The China Model &Whither China?

In the News

•The Eurozone crisis: China to the rescue?•G20 •China’s new assertiveness•A multipolar world•Progressives in the US and globally are split

The China Model

• What is the China model• Is the China a model “better”?• Is the China model sustainable?• Can the China model be replicated?• What can developing countries learn from the

China model?

Background: Washington Consensus

• Coined in 1989 • A set of ten specific economic policy

prescriptions that would constitute the "standard" reform package promoted for crisis-wracked developing countries

• Developed by Washington, D.C.-based institutions such as the IMF, World Bank, and the US Treasury Department.

The IMF/WB Reform Forumlae• Fiscal policy discipline;• Redirection of public spending from subsidies to pro-growth, pro-

poor services like primary education, primary health care and infrastructure investment;

• Tax reform – broadening the tax base and adopting moderate marginal tax rates;

• Interest rates - market determined• Competitive exchange rates;• Trade liberalization • Liberalization of inward foreign direct investment;• Privatization of state enterprises;• Deregulation – abolition of regulations that impede market entry or

restrict competition• Legal security for property rights.

In search of a development model:The Washington Consensus

• “ It argued that the keys to success in developing countries were three things: macro-stability, liberalization (lowering tariff barriers and market deregulation) and privatization. It was largely formulated out of experience with Latin America…..There is a consensus that those precepts, while important, are neither necessary nor sufficient for successful development. “ Joseph Stiglitz, Nobel Laureate in economics

• http://multinationalmonitor.org/mm2000/00april/interview.html

What is the China model?

• Market authoritarian • One party rule• Major role for state enterprises• Eclectic approach to free markets• Growth without political and economic rights• Performance-based legitimacy • Town and Village Enterprises?

The greatest development story

• Lifted 400 millions from poverty• Economic growth• Infrastructure development• “the modern world’s greatest development

story………………” Stephen Roach

Debates

• There’s no such model: Chen Zhiwu, Huang Yasheng

• The model can’t be replicated: Huang Yasheng, Halper

• The China model is not better, but different: Halper

• The China Model is vulnerable: Susan Shirk• End of the Beijing Consensus: Yang Yao

http://psdblog.worldbank.org/psdblog/2008/08/

Joshua Ramo Cooper

Former Time foreign editorBusiness consultant a managing director and partner at the Beijing office of Kissinger Associates."

Model to emulate

• China was "marking a path for other nations around the world who are trying to figure out not simply how to develop their countries, but also how to fit into the international order in a way that allows them to be truly independent” Joshua Ramo Cooper

Nothing special

• “China’s growth experience is very conventional. Private ownership, financial liberalization, property rights security and some degree of constraints on the political rulers .” Huang Yasheng

Getting the Facts Right

“To get the facts right need deep digging into many details.. Getting the China story right is also about constructing the correct explanation about China..”

Huang Yasheng, professor of int’l management , MIT http://t.sina.com.cn/1645226103

http://www.huawei.com/corporate_information/corporate_governance.do

Who owns Huawei?

Huawei’s mysterious shareholders • It is commonly known in China's business

community that Ren makes final decisions at Huawei. The bulk of Huawei's shareholders cannot execute rights as bona fide shareholders, and executive team members cannot override Ren's decisions. Moreover, operating and management teams that report to Ren are evidently more powerful than the company's board.

• It's been reported that all employee-owned shares are restricted "virtual" shares, and no single employee knows anything about his or her holding. Except for Ren, perhaps no one has access to information about specific percentages and other internal company facts.– Caixin Online , Nov 2, 2010

任正非 , Ren Zhengfei President,Huawei Holdings

Danger Signs

• growing income inequality – Gini coefficient 0.47– city dwellers earning 3½ times as rural residents

• Internal imbalances (spending vs saving, city vs rural, growth vs environment)

• External imbalances (trade surpluses)• Environmental degradation• Rise in public protests

A Virtual & global Tiananmen Square?

• Vocal dissidents congregating• Diverse quality of discourse: rational critiques,

satire, emotional outbursts, facts and fiction mixed

• Government taking hard line, no dialogue• Increased polarization

History at a Higher Level?• Middle income trap per-capita GDP reaches

$3,000 to $8,000, the economy stops growing, income inequality increases, and social conflicts erupt

• huge pent-up demand for wage growth. Despite rapid GDP growth, wage growth has been extremely modest or even stagnant in several years.

• Growth of crony capitalism: corruption has reached the highest level

New media landscape

• The internet, blogs, microblogs• Cell phones• Instant communication• Global connectivity• Elements of civil society• The post-80’s generation with no experience

Wither China?

• “Moving towards major crisis”? Yang Yao• Economy in trouble in 3-5 years - Chen Zhiwu • Collapse in 5 years? Chen Ping• “revolutionary upheavals..hard to avoid,”

Susan Shirk.• “No political reform; China’s authoritarian

capitalism will compete with the West as a possible model for the developing world, Halper

What is to Be Done?

• Income distribution reform (Chen, others)• Ownership reform (Chen Zhiwu, Huang

Yasheng) • Deep institutional reforms in the countryside

and to provide supportive conditions for the revival of rural entrepreneurship. (Huang Yasheng)

• Rule of law• Political reform (Wang Yao)

New World Order?

• “I think you need a new world order that China has to be part of the process of creating it and they have to buy in, they have to own it in the same way as the United States owns…the current order”

– George Soros

End