The Chinese Model and The Global Crisis

1
The Chinese Model and The Global Crisis

• Professor Shaun Breslin

2
Schizophrenia and the study of Chinas political
economy International vs domestic Economics vs
politics/society Schizophrenia and the study of
China and the Global Financial Crisis China
thought of as a potential model for others.. .
but a greater focus in China itself on the
failings of the model assertive china promoting
its core interests .. but also assertions
of Chinas relative lack of development and
challenges to political and social
stability Multiple voices of China Not just
the monolithic single interest and single view
and voice that its sometimes easier to think it
is Real debates in China over the nature of its
global role what it CAN do and what it SHOULD
do Managing global expectations? China and
global public goods Lessons of the
crisis globally powerful but domestically
fragile (though perhaps not as fragile as
sometimes appears)
3
Why Change the model? Context No.1 - The
Partys view of the Partys position Sept 2004,
4th plenum 16th CC chinas ruling capacity
zhizheng nengli ???? the party as hyper
sensitive? the role of the central party school
a constructed discourse of danger? CCP
Stability Growth democracy chaos A new
political paradigm democratisation of
authoritarian rule A new scientific economic
paradigm environmental sustainability social
stability (inequality, HEW, migration,
etc) irrational development Yu Yongding on
local leaders and growth Roland Berger on
overcapacity and duplication quality of export
growth dominance of processing trade where are
the national champions? Investment and
innovation glass half full or half
empty? Changing notions of security . from
guns, bombs and bullets to economics and
resources 1997 and the Asian regional crisis
(crises?)
4
Though some strong (security) continuities The
unipolar global order, US hegemony and the China
threat perceptions of globalisation Wang
Yizhou, Wang Zhengyi, Wang Yong etc and the
failings of traditional IR Wang Hui, Wang
Ning, Chen Xiaoming, Zhang Yiwu etc and the
search for indigenisation of
thinking saying no, being unhappy and
demonisation Of the myriad threats
identified by these experts as potential threats
to Chinas economic security, five core themes
stand out (1) challenges to the competitiveness
of Chinese enterprises and economy, (2) issues
relating to the security of resources vital to
the economy, (3) questions to the health of
Chinas financial infrastructure, (4) security
issues relating to its socio-economic
development, and (5) economic security issues
stemming from its embracing of free trade
agreements and an open market economic system.
Ben Yeung
5
How export dependent is China? China in 2007
(ie pre global crisis) domestic consumption
38.6 per cent of growth investment 37.7
net exports 22.7 domestic consumption
36 per cent of GDP (down from 60s in
1990s) exports c.39 Anderson - the myth of
export dependence because of processing
trade domestic value added c20 per cent of
GDP (take out value of imports from domestic
sectors 10 per cent) Cui and Seyd misses the
increasing importance of domestic exports Cui,
Shu and Su exports a key driver of domestic
consumption and investment Akyüz exports
generate 50 per cent of growth when the export
component of spillovers to domestic consumption
and the knock-on effects on domestic investment
are added in (the better the quality of global
engagement, the greater the vulnerability the
shallower the engagement, the greater the
insulation from global shocks?)
6
Hyper-sensitivity to export growth? 1997 and the
response to the decline in the rate of export
growth to 11 Uneven distribution of exports
Low margins in a number of export
sectors Exports, unemployment and rural
poverty Although the economy has maintained
double-digit growth for years, fixed-asset
investment and exports have dwarfed consumption
as the two pillars of expansion. With global
recession clearly in view, China must sustain
itself by exploiting the domestic market to
offset weaker demand abroad (Peoples Daily
2008) Yao Yang and the end of the Beijing
Consensus
7
Context No.2 The distribution of (economic)
power in China 1980s and early 1990s - growth of
local financial autonomy (though unequally
distributed amongst provinces) 1994 onwards
redressing the imbalance fiscal reforms fee to
tax reforms reforming the financial
sector towards central regulation debt to
equity and recapitalisation 2004ish onwards on
(not) slowing economic growth Wen Jiabao on 7
growth in 2007 2007-8 on (not) changing the
pattern of export growth
8
Monthly changes in exports (year on year),
October 2008-Nov 2009
Source Ministry of Commerce
9
Chinas response to the global crisis Fiscal
Expansion not just the US4 trillion but the
combined total of local government fiscal
stimulus plans that collectively announced a
barely believable US18 trillion worth of
stimulus in 2009 .. .. and other measures for
the Promotion of Domestic Consumption divided
into formal support (subsidies to aid rural
consumption, tax breaks on some automobile
purchases etc) and informal (state entities
encouraged to buy and buy Chinese) Exchange
rate policy a cause of much debate and Sino-US
friction in particular. .. and other measures
designed to Protect and Support domestic
interests from international competition. Both
European and US surveys have both concluded that
there has been an inward turn and it is harder to
do business now in competition with domestic
companies than before the crisis Monetary policy
2008 witnessed a dramatic shift from interest
rate rises to fight inflation to interest rate
cuts and, through Central Document 18 attempts to
restrain credit growth over the previous five
years were removed as banks were encouraged to
lend to keep the economy going. By the end of
2009, new bank loans in China had reached RMB9.6
trillion with about half funding infrastructure
projects via local investment platforms (difang
fazhan rongzi pingtai ????????)
10
Chinas Successes 8.6 per cent growth From
Socialism saving China to China saving
socialism The validity of the Chinese
model? Increased influence in Africa, Latin
America and Middle East? Back at the high table
of global politics G20 and IMF quota reforms
but only the start Zhou Xiaochuan on
super-sovereign reserve currency managed by a
global institution Spanish bonds, Greek trade
and economic influence in Europe towards a new
round of (SME) outward investment? Chinas
foreign currency holdings as diplomatic
weapon mutually assured economic destruction,
but deterrent capability Swaine and Chinas
core interests (????hexin liyi) maintaining
the state system and national
security sovereignty and territorial
integrity the continued stable development of
Chinas economy and society Chinas Monroe
moment?
11
Chinas Challenges From growth to development
back to growth again? Not wholly true cause of
Increasing funding for welfare, development of
infrastructure to help develop interior,
promotion of rural consumption, environmental
projects etc but the will and the ability to
change course? The return of (unevenly
distributed) local debt as high as 400 per cent
of local GDP ? On Bubbles and land investment
in real estate equally roughly 11.5 per cent of
GDP in 2009 bank loans underwritten by rising
prices of government owned land NPLs and
bubbles Not just when, but how to slow
growth m2 expanded again in 2010 c20 The
politics of currency appreciation dealing with
inflation and dollar denominated imports doing
things on Chinas terms and not being seen to bow
to pressure
12
Implications/Conclusions Lets not exaggerate
its easy to talk in extremes when it comes to
china collapse or superpower, both by tomorrow
morning Economy easy to expand but harder to
control Importance of local governments Wen
Jiabao, its nothing new and has been an issue
since the 80s powerful interests benefit from
the status quo How committed is the leadership
to really changing pattern of growth Growth in
the DNA of economic actors Will short term
social stability issues always trump long term
trajectories How able is the leadership to
change it ? An outward turn vulnerabilities and
resource security towards food security? expect
a new wave of outward investment smaller
companies going West The need for political
reform/democratisation with Chinese
characteristics An inward turn? guojin mintui
???? chambers of commerce and doing business in
China
13
Towards real decoupling? China as developing
country, only 103rd in a league table of global
per capita GNP, has over 150 million people
living in poverty, and is reliant on foreign
companies to produce most of its export value
China to focus on its own problems and own
people Chinas primary responsibility lies at
home that is, to develop the country for the
welfare of 1.3 billion Chinese people. Improving
the welfare of the Chinese people is not only
the primary responsibility of Chinese state
domestically, but also has tremendous
international implications Chen
Zhimin Nationalism and the global economy The
appeal of the Chinese model or the decline of
the Western hegemonic model? A Neo-listian
developmental state with Chinese
characteristics?