Three Institutional Factors Leading to China’s Success in Coping with the International Financial Crisis

From: English Edition of Qiushi Journal Updated: 2011-09-21 10:01
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 The international financial crisis posed a major threat to all countries. Despite this, China managed to go unshaken by the crisis, not only achieving a rapid economic turnaround, but also becoming an engine for the recovery of the world economy. Above all, this success was brought about by China’s adherence to three systems: the leadership system employed by the CPC, the socialist political party system with Chinese characteristics, and the socialist economic system with Chinese characteristics. By effectively balancing the relationships between democracy and centralism, between the ruling party and the participating parties, and between the government and the market, China has been able to fully demonstrate the unique superiority and key role of its socialist system.

 December 4, 2009, people selecting cars at an auto show in Wuxi, Jiangsu Province. This show was part of China’s Automobile Subsidy Program for Rural Areas to promote domestic demand and ensure growth. /Photo by Xinhua reporter Cheng Binghong

 I. The organic unity of democracy and centralism has fully demonstrated the superiorities of the leadership system employed by the CPC

 Democratic centralism is the fundamental mode of leadership and internal organization employed by the CPC. As a dialectical unity of democracy and centralism, democratic centralism is characterized by the practice of centralism on the basis of democracy and the practice of democracy under the guidance of centralism. As a mode of leadership, democratic centralism not only encourages public participation and channels collective wisdom, but also leads to consensus and well-thought-out plans of action. It minimizes internal conflict, prevents indecisiveness and endless discussion, and focuses support behind major initiatives, thereby leading to higher efficiency. The enormous superiority of this system was fully demonstrated by China’s reaction to the international financial crisis.

 By putting the interests of the people above all else, the CPC has become a powerful leading core. The CPC is dedicated to safeguarding, realizing, and expanding the fundamental interests of the overwhelming majority of the people. This is the fundamental characteristic and the objective of the CPC’s leadership and governance. In promoting the cause of socialism with Chinese characteristics, the CPC has followed its “from the masses, to the masses” line of work. In its effort to create more effective channels for the relay of social feedback and public opinion, the CPC has successfully developed a series of accessible and well-regulated mechanisms for the expression of appeals, the coordination of different interests, and the safeguarding of rights and interests. Following the outbreak of the international financial crisis, the Party organized a series of initiatives aimed at ascertaining the needs, conditions, opinions, and thoughts of the public. As a part of these initiatives, cadres from the Party and state organs were sent into local communities, while Party and government leaders at the local level were required to engage with grassroots society. The CPC Central Committee was able to draw on this public opinion and wisdom to accurately judge the nature of the situation and make resolute policy decisions. The targets of sustaining economic growth, ensuring the public wellbeing, and maintaining stability were met with widespread support from among the public, setting the stage for a massive concerted effort to combat the financial crisis. Over three million Party organizations at various levels across the whole country were quick to evaluate their situations and improve policies for better effect. At the same time, more than 78 million Party members gave play to their vanguard role, performing their duties to the best of their abilities. Prominent democracy within the Party fully exerted the enthusiasm of Party members during this effort. The CPC Central Committee acted as a pillar of strength, bringing the entire Party and all of the people together in a concerted and coordinated effort to combat the international financial crisis.

 Rational decisions are made on the basis of a wide spectrum of wisdom, which allows for effective responses to be made in challenging situations. Democratic opinions must be effectively centralized in order for a rational decision to be made. Under Western political models, political parties represent specific interest groups, and as such, often impede one another on important issues. This slows down the decision making process and spells uncertainty for polices. The CPC, which represents the fundamental interests of the overwhelming majority of the people, makes decisions on major matters in accordance with the principles of collective leadership, democratic centralism, deliberating on individual cases, and making decisions at meetings. During this process, it integrates the full and orderly participation of various political parties and groups, regions and localities, ministries and departments, and people of all social strata, which allows it to accurately grasp the laws of development behind complex phenomena and identify major opportunities that lie hidden within major crises. Institutionally speaking, the superiorities of this mode are manifested in the widespread pooling of wisdom and the strong capacity for centralized policymaking. After the outbreak of the international financial crisis, the CPC Central Committee convened meetings of the Standing Committee of the Political Bureau of the CPC Central Committee and meetings of the Political Bureau of the CPC Central Committee, in which it analyzed the nature and likely progression of the financial crisis from the perspective of the overall situation and strategy. In the meantime, it sought opinions and proposals from inside and outside the Party and from all sectors of society by convening a plenary session of the Party, holding a meeting of the central government on economic work, and organizing forums and meetings for non-Party personages. The leaders of the CPC Central Committee visited heavily inflicted areas to assess the situation on the ground, ascertain the difficulties facing economic development, and consult with members of the public on plans to maintain steady and rapid development. On the basis of its findings, the CPC Central Committee rapidly introduced important measures to boost domestic demand, stabilize the employment situation, and improve the social safety net. These measures proved effective in averting an overly rapid slump in the pace of economic growth.

 The CPC is able to ensure the effective implementation of plans by turning policy decisions into solid action. The powerful capacity that the CPC’s mode of leadership has for implementation was fully demonstrated by China’s response to its most serious developmental challenge since the turn of the century. Party organizations at all levels and the broad masses of Party members were inspired to implement policy decisions and commit themselves to victory; all available government and public resources were effectively converged; and all policies and measures were immediately implemented and enforced. Immediately after the CPC Central Committee had identified the major policies in response to the international financial crisis, the State Council called an executive meeting on the specific implementation of these measures. Various ministries and commissions worked in close cooperation with one another as they performed their respective functions; local governments worked to the best of their abilities in accordance with their actual situations; and all sectors actively responded to the calls of the CPC Central Committee by approaching their work creatively. Meanwhile, the Standing Committee of the National People’s Congress dispatched survey teams to different parts of the country to monitor the implementation of key policies, while the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) conducted intensive studies into major issues concerning economic and social development and proposed countermeasures to improve and ensure the effective implementation of policies. The relevant departments of the CPC Central Committee and the State Council stationed joint inspection teams at different parts of the country to oversee the implementation of policies designed to boost domestic demand. As various parties began coordinating with each other closely to implement national policies, the entire nation was brought together in a single and concerted effort to overcome the crisis. This unity in action made China’s policies even more effective in the response to the international financial crisis. 

 II. Unity and cooperation between the ruling party and participating parties has given effective play to the unique role of China’s political party system

 The system of multi-party cooperation and political consultation under the leadership of the CPC is a socialist political party system with Chinese characteristics. This system is characterized by leadership by the CPC, multi-party cooperation, governance by the CPC, and participation by multiple parties. It adheres to the principles of unity, cooperation, and consultation. The harder the circumstances, the more pressing the moment, the better this system is at bringing together hearts and minds and creating an unstoppable force for action.

 The various parties commit themselves to unity and cooperation, which culminates in concerted efforts to meet challenges. The most prominent feature of China’s political party system is that the various political parties share the same ideologies, work toward the same goals, and act together in unison. This unity has been fundamental to China’s victories in revolution, development, and reform. For years, the CPC has fought alongside democratic parties for common goals. The greater the challenge or the adversity, the closer and more powerful this union becomes. In some countries, the onset of crisis results in fierce clashes between the various political parties, leading to the constant escalation of internal conflicts and divides. Failure to cooperate politically renders the ruling party unable to take prompt and decisive action in the face of crisis. However, China’s effective response to the international financial crisis highlighted the advantages of China’s system of political parties, namely, unity and cooperation. After the crisis broke out, China’s various democratic parties and groups called plenary sessions and central standing committee meetings, during which they urged their members to weather the storm alongside the CPC and work together in times of difficulty. The CPPCC gave full play to its great solidarity and unity to promote harmony between political parties, between ethnic groups, between religions, between people of varying social strata, and between domestic and overseas compatriots. It utilized all positive factors at its disposal to bring about a concerted response to the international financial crisis.

 Political consultations pool together the wisdom that underpins rational decision making. The CPC consults with the various democratic parties and personages with no party affiliation before and after decisions concerning national policy and important affairs are made. This is an important mode of multi-party cooperation in China and a key process in the formation of rational and democratic policy decisions. In the immediate wake of the international financial crisis, the CPC Central Committee called a forum of non-Party personages to solicit their opinions and suggestions regarding ways to cope with the international financial crisis and how best to approach economic work. In addition, the democratic parties and personages with no party affiliation actively utilized the channels and unique resources at their disposal to conduct in-depth studies into major policies, such as the readjustment of the economic structure and the development of a social safety net to cover both urban and rural areas. These initiatives culminated in a large number of research reports and important proposals. The CPPCC initiated 53 dedicated studies, dispatched 13 survey teams, and submitted more than 1,800 proposals. These efforts provided an important source of reference and acted as a foundation for the policy-making activities of the CPC Central Committee and the State Council in response to the international financial crisis.

 China carries out democratic supervision to maximize the efficiency of its policymaking. Supervision of political parties is an important aspect of modern party politics. However, in practice, the Western model of supervision between political parties often evolves into attacks and strife between competing parties, which misleads the public and widens divisions between different groups in society. The drawbacks of this kind of political party system were highlighted by the international financial crisis, as it not only increased the costs of administrative management, but also weakened the capacity of these countries to respond to the crisis effectively. The various political parties in China also engage in political supervision, but this supervision is carried out through a process of expressing opinions, raising criticisms, and making proposals. It is a constructive form of supervision which helps the ruling party to make improvements and promote the progression of common causes. In its response to the international financial crisis, the CPC voiced clear support for enhanced supervision from other parties, and sincerely subjected itself to the supervision of democratic parties and personages with no party affiliation. Following the introduction of a series of countermeasures by the CPC Central Committee and the State Council, the democratic parties went to various localities to assess the application of the four trillion yuan stimulus package. Upon discovering problems in the course of implementation, they rapidly put together proposals on raising the efficiency of fund use and improving mechanisms for the balancing of various different interests. These efforts helped to keep stimulus policies on the right track and ensured that they achieved their intended results.

 III. The combination of market regulation and government control has highlighted the superiorities of the socialist economic system

 The balance between the role of the market in the allocation of resources and the role of the government in macro-control has a decisive bearing on the operational state of an economy. In our efforts to respond to economic risks, the role that this balance plays is even more important. Beginning with the reform and opening up drive, China made its first attempts to organically combine socialism and the market economy. This approach has not only been able to avoid the stagnation that is associated with planned economies, but has also managed to prevent the excessive competition that plays out in market economies; it has not only given various economic entities free rein to develop in the market, but has also given the government the means to regulate the entire economy and channel efforts into massive initiatives. This integration is what gave birth to China’s developmental miracle, and is why China has been able to guard against risks so much more effectively. The effective operation of this economic system has played the most fundamental and direct role in China’s effective response to the international financial crisis.

 By upholding an unswerving commitment to consolidating and developing its public sector and encouraging, supporting, and guiding the healthy development of its non-public sector, China was able to unleash the maximum impetus for development in its economy. It has not only achieved an organic bond between the guiding role of the public sector and the vitalizing effect of the non-public sector, but has also benefited from both the competitive edge of state-owned enterprises and the innovation of non-public enterprises. In the international financial crisis, the Chinese government gained additional room to maneuver by exerting the influence of the state-owned economy on social resources. It also enhanced the ability of the economy to withstand risks by capitalizing on the ability of the state-owned economy to control the direction of economic development and the overall state of the economy. At the same time, in response to the blow that was dealt to the non-public sector, which is primarily comprised of small and medium-sized enterprises, the CPC Central Committee and the State Council took rapid action in formulating Suggestions on Encouraging and Guiding the Healthy Development of Private Investment and Suggestions on Promoting Development of Small and Medium-Sized Enterprises. Despite being hurtled into the most complex and difficult situation since the turn of the century, China’s non-public sector was still able to maintain a solid trend of development. From January to October 2009, the added value growth of large-scale private enterprises reached 18.2%, which was 8.8 percentage points higher than the national average; fixed asset investment in urban areas increased by 35.1%, exceeding the national average by 2 percentage points. Although a decline was witnessed in total imports and exports, the decrease was far smaller than the national average. Non-public enterprises strove to save themselves through technological innovation, united efforts, and by expanding their markets. By continuously increasing investment, they gradually came to obtain international marketing channels, intellectual property rights, R&D capacities, and global brands, which served to give them new competitive edges.

 China has been able to maintain the stable operation of its economy through the flexible use of both “visible” and “invisible” hands. The socialist market economy has organically combined government regulation and control with market forces. By allocating resources to favorable sectors of the economy through sensitive economic levers and competitive mechanisms, the socialist market economy is able to play a fundamental role in the stimulation of market entities. On the other hand, effective macro-control is able to balance the economic aggregate, maintain equal competition, and achieve fair distribution. The effective use of both “hands” has endowed the socialist market economic system and its operational systems with a high level of vigor, vitality, and efficiency. The international financial crisis dragged the world economy into its most difficult period since the Great Depression of the last century, and also had a major impact on the Chinese economy. Acting quickly to readjust China’s macroscopic policy following the crisis, the CPC Central Committee and the State Council identified major strategic plans to boost domestic demand, maintain economic growth, adjust the economic structure, promote reforms, and improve public welfare. They rapidly introduced ten measures to boost domestic demand; formulated plans for the adjustment and invigoration of ten major industries; decisively put together a four trillion yuan investment stimulus package; increased investment in scientific and technological innovations and technical renovation; raised the rate of export rebates; and increased credit support to small and medium-sized enterprises. In the meantime, quick steps were taken to readjust financial policy from “prudent” to “proactive” and monetary policy from “moderately tight” to “moderately loose.” In addition to exerting the positive effects of finance in economic recovery, care was also taken to prevent the negative impact that an absence of supervision may exert on the long-term development of the economy. This has allowed us to avoid major fluctuations in the economy.

 By placing a joint emphasis on economic development and the livelihood of the people, we have achieved the coordinated and sustainable development of society and the economy. The fundamental purpose and eventual outcome of the socialist economic system is to safeguard, realize, and expand the fundamental interests of the people. Instead of shifting the burden of the financial crisis onto the shoulders of the people, the Party and the government committed themselves to safeguarding and improving public welfare, which was regarded not only as a means of maintaining the steady and rapid development of the economy, but also as a key policy to boost domestic demand and a foundation for stability and social harmony. At a time when purchase orders declined in number, enterprises were forced to close or scale down production, and employee salaries dropped, the CPC Central Committee and the State Council promulgated a series of important measures to safeguard and improve the livelihood of the people. These policies included raising the minimum purchase price for grain, significantly increasing the subsidization of grain producing farmers, raising basic pensions, increasing subsistence allowances in urban areas, launching trials for a new cooperative old age insurance system in rural areas, promoting schemes to aid enterprises and protect jobs, offering adequate support and assistance to unemployed migrant workers returning to rural areas, and providing free vocational training. Projects involving public livelihood accounted for more than 50% of the investment made by the central government. These initiatives led to the formation of a virtuous cycle in China’s economic and social development: schemes to improve the livelihood of the people served to stimulate consumption; stimulated consumption served to boost economic growth; and boosted economic growth served to bring about further improvements to public welfare.

(Originally appeared in Red Flag Manuscript, No. 4, 2011)

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