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China's New Economic Model: Towards Justice and Sustainability

China watchers in 2013 focused on the Communist Party central committee third plenum held in November, where the new leadership detailed the national socio-economic development plan through 2020.  This was the first opportunity for the new General Secretary Xi Jinping and Premier Li Keqiang to detail their policy direction. Generally the plan outlined a conscious shift towards justice and sustainability, welcomed by the Chinese people and friends of socialism.  Skeptics, however, pointed to the many obstacles and difficulties looming in the actual implementation.  Grabbing the headlines in the Western press is the loosening of China's one child policy; now many urban couples will have a second child. Another headline was China's decision to abolish laojiao, the system of re-education through labor.

The meeting created two new high-level bodies: a Chinese national security council to coordinate military and diplomatic strategy, and a reform oversight group to coordinate domestic economic and political changes.  These committees will strengthen the hand of General Secretary Xi, who is emerging as a more forceful leader than his lower profile predecessor, Hu Jintao.  China's subsequent declaration of an Air Defense Identification Zone over adjacent space over the East China Sea corroborates this impression.

Regarding economics, China is shifting from a capital-intensive, export-driven, fast growth model to a balanced and sustainable domestic development program, featuring rising incomes, expanded social services and concern for the environment and pollution.  This is considered a major turning point in socialist China's development as Deng Xiaoping’s rapid industrialization and modernization program adopted in Dec. 1978 has achieved many of its goals.  It is now urgent to deal with the attendant problems of great concern to the Chinese people: the wide income gap between the newly affluent and most working people, serious environmental damage and pollution, and official corruption.  The new leadership seeks to address these problems as a top priority.

General Secretary Xi's political approach is to emphasize Leninist institutions such as the leading role of the Communist Party, the importance of Marxist ideology and the necessity of state ownership and control of strategic economic sectors such as the financial system and important heavy industry.  State provided social services will be expanded and resourced with more funds.  At the same time, Xi favors the continued development of the economic reform program with increased opening to market forces, foreign investment and strengthening of the non-public sector.  

Some Western observers see the leadership policies as a contradiction; from their perspective, Xi appears as a "conservative" traditional Marxist in politics while favoring a liberal economic program.  For example, a Wall Street Journal article stated, “Reforms proposed by Mr. Xi (are) designed to open the economy further to market forces and to boost the spending power of farmers and migrant workers…On the political front, Mr. Xi is heading in the opposite direction.  (He) believes China needs to reinforce its Leninist political system.”  (Dec. 11, 2013).

China describes its mixed economy model as a socialist market economy.  There is both a socialist sector with state and collective property, and a "nonpublic" or capitalistic sector -- roughly equal in size. The Communist Party retains political and macroeconomic control and is guiding the country towards socialism in the long term.  While this approach was pioneered by the Soviet Union in the 1920's as the New Economic Policy (NEP), China has gone much further down this road and is now entering a new phase of development, historically unprecedented.

The challenge is colossal.  The theory of the mixed economy is clear: Communist Party control of the strategic sectors is combined with expansion of the private market.  This approach is appropriate for early stages of socialism in a developing country building a modern economy.  However, getting the practical policies right in a huge, complex ancient country like China, emerging from 2000 years of feudalism, is difficult indeed.

There are many profound contradictions and dilemmas to manage in addition to the tension between socialism and capitalism: high technology vs. primitive agricultural methods; city and countryside; central, provincial and local
interests; the advanced coastal cities, international markets and the vast more backward interior; the state and civil society; the livelihood of the people vs. capital accumulation.  Only practice and experience can provide answers to many of the emerging problems.

Financial policies and structures were high on the third plenum agenda: government revenues, taxation, transparency in budgeting, prices, currency valuation, attracting and controlling foreign investment, stock market
regulations, creating more small banks, regulating interest rates and paying increased dividends.   The tasks of managing state owned enterprises are different than those of regulating the nonpublic or private economy.  Meanwhile, more and more mixed ownership arrangements combining public and private are created.

The third plenum plan also contains many measures for social justice and equality: strengthening trade unions and support for collective bargaining; increasing farmers' incomes; extending social services to migrant workers; supporting local direct elections, consultation and grassroots democracy; various ways to expand financing of the social security system; easing restrictions of movement for those wanting to move the small and medium sized cities; substantial penalties for enterprises violating environmental regulations.  There is a major emphasis on supporting cultural institutions of all sorts.

Conclusion

The Chinese people welcome the balanced, people-centered program of the new leadership.  The plans sound good, but will they work?  Will China’s new leaders really be able to lead a movement towards social justice and sustainability?  Or will traditional and capitalistic forces, both domestic and foreign, prove too powerful and sidetrack these efforts? The situation is dynamic and changing; there is no guarantee of success or even prevention of a capitalist restoration.  

Are there ways that we may evaluate the success of the Third Plenum program?  While the battle against official corruption is difficult for foreigners to assess, improvements in the condition of the environment and narrowing of the income gap should be visible.  Increasing living standards of migrant workers should be apparent.  State control  of the economy’s  "commanding heights." such as continued state ownership of the banks and control of the financial system, is a necessity.  The Third Plenum plan is to be fulfilled by 2020, results should be clear by that time.

 

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