Any previously colonized nation can attest to the sweet sense of satisfaction that comes with celebrating the day of Independence from former colonizers. The value placed on sovereign independence is a practically incalculable one shared the world over, with few states placing greater emphasis on the importance of freedom than the United States of America. Constructs of the American Dream, Manifest Destiny and free-market liberalism all speak to adherence to ideological ideals ingrained within the State’s constitution. America’s construction of a world order has equally followed these values – the collapse of the Soviet Union saw trends of economic liberalization, free trade and ‘American’ values of equity and individual rights spread across borders. America’s conquest has lead to a world order in which these constructs are the norm, with illiberal states pushing back viewed as laggards instead of representatives of an equally valid system. But the focus of the autocrat has shifted East as gazes turn to China to examine how the fastest growing economy on Earth has managed to upend these previous norms.
The greatest victory of the United States in establishing a global uni-polar system was not leading by the example of their proven might, but in showing what might be possible through following their example. Chinese leaders would later come to realize that thriving within a high-tech future, an inherent democratization of information and accessibility to markets, required the empowering of individual freedoms to develop a system wherein citizens had the wherewithal to experiment, fail and innovate. But fears of dissent and creeping US influence sought the pursuit of an alternative path; one where change drivers and equalizers are restricted or banned instead of allowed opportunities to prove their value in the market. In doing so, China has succeeded: the socialist market economy of China is the second largest economy by nominal GDP and largest by PPP. Growth rates skyrocketed and sustained themselves on the backs of Asian tiger manufacturing and export-driven growth. Recent years have seen an explosion in the Chinese middle class and advancement towards a strong services-oriented economic focus, transitioning that state from being the world’s factory to one of it’s main actors.
All this has lead to the development of a Socialist Sino Success model, known as the Beijing Consensus, that some see as an alternative to modern liberal free-market democracies; some in this case referring to political scientists, the CCP and the leaders of illiberal states currently searching for just such a thing. But closer examination shows that this idea is misguided. China’s incredible growth can be attributed to three reasons: the growth of its internal domestic market, strict market controls and guidance, and a heavy reliance upon state-owned enterprises.
China’s internal domestic market, which has seen hundreds of millions lifted from poverty in the last three decades, has seen in the explosive expansion of the Chinese middle class and enormously high rates of urbanization. But growth has remained uneven, with wealth heavily fragmented based upon industrial geography. As such, China has failed to appropriately take advantage of the benefits of specialization, since integration of inter-regional supply chains domestically remains relatively small compared to potential. China’s growing domestic market have become consumers as of late, helping fuel the economic growth of the past few decades, but may become burdens instead of assets as consumers seek better regulatory protections with their now-louder voices and wallets. The CCP may not worry about losing voters, but can afford little political strife from an upset middle class. Other countries who do not have China’s vast population, workforce and scale would do well to heed that even when existing, it can create problems.
China’s strict market controls and reliance upon state-owned enterprises overlap heavily. State-guided industrial policy has focused investment and development in key sectors wherein all investment decisions were planned centrally, originally through direct allocation of production targets and later through strategic guidance via incentive and taxation schemes. The Chinese state dictated which industries would develop what and when they would do it, all while simultaneously using a network of state-owned enterprises (SEOs) entirely funded through capital taken from debt issuance and taxpayers to accomplish parallel aims. Despite market forces growing proportionally faster than SEOs, SEOs were still allocated over 50% of all bank credit and are indebted to levels that threaten the stability of the entire economy. Additionally, SEOs tend to be sector-based strategic investments, making them risky if financial turmoil adversely impacts a key sector they operate in. China’s shadow banking system and capital controls on the Chinese stock market centrally imposed in early 2016 indicate an awareness of these risks and understanding of the importance of constant management of this fragile framework.
A final note is that adoption of the Chinese model has had little to do with economic growth: a 2013 internal CCP memo stated that “Western constitutional democracy” and “universal values” were trojan horses meant to weaken and destabilize China. China’s interpretation of Tiananmen Square protests and the collapse of the Soviet Union were that democratization posed a danger to stability, ignoring the subtler lesson that the changes demanded were only demanded because of the political context that bred discontent or instability. The growth in authoritarianism showed a focus upon slowing the natural cycles of political change in favor of maintaining power, a phenomenon personified by current CCP Chairman and President of the People’s Republic of China Xi Jinping, who is attempting to abolish term limits on his presidency. Equally ignored are the consequences of China’s rapid growth – environmental degradation, rife corruption, insufficient tax collection infrastructure and social supports have all become major drags on Chinese populations. The compounding impacts have lead to a loss of CCP authority in rural regions and a growth in popular resistance, a dangerous combination when paired with a growing and demanding middle class seeking greater accountability and an improved quality of life.
To run from the discomfort of change demonstrates an adherence to a different sort of values – China too shares America’s vision of a chosen people, one who sees a world order upheld by their values and economic models. But global adoption of an inflexible model will only see its collapse under a state less capable of financially supporting every domestic sector and enterprise. Washington and Beijing have followed the same line of domestic hubris towards a different consensus – but analysis indicates the value of independence far outweighs the sense of false reassurance offered by the Sino model. Whatever values are held by stakeholders, they would do well to understand that.