China is the second largest economy in the world. China’s GDP is USD 17.73 trillion, its total population is 1.41 billion, its GDP per capita is USD 12,556 and its GDP growth rate was 8.1 percent in 2021. China has massively brought down poverty, particularly rural poverty, since the 1980s. Over the last 40 years, 770 million people have graduated out of poverty and extreme poverty in China, making this one country alone to contribute to three-quarters of reduction in global poverty over this period. These figures tell the story of China’s stellar economic growth, development, and poverty reduction.
In this article today, we are going to discuss the story of China’s growth and development model with reference to its narrative and lessons with the help of three journal articles: ‘Dissecting China's Rise: Controversies over the China Model’ by Hou in the China Perspectives (2014); ‘How Did China Take Off?’ by Huang in The Journal of Economic Perspectives (2012); and ‘Making Bureaucracy Work: Patronage Networks, Performance Incentives, and Economic Development in China’ by Jiang in the American Journal of Political Science (2018).
The central message of Hou’s arguments is that China is a mixed economy led by a carefully calibrated Communist Party of China that gets legitimacy from performance-based track record and decision-making is done by incorporating the wide array of interest groups as well as some of the concerns of the public expressed through social media and other channels. The China model offers “Beijing consensus” that is state-led capitalism (also called authoritarian capitalism) and it is an alternative to the so-called market fundamental of the “Washington consensus”. China is a hybrid system that is neither pure capitalism nor pure socialism. Its mixed economy protects some forms of property rights and private-sector economic growth and development within the ambit of state-led capitalism without the privatization part of the free market economy.
Skeptics speak about the contradictions in China’s incredible growth, in terms of the rising inequalities and environmental degradation that it has caused, and how its rise as an international rising power is juxtaposed with its domestic riddles of stability and equity. They also raise the issue of sustainability of growth in China.
A significant contribution of the political economy literature is that it not only analyses the contemporary trends of the structures of state and society but points to the centrality of the historical paths of development that impact the ways an economy and polity functions in contemporary times. China was bestowed with a strong state due to its socialist foundations. Just like Japan and Southeast Asian tigers; it pursued the policy of state-led capitalism by gradually opening up its economy in 1980s, and pursuing the policy of a mixed economic structure, underlined with constant experimentation and innovation. China represents a ‘new paradigm’ of non-capitalist market economy and modernity that poses an alternative to the western powers and modernity.
China seems to have a vertical democracy, that is different from horizontal democracy. Though China does not have procedural democracy, its regime does not take its legitimacy for granted. There are constant attempts to mediate between the interests of various power centres, interests groups and public concerns.
Chinese people, particularly its rural population, benefitted during 1980s when the government followed a liberal policy towards promoting entrepreneurship, than in 1990s when it became more intrusive and curbed the private entrepreneurship policies in rural China and had an urban bias in its policies. Like the Asian tigers, China pursued the policies of export-promotion and economic liberalisation.
The hallmark of the Chinese mixed economy and politics is the hybridity of the entire system. Different forms of land ownership ranging from state, private, joint ventures, foreign, collective are allowed. Chinese peasants enjoy the user rights but not the right to sell the land. Similarly, in the urban areas, property is leased but the state is the ultimate owner.
In other words, a second-tier rental market is created among the private citizens. The first-tier sale market rights are either with the state or rural collectives.
The same hybridity is seen in the political system with local governments as great signposts of innovation and experimentation. Some successful lessons learned informally at the local level are later incorporated in the formal structures of policy and decision-making.
According to Huang, there are two views on China’s economic take off: One view links it to Deng Xiaoping’s economic liberalisation in the context of globalisation and his setting up special economic zones in the coastal regions to attract foreign investment. The other view is that China’s internal reforms to promote entrepreneurship, particularly the private entrepreneurship in rural China, played a transformative role in the Chinese economic take off.
The economic liberalisation through township and village enterprises in rural China and changes in land contracting and agricultural pricing system played a crucial role in making China a powerful economic power in the world. Though there were collective township and village enterprises, rural capitalism was practiced with great vigour by private township and village enterprises, particularly in less developed regions and provinces of China.
In China, capitalism is rural and socialism is urban. The policies of promoting entrepreneurship through rural township and village enterprises were reversed in 1990s when the government intervention increased, yet the rural organisations played a leading role in taking off 1980s, after gradual internal liberalisation in China.
As per Jiang’s meticulous research, patron-client relationships between city leaders and local government officials with provincial authorities deliver better economic growth than those without such informal relationships. This is counter-intuitive as generally in the social science and political economy literature, patron-client relationships are viewed as being detrimental to governance.
Yet Jiang highlights their enabling role by resolving the principal-agent problems in the vertical bureaucracy of China by using city-level panel data between 2000 and 2011. This is particularly important since China’s formal rules are to a large extent against private entrepreneurship and bureaucrats need long-term personal connections, trust, and loyalty of their senior cadre in the vertical hierarchy to take risks to push economic growth and sideline some formal rules. They can only do so in the prevalence of enabling informal patron-client relationships.
China has a strong government due to historical reasons that enjoys relative autonomy of the state. Though the Communist Party of China does take into account interests of various groups and public while making decisions, it is also to some degree insulated from the special interest groups’ dictation into its policy formulation and decision-making, given the fact that it is a strong state.
Therefore, the argument that the Chinese model of growth and development can be replicated in other developing countries has limitations. Hou states, “After all, not all developing countries have strong governments with the capacity and autonomy to govern (i.e., maintaining social stability, carrying out policies with relative independence and legitimacy, and providing the infrastructure and social services necessary for economic development) and a population as large, flexible, and skilled as China’s. The scale of its population creates a potential internal market and a large pool of labour, its long history of state bureaucracy and three decades of socialist programmes have laid the foundation of a strong state.”
Therefore, for developing countries, there have to be ‘diverse’ ways of development instead of just following the western or the Chinese model of development, keeping in mind the path-dependency of their own historical, socio-economic and political structures of states and societies.
In this article today, we are going to discuss the story of China’s growth and development model with reference to its narrative and lessons with the help of three journal articles: ‘Dissecting China's Rise: Controversies over the China Model’ by Hou in the China Perspectives (2014); ‘How Did China Take Off?’ by Huang in The Journal of Economic Perspectives (2012); and ‘Making Bureaucracy Work: Patronage Networks, Performance Incentives, and Economic Development in China’ by Jiang in the American Journal of Political Science (2018).
The central message of Hou’s arguments is that China is a mixed economy led by a carefully calibrated Communist Party of China that gets legitimacy from performance-based track record and decision-making is done by incorporating the wide array of interest groups as well as some of the concerns of the public expressed through social media and other channels. The China model offers “Beijing consensus” that is state-led capitalism (also called authoritarian capitalism) and it is an alternative to the so-called market fundamental of the “Washington consensus”. China is a hybrid system that is neither pure capitalism nor pure socialism. Its mixed economy protects some forms of property rights and private-sector economic growth and development within the ambit of state-led capitalism without the privatization part of the free market economy.
Skeptics speak about the contradictions in China’s incredible growth, in terms of the rising inequalities and environmental degradation that it has caused, and how its rise as an international rising power is juxtaposed with its domestic riddles of stability and equity. They also raise the issue of sustainability of growth in China.
A significant contribution of the political economy literature is that it not only analyses the contemporary trends of the structures of state and society but points to the centrality of the historical paths of development that impact the ways an economy and polity functions in contemporary times. China was bestowed with a strong state due to its socialist foundations. Just like Japan and Southeast Asian tigers; it pursued the policy of state-led capitalism by gradually opening up its economy in 1980s, and pursuing the policy of a mixed economic structure, underlined with constant experimentation and innovation. China represents a ‘new paradigm’ of non-capitalist market economy and modernity that poses an alternative to the western powers and modernity.
China seems to have a vertical democracy, that is different from horizontal democracy. Though China does not have procedural democracy, its regime does not take its legitimacy for granted. There are constant attempts to mediate between the interests of various power centres, interests groups and public concerns.
Chinese people, particularly its rural population, benefitted during 1980s when the government followed a liberal policy towards promoting entrepreneurship, than in 1990s when it became more intrusive and curbed the private entrepreneurship policies in rural China and had an urban bias in its policies. Like the Asian tigers, China pursued the policies of export-promotion and economic liberalisation.
The hallmark of the Chinese mixed economy and politics is the hybridity of the entire system. Different forms of land ownership ranging from state, private, joint ventures, foreign, collective are allowed. Chinese peasants enjoy the user rights but not the right to sell the land. Similarly, in the urban areas, property is leased but the state is the ultimate owner.
In other words, a second-tier rental market is created among the private citizens. The first-tier sale market rights are either with the state or rural collectives.
The same hybridity is seen in the political system with local governments as great signposts of innovation and experimentation. Some successful lessons learned informally at the local level are later incorporated in the formal structures of policy and decision-making.
According to Huang, there are two views on China’s economic take off: One view links it to Deng Xiaoping’s economic liberalisation in the context of globalisation and his setting up special economic zones in the coastal regions to attract foreign investment. The other view is that China’s internal reforms to promote entrepreneurship, particularly the private entrepreneurship in rural China, played a transformative role in the Chinese economic take off.
The economic liberalisation through township and village enterprises in rural China and changes in land contracting and agricultural pricing system played a crucial role in making China a powerful economic power in the world. Though there were collective township and village enterprises, rural capitalism was practiced with great vigour by private township and village enterprises, particularly in less developed regions and provinces of China.
In China, capitalism is rural and socialism is urban. The policies of promoting entrepreneurship through rural township and village enterprises were reversed in 1990s when the government intervention increased, yet the rural organisations played a leading role in taking off 1980s, after gradual internal liberalisation in China.
As per Jiang’s meticulous research, patron-client relationships between city leaders and local government officials with provincial authorities deliver better economic growth than those without such informal relationships. This is counter-intuitive as generally in the social science and political economy literature, patron-client relationships are viewed as being detrimental to governance.
Yet Jiang highlights their enabling role by resolving the principal-agent problems in the vertical bureaucracy of China by using city-level panel data between 2000 and 2011. This is particularly important since China’s formal rules are to a large extent against private entrepreneurship and bureaucrats need long-term personal connections, trust, and loyalty of their senior cadre in the vertical hierarchy to take risks to push economic growth and sideline some formal rules. They can only do so in the prevalence of enabling informal patron-client relationships.
China has a strong government due to historical reasons that enjoys relative autonomy of the state. Though the Communist Party of China does take into account interests of various groups and public while making decisions, it is also to some degree insulated from the special interest groups’ dictation into its policy formulation and decision-making, given the fact that it is a strong state.
Therefore, the argument that the Chinese model of growth and development can be replicated in other developing countries has limitations. Hou states, “After all, not all developing countries have strong governments with the capacity and autonomy to govern (i.e., maintaining social stability, carrying out policies with relative independence and legitimacy, and providing the infrastructure and social services necessary for economic development) and a population as large, flexible, and skilled as China’s. The scale of its population creates a potential internal market and a large pool of labour, its long history of state bureaucracy and three decades of socialist programmes have laid the foundation of a strong state.”
Therefore, for developing countries, there have to be ‘diverse’ ways of development instead of just following the western or the Chinese model of development, keeping in mind the path-dependency of their own historical, socio-economic and political structures of states and societies.