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Is China’s growth model a threat to free-market economics?

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Bharat..

you have an economy where the oligarchy is the favoured few whose parents went on the long march.
an economy that is so reliant on competition that it is extremely sensitive to changes in other economies.
you have massive companies which are successful - but only in China\and economy that grew with huge construction projects, many of which are white elephants.
no competition ?
oligarchy that may not have the will to make it on it's own ?
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what is the prognosis ?

oca250

I maintain that it is the industriousness of the Chinese people and not the party's economic policies that are principally responsible for China's rise. Chinese students do better than US students across the board despite having on average one quarter the standard of living, and at a fraction of public spending per pupil. Even migrant children left behind by their parents, in broken homes, and in underfunded rural schools outperform their western peers. All this has vast economic implications of course.
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I remembering going to a poor, rural Chinese school one time (to teach english) and was shocked in finding that their level of mathematics for their age was more advanced than private schools in the west.

Bharat.. in reply to oca250

history repeats itself
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Everything you say, has already been said for japanese kids some 30-40 years ago.
This is the same thing as tiger mothers. The parents push and push their children over and over again. When these kids grow up, and the parents get too old., the children have no will of their own
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Of course, many decades ago they used to say that about protestants.
apparently, the protestants had better work ethic then did the catholics. No one dwelt too deeply into it because they may have seen the nonsense coming through

oca250

Notwithstanding QE and bank bailouts the west's overall interventions in the free market is very modest next to China's efforts.

oca250

The whole point of the free market paradigm is being willing to let firms fail for competitive reasons, I don't see how the ability to intervene effectively represents the "perfecting" of the free market paradigm. This article operates in doublethink when it claims China's policies are "harmonious" with the free market paradigm while also better than the free market paradigm. China can't claim both mantels.

guest-ojeliiw

If China's development is evidence for anything, it's not for the superiority of authoritarian rule when it comes to economic growth. If it's evidence for anything, it's that Keynesian policy does, what it does.
It's not authoritarian rule that created the Chinese "miracle", the driving force are massive capital injections into the system (land sales, free loans to state owened companies).
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The test will be what happens in the next phase. My personal guess would be, that an authoritarian government hinders the further evolution of the economic system, by failing in education and suppressing everyone dissenting. It's the "Ben and Jerry's" of the world who invent new markets and whole new economies. Brin and Page were educated in anti-authortiarian, self-actualisation Montessori schools.
The Chinese kids in contrast get intimidated, learn to obey and get indoctrinated with dulce et decorum est pro patria mori.

Houshu

If one can call the current heavily regulated western economic system as free-market with a straight face, one could equally call it a Marxist utopia. From perpetual quantitative easing to too big to fail banks to endless subsidies for endangered species (sorry, I mean, farmers) and minority owned business, not a shred of evidence for free-market economics.
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The most egregious non-free-market policy is the differential treatment of capital income vs labor income. The former is taxed at the bottom line, that is, after expenditures, capital maintenance costs, business insurance, etc all deducted, while the later is taxed at the top line, none of the education cost, food and shelter cost can be deducted, and government even fines workers for not buying enough health care insurance. All these policy externalities are definitely NOT part of free-market.

oca250 in reply to Houshu

1) China's M2 money supply growth is greater than the West even after adjusting for real growth in the economy.
2) China has no defaults. Like ever, almost any firm can be expected to be bailed out. Only recently, is this starting to maybe change a little.
3) Every single major industry is subsidized by the Chinese govt.
4) A relatively lower capital tax is not indicative of a distorted free economy because all taxes are by definition a distortion of the free market. Capital has to be taxed lower than income because capital is mobile in a free economy.
5) China gets around mobile capital by capital restrictions of course, but that is not indicative of a free market economy.
6) China's SOEs control nearly half the country's assets, all other major companies have to be affiliated with the govt through an official party link.
7) Given China's success in non-free market economics, one would suspect they should be content with touting an alternative model. Instead they wish to appropriate the "free market" slogan for themselves as well. One mustn't be so greedy and unreasonable in life.

Houshu in reply to oca250

So you are in agreement with me, I think, that the subject matter of this article is completely and moronically wrong, it should be: "Is China’s government controlled growth model a threat to other government controlled but not-much-growth model?"
Yes?

daley1686

Good article. China's example has raised the question as to whether you can have free-market economics without capitalism; i.e., without the extravagant returns to capital that have characterized western and particularly the US economy over the past four decades. Rather than inflating capital gains through lax monetary policy, and focussing corporate managers on capital gains through stock options and buybacks, China has focussed managers, as well as fiscal and monetary policy, on income growth. Should it be any surprise that it has so resoundingly out-performed the West in regard to income growth?

The West has now begun to straighten out monetary policy, but fiscal policy and corporate governance are still problematic. Capital income is still too richly rewarded relative to earned income. That is really where Western economies have gone wrong.

guest-aaawwwmj in reply to daley1686

Capital income is still too richly rewarded relative to earned income.
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Capital income is the result of taking risks, of which many times it does not occur and some instances the capital invested is lost.
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We all know that whatever a person's salary/wage income is, if it is increased it will be spent and the increased salary/wage is used by earners to expand their credit.
Witness how those who earn more during their lifetime usually buy a more expensive home than what they currently have.
(A never ending cycle of living "debt/credit card payment" to "debt/credit card payment)
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NSFTL
Regards

oca250 in reply to daley1686

China has done absolutely zero to promote income growth. They spend less on transfers and social spending, less on education, less on public health care, less on everything than the West. China doesn’t have lax monetary policy and asset bubbles?
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The key to preventing inflated capital gains is competition not restricting managers from “stock buybacks and options”, and China scores even worse than the West on that score. China has outperformed the West on income growth because 1) they started from a low base, 2) they have been recipient to massive amounts of foreign investment, 3) because the Chinese people are hardworking and good at boosting their own productivity through education and skills. No Party managers were responsible for that.

guest-amjoliao

Chinese economy in recent decades had many bubbles, scandals and crises. The Party simply acted with strong hand and censored the problems, while claiming all successes itself. This created the illusion that China develops smoothly and the Party applies the free market principles better than the West.

guest-aaawwwmj

The threat to free-market economies has been and always will be the overextension of credit to consumers, businesses, and the gov'ts.
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NSFTL
Regards

Peace Love and Understanding

Quantitative Easing already destroyed any real claim the world has to a free-market global economy.

In a free market those banks are out of business.

And considering that those banks privatize their profits while receiving state subsidies for every poor decision they make, you really get the worst of both worlds.

QE allowed the Fed to buy $1.7 Trillion of Federal Agency Debt and Mortgage Backed Securities .
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(Click on Data.)
http://www.clevelandfed.org/our-research/indicators-and-data/credit-easi...
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I guess you are saying that
it probably would have been better if they didn't buy them and those mortgages were foreclosed on.
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Don't forget that during QE many people took out 30 year mortgages at under 4% interest.
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NSFTL
Regards

Those mortgages were foreclosed on. It was the banks who were bailed out not the homeowners.

And yes, it would have been better if they had not been bailed out. We would have had a depression, certainly. But at least we would have been rid of the criminal oligarchs who have been farming our people for their personal gain for years through their monopolistic control of government policy. And now that they have been bailed out and freed from any possibility of being held accountable for their actions, they will just do it again anyways.

In order to build something new you must first tear down the old.

Yeah 4% interest worked out really well for people who had the money to buy houses during the financial crisis. Not so good for people who weren't already financially secure.

sikko6

China's growth model is a huge threat and risk to free market economies. China's state funded companies are huge threat to free market economics. Without unlimited government money, they play chicken games to destroy free-market economy companies. Obviously free market companies will collapse and vanish. Then communists will take over the world!

AZola

China's accelerated economic development has yet to face a real stress test. I am not an expert on the Chinese economy, but my humble opinion is that financial, banking, and economic crises of the depth and breadth that are periodically experienced in OECD economies have yet to occur in China. Yes, the PRC Government may be big enough and magnanimous enough to provide bailouts once or twice for some minor crises (which it has reacted to in the past), but can they react correctly and quickly enough to deflect a serious macroeconomic crisis that may have negative impacts on millions of hard-working people. Just a thought.

Houshu

I bet one yuan that Ptolemy and his true disciples would never consider Copernicus' model a 'threat'. They may concede a little on the basis of law of parsimony, but they would take much pride in their hero's unquestionable seniority.... and they would be absolutely correct, for not until Newton's universal gravity theory and somewhat changed definition of relative motion, the difference between the two models were just a matter of opinion, or, according to Einstein, just a matter of space curvature...
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So, have some confidence, keep open a little your mind, and be gracious. Don't think your dear holding's best days are behind you, think that you are just rotating into different sectors in order to leave some winning to the next guy, such as your former colonies.
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Yes?

guest-theritz

"In addition, China has used counter-cyclical monetary and fiscal policies to provide much-needed capital whenever economic growth slows down and investment slumps."
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If core economic policy is left in Congress' hands, partisan-cyclical will be the order of the day; political pro-cyclical prevails, and needed counter-cyclical policy is ignored, to judge by 2009's parsimony in crisis, and 2018's profligacy in strength.
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Maybe we could do with more mandarins and fewer pols.

guest-ojeliiw

quote:
"... it can also control prices in order to avoid inflation and asset bubbles."
How much does the average Chinese earn and how much does the average poorly built appartment in the middle of nowhere cost?
If the banking system collapses under all the bad loans, the government faces only bad options:
- Nationalising the whole banking system and watch foreign capital leave the country.
- Let the chips fall where they may, and have 20 million very stubborn seniors protesting across the country.
----- The sci-fi solution would be traveling 50 years into the future and bring back a state of the art quantum computing device. Tell a couple of tenthousand genius mathematicians to translate cybernetics and financial knowledge into quantum computer and let the whole system be run by the machine.