How To Understand The Chinese Political Economy: A Brief Overview

Sinic Civilization exhausted itself as evidenced by the late 19th century.  It simply had no more intellectual nor spiritual reserves (ideas) from which to grapple with the encroachments that became the Imperial Powers.  Certainly by the early 20th century it had, like Arnold Toynbee has written, gain a reprieve by enforced centralization.  The embrace of Soviet style atheist Marxism enabled Mao to centralize to meet the needs of technological warfare.  Any brief look at Mao’s diaries, especially those entries when Mao and his comrades moved north to anticipate the west just outside Khaesong.  He immediately knew that western “mass”, the intensification of speed and thrust that is mechanized warfare was unstoppable.  Mao’s idea was to co-op the achievement that was demonstrated by the west; Mao was thinking politically and culturally.  He would aim at political unification so as to meet the Imperial threat.

That was the easy part!

Those that knew Mao best understood (and they were very few who lived to enjoy this most private insight) that the agrarian life of Confucian China would be overcome.  Mao’s convictions were not fully developed to embrace the west.  His mind worked archaically.  But his associates, especially Deng Xiapong knew otherwise and remained a devoted companion to Mao even while in prison.  It was upon his release that he sought to embrace western culture if only to continue the hybrid myopia that fed and drove Mao.

Deng’s ethics was more subtle and expressive than Mao’s, but we shouldn’t expect him to be less ruthless.  Deng knew that if China were to succeed, then ‘one nation, two systems‘ was required.  Deng accepted the value of western technological advance while parring the political and cultural theologic that underwrote western achievement.

As of this writing, its safe to say that Deng Xiapong’s gamble has paid off well, but the transformation of China that both Mao and Deng sought is still in need of advancement.

That advance cannot happen under Dengs rubric of ‘one nation, two systems.’

Let me explain how it cannot continue.

The social and political advancement, the trajectory of Sinic Civilization alloyed from western norms will require that the western theologic, the hidden foundational ideas that animate western achievement be openly expressed and acknowledged.  This is how the future of China will be resolved; it will pivot on the political willingness of Chinese leaders to demonstrate ethical leadership!

Any study of either Chinese debt (its own debt bomb), or the China Development Bank reveal the cultural, political, Civilizational divide that cannot be surmounted with ‘one nation, two systems.’

When Chinese Premier Wen Jiabao cautioned that China’s political economy was on a trajectory that is “unsustainable, unbalanced, and uncoordinated” he was making a political comment whose intellectual patrimony remains unacknowledged.

What Jiabao was advocating was the political need to address an emerging civil society.  Philosophically, he was acknowledging the need for Chinese Communists to permit an expressed autonomy.  Morally, we term this moral agency!

The 2008 American (global) crisis exposed a dangerous rift in the Sinic political economy.  China remained far too heavily dependent on state run infrastructure programs that don’t make money.  It’s called crony capitalism!

This ‘investment’ in roads, bridges, tunnels requires financing.  China printed bonds!  In excess of 200% of its GDP!!  That’s staggering.  Most of China’s hot capital inflows coming from America helped financing.  We exported inflation and created a housing boom in China.  On the other side of the world it was the Arab Spring!

With the excessive rapid expansion of federally subsidized credit along with private credit, all converged to make the Chinese debt bomb.  Its easy to see, all these public investments eat credit and money available for consumption (civil society), this means that even as China continues along the trajectory of its own debt bomb, it still continues to print bonds for increasingly non-productive ‘investments.’

If it wants an exit from this strategy it must permit more public consumption!

This is unlikely to happen soon, for the same reasons why the US doesn’t embrace political reform:  the dominant political majority continues to idolize its past achievements.  This requires an act of incredible fortitude to embrace new ideas!  It’s also about a Civilization that continues to view time and its place in it historically archaic.

China and its leaders have three decades of massive economic growth with GDP compounding each year at 10%, the worlds’ highest levels of savings and investment, vast trade surpluses and the world’s largest foreign exchange reserves in history.  The Chinese are supposed to dump this model for what??  To embrace the idea of individual sovereignty?  To tax consumption??  This is paltry news, but its right!

No other institution in China other than the China Development Bank, the core of Chinese Capitalism is responsible for midwifing the needed changes.  We should expect those interested in commerce to advance the requisite political ideals required for China to succeed in its final transition toward a first world nation state.

Since infrastructure loans produce no cash flow, the China Development Bank will be mainly responsible for inculcating the Republican ideas mentioned above to the ruling elite.  I image another revolution from ‘below’ again when it occurs.

China’s increasingly dysfunctional credit allocation system can only be replaced with western norms:  meaning the emergence of civil society.  The only other alternative is default.  Chinese state Communist officials have created massive moral hazard in fostering such State dependence, it will end badly absent the political reform birthing civil society.

Chinese citizens implicitly know that wage growth isn’t happening domestically. Ditto for consumption.  This Economic Repression cannot continue.

The Central Planners in Beijing have met a moral quandary not found in the annals of Confucian texts!

The Republican ideals of individual sovereignty animate both its skyline and its love of all things Apple (iPhones, iPads etc. . . )  The Great Rebalancing is emerging, this is the last best hope for Sinic Civilization, especially since what awaits it is a great de-leveraging harnessed to an ever spiteful Communist State.

My money is on the Citizen.

About William Holland

Systematic Theologian/International Relations
This entry was posted in China, Economics, International Relations and tagged , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s