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China's economic reform: it's the politics, stupid.   [Copy link] 中文

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Post time 2012-3-7 17:21:34 |Display all floors
This post was edited by goldengrove at 2012-3-7 17:22

The following blog is from Geoffrey Gertz, who is studying International Relations at Oxford University.

His ideas are nothing new and he supports a kind of "reverse thinking" strategy. Still worth reading. Might turn out to be effective.

Last week the World Bank released a massive 400-page report,
China 2030, outlining a vision for reforming the country’s economy over the next two decades to ensure continued success. As is typical in these kinds of reports, the main findings are completely reasonable if not exactly ground-breaking: China needs to increase the share of consumption in its economy, lessen the grip of state-owned enterprises, move toward letting the market more accurately price energy and capital, deal more seriously with environmental degradation, and just generally become a more market-oriented economy.

All of which makes perfect sense, and indeed very sensible people have been suggesting more or less this same package of reforms for several years now. But this is all easier said than done, which is why, despite the fact that everyone knows that China needs to shift its development path, there hasn’t really been much progress. The problem is that translating these abstract, widely accepted economic principles into actual concrete policy basically means turning against the country’s exporting class, the very people who have been driving – and profiting handsomely from – China’s economic emergence.

The political economy challenges here are huge. It’s difficult for any government to pursue a reform agenda that will cut into the profits of entrenched special interests. (For exhibit A, see the process of healthcare reform in the US, which we can safely say has been considerably less than Pareto optimal). But when those special interests are deeply entwined with the government – which, under state capitalism, is pretty much true by definition – it’s exponentially more difficult. Changes in economic policy create winners and losers; when the would-be losers are a powerful bloc within the government, the push for reform is going to have trouble finding traction. You don’t have to be an expert in public choice theory to understand that when the government owns companies that directly benefit from economic distortions, the incentives to remove those distortions are pretty low.

To come back to the China 2030 report, what’s most interesting about it is perhaps not what’s actually said but who’s saying it: the report wasco-authored by China’s Development Research Council, a government think tank. So we can start to see some hints about which elements of the government are in the pro-reform camp. And the report has engendered considerable pushbackfrom precisely those groups which a straight forward political-economy analysis would suggest should be opposed, namely the State-Owned Assets Supervision and Administration Commission. The battle lines are being drawn for the fight over economic policy which will play out over this transitional period for China’s leadership.

Understanding these internal political dynamics also raises interesting questions about which Western foreign policy strategies are likely to be most effective in encouraging economic reform within China. Take, for example, the contentious issue of currency appreciation. Let’s assume, perhaps overly charitably, that US politicians routinely raise the issue of China’s currency because they legitimately believe yuan appreciation would be in the United States’ national interest, rather than because they’re simply trying to score some cheap domestic political points via China-bashing. Given the domestic political debate within China, does such a strategy make sense?

To the extent that it allows the opponents of reform to paint the issue of currency appreciation as bowing to outside pressure, the answer is likely no. Given the rise of nationalism in China in recent years – and particularly economic nationalism – it’s easy to see how such a strategy could backfire. Indeed, there’s a parallel to the debate over how enthusiastically the US should endorse opposition political movements looking to overthrow Middle Eastern dictators, where the drawbacks of too close an embrace are more immediately apparent. The last thing Iran’s Green Movement needs is a stamp of approval from the US, which will only undercut their domestic political support. Similarly, the more currency appreciation is perceived as “the policy which the United States is asking for”, the more difficult it will likely be for the reform-oriented wing within China to win the internal political fight. So instead of issuing laughably ill-informed statements on the need for China to increase the value of its currency, maybe politicians should just shut up and let the currency quietly appreciate, as it’s in fact been doing rather nicely of late.

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Post time 2012-3-8 16:21:41 |Display all floors
Interesting post... I just don't agree on the statement that exporters have become so powerful that they can stop China's economic reform. In contrary, most production is done by joint ventures with foreign companies and those joint ventures are very keen on having a more market oriented China just for the fact that China would offer tremendous market opportunities as soon as it starts consuming more.
In addition he economically most powerful Chinese are usually from state-owned companies and just want fast growth because most SOEs could get big by providing infrastructure and commodity supply and can only grow if the demand for those things increases.

Finally, I'd suggest everyone to cast a glance at China's government working report 2012 in which China's prime minister Wen Jiabao declears that increasing consumption is this year's priority. And in the past years, the Chinese government always took a lot of troubles to reach their main goals.
Perhaps exporters are powerful. But are they already more powerful than China's highest ranking politicians? I don't think so.

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Post time 2012-3-8 16:37:43 |Display all floors
Everynowhere Post time: 2012-3-8 16:21
Interesting post... I just don't agree on the statement that exporters have become so powerful that  ...

You raised a good point there.

But the problem is that reformists are trying to privatize those state-owned enterprises, as suggested by the World Bank report, and that's the last thing they want.

That's perhaps why some one actually protested in front of Zoellick and the man is allegedly to be connected with the State Assets Administration.

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Post time 2012-3-9 13:56:34 |Display all floors
This post was edited by robert237 at 2012-3-8 22:18

And who would benefit from privatizing the state owned enterprises? The richest capitalist of the world.
As if they really needed any more money.
It's so obvious what is happening here. The 'economic experts' are not looking out for China's best interest.
You can bet on that. Of course the CCP is not in favor of throwing state owned enterprises up for grabs.
How big an idiot would have to be in order to favor that?
These same 'economic experts' couldn't even foresee and avert the great recession of 2008/2009 in the USA.
How can they pretend to know what's in store for China over the next 20 years.
Preposterous and arrogant are kind words. I can think of others that aren't suitable for a public forum.
China is wise enough to know it needs to keep Chinese assets in China. Not throw it up for grabs for capitalist
jackals to fight over on the world stage.

If capitalism promotes innovation and creativity then why aren't scientists and artists the richest people in a capitalist nation?

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Post time 2012-3-10 01:51:18 |Display all floors
State controlled energy prices are essential to the success of the countries industries; allowing the "free" market to manipulate prices would be the beginning of the end to China's rise.
Likewise allowing private bankers to control the countries wealth would only lead to massive fraud and the enslavement of its people to debt to benefit a few bankers.
China will only continue to grow by preventing the privatization of banking, and maintaining a made in China price on fuel.
What's on your mind...

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Post time 2012-3-10 04:11:15 |Display all floors
This post was edited by grb at 2012-3-10 04:11
philo09 Post time: 2012-3-10 01:51
State controlled energy prices are essential to the success of the countries industries; allowing th ...

China keeps the price of gasoline too high and that adds to the costs of domestic demand.  In addition the toll road costs are the highest in the world per/km also adding to the domestic cost.  You cannot drive anywhere in CHina between major cities without paying high toll costs.  Also, the VAT tax in China is outdated and needs reform.

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Post time 2012-3-10 04:22:47 |Display all floors
MarkPeterhoff Post time: 2012-3-10 03:45
'....turning against the country’s exporting class, the very people who have been driving – and p ...

I think you need to put the bottle down, Mr. Peterhoff. You're a cartoon. You remind me of Yosemite Sam. I have a feeling you're a union member. You probably voted for Mr. Obama. Hmm, blaming China for all your woes. Petty slandering. Control yourself. I always enjoy a good debate. I don't deal with childishness. Sorry.

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