China at the crossroads

Dorottya Szabó – László Trautmann

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Contrary to the usual way of thinking about the Chinese opening-up in the economic literature, our standpoint is that the main reason of every step forward in its development is determined by geopolitics and not economic doctrines. The geopolitical transition can be characterized by the shift from an old world order to a new one. From a world of which military conflict is an inherent part and economic and social development cannot be peaceful to a world where the preservation of peace and development coincides. The framework of the new world order is globalization and the aim of Chinese economic policy to catch-up to globalization.

Introduction

Contrary to the usual way of thinking about the Chinese opening-up in the economic literature, our standpoint is that the main reason of every step forward in its development is determined by geopolitics and not economic doctrines. The geopolitical transition can be characterized by the shift from an old world order to a new one. From a world of which military conflict is an inherent part and economic and social development cannot be peaceful to a world where the preservation of peace and development coincides. The framework of the new world order is globalization and the aim of Chinese economic policy to catch-up to globalization.

Our main point of argument is that Chinese development is the results of private property and unfettered markets. In our paper, we emphasize the role of the new market, that is US market as the main engine of development and that this “change of the market” has happened since the mid-seventies. This process can be described as the change of orientation from the East toward the West. The collapse of the Eastern bloc, in other words the end of the Cold War, could not happen without the Chinese opening-up process.

The other aspect of this development was the technological breakthrough in the Chinese economy. On the grounds of new technologies, a new consumption and production culture has been launched. That is the reason why this geopolitical shift changed the whole Chinese society making it capable to accept globalization.

The third element of the reform was the free market theory, more precisely the neoliberal agenda. Free market did not exist in China in reality and it was not the failure but the virtue of the Chinese economy  because the reform was politically driven. Our point is that the question is not how to get rid of politics but how can right politics be implemented in place of the wrong. Nationalism, the lack of the rule of law, denying human dignity is wrong politics which belong to the old world order. The opposite would be preferable. The main question which has been recently put forward by Chinese leaders is what type of economic policy would support the new political directions. 

Our main point is that Chinese economic policy is on the crossroads. Although, the question is not formulating around nationalism or the neoliberal agenda. The challenge is to shape up an economic policy which can help harmonize security and freedom, and to create a toolkit of incentives in order to accept new technologies. The challenge connects the shift of orientation from the Western market toward the “Eastern market”, that is  the emerging market. Since the last 30 years (or more) these countries have been seen as the source of cheap labor. Recently, Chinese economic policy considers these countries as the potential consumers of Chinese products.

Reform and opening-up     

At the very beginning of the Chinese opening-up process, reform was mainly economic. However, the main ambition was of political nature beyond the goal of eliminating poverty: helping China to catch-up in the globalization process and connect to the new world order while backing out from the Cold War.

The first step of this process was a change in the orientation of the Chinese economy. Although, the United States has become the number one trading partner of China only in 1999, this shifting from the Eastern trading partners to the Western ones started in the early 1980s.

Source: World Bank, WITS (2020)

In this phase of the reform, the Chinese leadership has implemented the neoliberal practice of economics without its ethical aspects and kept the tradition of egotism and exploitation.

In some aspects, China’s participating in the global partnership is being impeded by the theoretical framework of the socialist market economy. First of all, it would be important to exceed the 19th-century concept of comparative advantage and apply Stiglitz’s and Greenwald’s idea on the dynamic comparative advantage which is the essence of a learning society and its catch-up to the globalization. Second, it should be recognized, that the corporate practice which is built on mistrust and individualism cannot be the base of microeconomics. Firms have important functions beyond profitmaximizing: by evolving a relationship of trust with the state, they have to take part in the organization of markets and the long-term economic planning. Furthermore, the socialist market economy lacks a consistent technology policy, which would be essential in abolishing forced labour and contemporary forms of slavery.

The 1990s

In 1992 Deng Xiaoping’s Southern tour gave a fresh impetus to the Chinese economic reform. However, this phase was very contradictory because although the Chinese leadership argued for the importance of eliminating poverty, it accepted the increasing inequalities, saying that it had been part of the process. Although the production culture and the level of the technology used has improved, the Chinese leadership preserved an inadequate theoretical concept of development.

It is important, that in the 1990s the Chinese corporate practice started to change and shifted to the fordist-taylorist model. In this process, the appearance of foreign firms and FDI in China was a determinative element. It is notable, that the foreign capital is concentrated in the Eastern region of the country.

Source: World Bank (2020)

Source: National Bureau of Statistics of China (2020)

The 2000s and the OBOR Initiative

A significant modernization of households took place at the beginning of the new century and it has led to the growth of the Chinese middle class.

Also, in this phase of the economic development, the infrastructure policy has become a more central element of the Chinese economic policy. This was a turning point, because infrastructure is one of the most important tools which can ensure the technological frame for endorsing cultural and ethical values through the economy.

 EastCentrumWestEastCentrumWest
YearLenght of highways (10 000 km)Lenght of railway (10 000 km)
200054,5940,5738,192,172,171,44
200568,958,0955,732,992,681,74
2010133,5134,32113,083,63,072,18
2015151,09148,55133,535,073,852,79
Change from 2000 to 20152,773,663,502,341,771,94

Source: National Bureau of Statistics of China (2020)

The OBOR Initiative serves not only the selling of Chinese products, but also offers a development model to the developing countries and can help their catching-up in the realm of globalization. In the 2010s China also achieved significant results in the field of high speed railway, 5G and space technology – just to mention the most important ones – and succeeded in creating an independent and successful technology policy and innovation model. Through these achievements, China has the opportunity to take part in the global partnership and being recognized as playing a special role in international relations.  

Source: National Bureau of Statistics of China (2020)

2020

The main statement of our paper is that the development of the Chinese economic policy has reached a turning point and in the next phase China will get rid of the tradition of provincialism, nationalism and the remnants of the theoretical framework of socialist market economy. These improvements are necessary in order to terminate the intellectual antithesis between East and West, which is an essential criteria for the participation in the globalization. In our opinion, the coronavirus crisis has been accelerating this inevitable change in the Chinese economic policy. We also claim that beside Confucianism, the philosophical tradition of Daoism can also contribute to the process mentioned above and the teachings of Lao Tzu can be interpreted as current advices about

[1] This publication/research has been supported by the European Union and Hungary and co-financed by the European Social Fund through the project EFOP-3.6.2-16-2017-00017, titled “Sustainable, intelligent and inclusive regional and city models”.

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