reason why China’s economic infrastructure far surpasses that of the average underdeveloped country and why China has a stable financial system and a strong ability to carry out macroeconomic regulation of the market is that the state-owned sector of the economy plays the leading role in the national economy. The state-owned sector of the economy is responsible for developing the country’s infrastructure, for combating the impact of foreign finance and capital, for fending off attacks and suppression from foreign monopoly enterprises and for participating in international competition for resources.

 Reporter: Some people hold that the Chinese government has excessively interfered in economic activities and the “natural” regulatory function of the market. What is your view about this issue?

 Pan Wei: Looking at the actual situation in economic activities, there has never been a market totally free from government interference and there will never be. Without the interference of the Chinese government and state-owned sector, the arable land would concentrate in the hands of a few people and many more people would roam around the country without land, housing or employment. There would be much higher prices for the products of “natural monopoly industries,” such as gasoline, water and electricity, rail transportation, road transportation, air travel and telecommunications. There would be no financial guarantees for social programs in education, housing and medical care. Moreover, China would not have been able to make so many independent achievements in “high-tech” fields such as in the space industry, national defense and information technology and would not be such a strong international competitor in the fields of energy and raw materials. The facts show that the “healthiest” financial industry in the world is not the avaricious private financial industry of the West but the state-owned financial industry of China. In China, it is the state-owned economy that promotes development of the private sector and promotes “putting the wealth in hand of the people.”

 Formation of the Chinese economic model was not an accident, but the natural consequence of the specific conditions of the country. This model inherited the unregulated economy of the small-scale peasant stretching back more than 2,000 years and the state-owned and collective economy initiated by the People’s Republic of China during the first 30 years since its founding. It has absorbed the contemporary theories and practices of the West and has been gradually developed and polished during the 60 years since the founding of the People’s Republic of China. The Chinese economic model has now taken shape and is a model that leads to success!

(From Red Flag Manuscript, No. 8, 2010)


Note: Interview conducted by Wu Qiang, a reporter of Red Flag Manuscript

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