Ryan Rommann
The Diplomat
October 4, 2013
Shanghai’s new free trade zone is reform. It is a testing ground for RMB convertibility, market interest rates, foreign investment and perhaps internet openness. Granted it only encompasses 28 square kilometers and may boost economic expansion by 0.1 percentage points, it is still the country’s “new trial for opening,” in the words of Premier Li Keqiang.
Yet pundits still bemoan China as a“broken machine,” ineffective at meaningful change within a system of vested interests and bureaucratic cadres. Liberalization moves with excessive caution only when confronted with social unrest and economic stagnation. China, according to most, is behind the curve.
But slow compared to what?
Certainly Chinese economic reforms are more gradual than the disastrous “shock therapy” of the 1980s’ Washington Consensus. Political reforms are much slower than the Arab Spring. They are slower than Glasnost or Perestroika, and they are a crawl compared to the Cultural Revolution. This is a good thing. Another Great Leap Forward would be devastating to China and the world.
We must view reform through a broader lens that considers time and context. In fact, few countries have reformed at breakneck speed. The Chinese reform process is as prudent as that of its Asian neighbors and on a par with similar developing countries. Even in relation to the United States, China suffers from similar oligarchy and corporate interests. Pace is best measured in relative terms.
Asian Neighbors
China’s gradualism is not unique in Asia. Politically, soft authoritarianism has led most Asian countries.
South Korea alternated between autocracy, marshal law and democracy for 39 years. Park Chung Hee used torture and tanks to crush student protests with a vigor similar to that seen at Tiananmen Square. Singapore remains under the control of Lee Kuan Yew’s People’s Action Party, and 48 years after independence there remains little room for protests, unions or political opposition. Taiwan’s 228 Incident killed up to 30,000 in 1947 and was followed by the “White Terror” period. More than 140,000 political dissidents were imprisoned for being anti-Kuomintang during the 47 year reign of Chiang Kai-shek’s Chinese Nationalists.
Politically, eight out of the 14 countries bordering China are considered “not free” by Freedom House’s 2013 rankings. Only two are completely free (India and Mongolia). China is in a league of undemocratic nations.
Economically, state capitalism continues to be common in Asia. Forty percent of the world’s sovereign wealth funds reside in Asia. Russia’s Gazprom, India’s PSU banks and Thailand’s Electricity Authority need autonomy as much as China’s maligned state-owned enterprises (SOEs). Even China’s export-led growth model is not Chinese at all. Rather, it follows in the footsteps of Japan and the Asian Tigers. Those countries took decades to appreciate currencies, liberalize finance and remove government support – some of which led to the 1997 Asian financial crisis. Let’s hope China can be more cautious.
Developing Nations
China’s nominal GDP per capita is US$6,076 – below Iraq, Iran, Venezuela and Russia. 30% of Chinese live on less than $2 a day – higher than Egypt and Syria. China is a poor country and should be analyzed as such. By mapping China’s HDI (a UN standard for development) with the Heritage Foundation’s Index of Economic Freedom, we see that China is not substantially less free than countries of similar human development. It needs further reform, but the CCP knows this.
The United States
The U.S. has historically favored free markets. Despite some mercantilist policies under Hamilton, the U.S. trumpeted Adam Smith from the beginning. Turmoil in the 1930s led to creation of a social safety net, but funded by capitalism. Reaganomics moved the pendulum back to the right in the 1980s and 90s, but we are seeing it return after the 2008 financial crisis. The U.S. resorted to bailouts, takeovers, quantitative easing and tighter regulation. If Deng Xiaoping called his reforms “socialism with Chinese characteristics,” some might call the recent changes in the U.S. “socialism with American characteristics.”
It’s also easy to overlook America’s languid progress towards true democracy. It took 94 years to give African Americans the right to vote. Women, or half the voting population, were forbidden to vote for 144 years. Even after universal suffrage, poll taxes and gerrymandering limited political access.
Today, “powerful corporate interest groups dominate the policy agenda” according to Jeffery Sachs. Banks, healthcare, military and oil industries lobby Washington for preferential policies. This is modest compared to the role SOEs play in China, but a far cry from a free market. While pundits are busy pointing towards the myth of Chinese reform, Washington is experiencing a shutdown over healthcare. Given the state of U.S. affairs, it’s a little rich to point at China and say, “Your system is broken.”
It’s only been 35 years since Deng Xiaoping started opening China. In that time, China has changed immensely, such that the China of 2013 would be completely unrecognizable to Mao. The CCP is run by “capitalist roaders” – communist in name only. Investment by “imperialists and U.S. aggressors” is welcome. Elections are held at municipal levels and a hundred flowers of thought bloom. More reform will come with time. In the meantime, some perspective is needed.
Ryan Rommann is an economic researcher at Healy Consultants – Singapore. He studied at Beijing’s Tsinghua University and the Maxwell School of Citizenship and Public Affairs.
