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The Contradictions of Chinese Capitalism

Mar 25, 2016 Paola Subacchi

Decelerating growth and financial-market turmoil have raised fundamental questions about the Chinese economy’s prospects. One problem many commentators rightly identify is policymakers’ inexperience with markets; more important, however, may be that the authorities remain in thrall to an unsustainable hybrid market model.

LONDON – The Year of the Monkey is well into its third month – and the rest of the world must hope that China’s authorities will soon start to live up to the monkey’s supposed cleverness. So far, the evidence is unconvincing. The Shanghai Composite Index dropped by 18% in the first two weeks of 2016, and has endured lesser falls since then; the renminbi has been on a downward trend since late 2014; and economic growth continues to slide. In short, it looks to many people as if China has lost the plot.

The critics – including commentators for Project Syndicate – have a point. The Chinese authorities’ brief experiment with a “circuit breaker” to suspend equities trading if the Shanghai index fell by 7% simply generated more panic in January, and the ouster of Xiao Gang, the chairman of the China Securities Regulatory Commission, amplified the uncertainty. Meanwhile, the Chinese leadership faces the daunting task of rebalancing the country’s model of growth from excessive reliance on investment and exports to one more focused on household consumption and domestic services.

But China’s problems may run even deeper. Much of the criticism of recent Chinese policymaking has focused on miscommunication with market actors: The key to establishing “credibility,” according to this view, is greater certainty about the authorities’ intentions. Andrew Sheng and Xiao Geng of Hong Kong’s Asia Global Institute, for example, believe that China’s recent financial-market turmoil is “primarily related to policy transparency and clarity.”

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0 Comments on this paragraph, 13 in all 13 Comments on this article

Godfree Roberts Mar 31, 2016

"Some Project Syndicate commentators, however, question whether any policy framework aimed at stemming China’s slowdown can be credible in the absence of more far-reaching governance reforms. In fact, there is merit to both arguments. Nobel laureate Michael Spence and the Hoover Institution’s Fred Hu, for example, believe that “China’s trajectory has become almost impossible to anticipate, owing to the confusing – if not conflicting – signals being sent by policymakers.”

China's trajectory is perhaps the most stable and predictable on earth and has been for decades. What is Professor Spence smoking?

And his other comment, “the principal unaddressed problem affecting China’s financial system is the pervasiveness of state control and ownership, and the implicit guarantees that pervade asset markets”, betrays both an ignorance of the role of China's SOEs and a fundamentalist neoliberal faith that's unbecoming of a serious economist, let alone a Nobelist. China's SOEs are vital to its success and play a wide variety of roles in the economy, from fabulously rich megacorporation (the most valuable corporations on earth are Chinese SOEs: http://www.forbes.com/sites/liyanchen/2015/05/06/the-worlds-largest-companies/#25462d544fe5) and so are dull commodity conduits – essentially nonprofits – that buy primary products around the world to feed to China's voracious industries. SOEs are there to prevent rent-seeking for essential goods and services. What a concept.
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Don Jackson Mar 28, 2016

As Keynes, following Ricardo`s teacher Bentham, pointed out long ago, since the few (or .o1% or less) are existentially incapable of deciding rationally on behalf of the many (the 99.99% or more) the few will eventually have to be pensioned off and replaced by a democratically representative government that under transparent accountability and control of the many can rationally plan, allocate and regulate investment on behalf of the wellbeing of all. In the case at hand, nothing less than human species-life is in the balance.
As with feudal landlords whose functions, positions and status had been rendered obsolete by the fulfilment and passing of the social formation they had pioneered, so the shelf-life of the last holdout of the currently passing system has long ago expired. The challenge for China and much of the rest of the world, therefore, in the context of continuing global systemic uneven development and transition is to further pioneer the planning and control mechanisms and institutions that will provide for a more equitable, sustainable and responsive global apparatus of wealth and wellbeing production and distribution, economic and otherwise. The notion reflected in the FP that China somehow needs to mimic rather than learn from the US, and others, misses the point that it has already largely incorporated what the US has had to offer to the point of exhaustion. Whatever can be learned from the US now, especially since the beginning of the twenty-first century, is more likely to be what to avoid than to copy. If there`s a global parallel at all of where we might be, surely it is metaphorically closer in what Eisenhower implied in his 1960 Farewell Address, to mid-16th century Spain as it attempted to manage and sustain its new world empire on an old Mediterranean world model of simple military occupation, pillage and plunder of colonies, creditors and, eventually, subjects.
As It is the year of the Monkey, we should be mindful that even though we be monkeys with car keys, we`ve yet to transcend the possessive individualist illusion or ideology of narcissistic ego self-preference sufficiently to embrace a relational view of our selves, one another, and all that sustains us that a ruthlessly scientific political economy suggest.. If another major shock is necessary to our achieving a semblance of emotional, intellectual and physical adulthood, as would be expected from responsible public intellectuals and human beings, it is likely well on its way. Thanks for the opportunity to access your website and to comment.
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joey jay Mar 27, 2016

Poor students at University of Bologna.
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joey jay Mar 27, 2016

Neutral? Who is neutral here, even Roubine and Yanis Varoufakis have agendas.
There is no one im position of power, eho are neutral. This is a fallacy.
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joey jay Mar 27, 2016

How about writing about the contracditions of the WEstern capitalism? China capitalism is brand new and the western countries have been at it much longer.
Everyone gets half of what Adam Smith wrote about in the Wealth of Nations, but everyone leaves off the |responsibility" to the society.
China is doing very well after capitalist England destroyed the country economy on the opium trade (how capitalist of Britain, no?).
I just hope China does not follow the same example of the USUK capitalist model of exploiting, destroying the environment, creating havoc on the society where they suck all the resources out (like in Africa, Central and South America and even in Canada).
USUK capitalism sucks. It takes and takes and takes and it gives nothing to the ir own people and to the other ones they suck from.
- Adam West Mar 28, 2016
  
  Are you familiar with how toxic China's air, water and soil have become thanks to the regulators not doing their jobs and instead just pushing growth at all costs?
  
  Chinese "meritocracy" is a sham; it forces officials to merely try to force fast GDP growth, which is easy to manipulate when you own the banks, and with can cause some serious long-term distortions.
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asad lateef Mar 27, 2016

i have gone through all materials,but my problem is " whenever china sneezes,lot of so called developed countries start coughing' nobody has pointed out what were/are factors of coughing.
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LAXMIDHAR N BHOLA Mar 27, 2016

Next to China's course correction, there is hope on INIDIA.If India does not pick up 'imbalance to continue' uncompromisingly. but China can course correct over time and can revive the medium pace spirit to impact "global Growth".
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de Lafayette Mar 27, 2016

{ ... “the principal unaddressed problem affecting China’s financial system is the pervasiveness of state control and ownership, and the implicit guarantees that pervade asset markets.”}

Why are we surprised by what happened? Did we think (in the West) that there was some Great Intelligence behind the skyrocketing rise of China as the world's second-largest economy?

Here was a country of 1.36B people freed by the fall of the Bamboo Curtain, who exported their inexpensive (but not all that great a quality) commodities to a world avid for them because they were so inexpensive. The Chinese are good workers, they have/had the right to reap the benefits of their hard work.

Unfortunately, for them, there is the "other side of the coin". I.e., the rampant get-rich-quick motivation of those in control. The birth and quick growth of multi-billionaires, all quite illegal - but unstoppable because at the top "Everybody was doing it".

And they are still doing it, despite efforts to stop the plundering. Short of a revolution, there is no way to stop the thieves in a country where the police are under the control of the state in connivance with those thieving.

China will find its way to more modest growth rates, and develop an domestic economy that will - hopefully - start importing. And, in this manner, return the favor to those (these past 25 years) who built the Chinese economy by means of their imports.

The shoe is clearly on the other foot ...
- joey jay Mar 27, 2016
  
  Actually no different from any western country, really.
  Look at the amount of billionaires in the western countries. Look how the banksters brought down the financial world to its knee and got away with it...How much of a hypocrite can the writer get?
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Matthew Guenther Mar 27, 2016

The year of the Monkey is not in its third month. It is only the seventh week. The year of the monkey didn't officially begin till the Chinese New Year on February 8th. For some one to make qualified statements about China, they should get these small details correct.
- joey jay Mar 27, 2016
  
  Subacchi is not here to be accurate, she is here to write something that was requested of her, with an agenda of putting the Chinese down.
  She is trying her best. However some of us do not buy it, because the macro reality is more complex that what she is capable of handling.
  Like e.g.
  http://philosophyofmetrics.com/trump-and-the-international-banking-interests-freepom/
  God forbidden if something other than the boyler plate she offers is spoken about...
  Her writing is an insult to the intelligence of the people.
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Kenneth Pao Mar 26, 2016

As the first issue, I congratulate the PS On Point editors. This is a well written summary article. Since the purpose of publishing and distributing the PS On Point is to inform the PS readers of the wide variety of published articles, I believe that PS On Point needs to be concise, neutral in presenting view points/perspectives, and list referenced articles, cite sources and cite publication dates.

Regarding the "The Contradictions of Chinese Capitalism" PS On Point, I believe that insufficient coverage was given to the Chinese government's motivation to provide continued support to the SOE's (state owned enterprises) and market interventions to the Chinese stock market.

This may reflect bias of the PS commentators or bias of the PS On Point editors. In any event, China has no choice but to continue support the SOE's so as to prevent more wide spread layoffs due to external export markets demand drop off. China intervened its stock market to protect its masses of relatively inexperienced individual investors which constitute roughly 75% of its stock market investors unlike the western mature stock markets where 75% are institutional investors. As can be anticipated, the Chinese individual stock market investors are easily manipulated, frequently via the Internet mass users media spread rumors, into herd behavior to the benefits of sophisticated institutional investors.

Finally, the scale of economic transition of what the Chinese government is doing has never being done before in human history. Therefore, with due respect to the qualifications of the distinguished PS commentators and PS On Point editors, I must question their professional judgement is based on what. And, on this basis alone, I would urge PS commentators, PS article reviewers and PS On Point editors to challenge future articles on the Chinese economy.
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