The Chinese Economic Model: Policies and Best Practices

Matt Ferchen, Paul Salem June 12, 2012 Beirut
Summary
As China’s global clout grows, Beijing faces new challenges in maintaining stability at home and in its interactions abroad.
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China’s rapid economic growth beginning in the late 1970s has long fascinated international observers, even more so since China emerged largely unaffected by the global financial crisis. Discussions on the reasons behind the origins and persistence of China’s unique economic success flourish in the media and academic and policy publications. To explain the various sides of the debate and address the future outlook of China’s state-economy relationship, the Carnegie Middle East Center hosted a discussion with Carnegie-Tsinghua Center for Global Policy’s resident scholar Matthew Ferchen. Carnegie’s Paul Salem moderated the discussion.

Understanding the China Model

The China Model generally refers to the economic and political policies that Beijing enacted in 1978, which established state authority over gradually opening economic markets, Ferchen said. It is credited by many as the reason behind China’s dramatic economic growth. However, Ferchen argued that this conception of the China Model is inherently misleading, for there is no real international or domestic consensus about how or why China arrived where it is today.

International Opinions

Ferchen explained that international commentators on China’s economic success can generally be categorized into one of three groups:

  1. Admirers: This group praises China’s rapid economic growth, which they see as having been achieved through non-western policies, and they forecast China’s future global dominance.
     
  2. Amenders: This group asserts that China’s success is actually a result of adopting orthodox Western economic policies, like embracing the free market and downsizing the state.
     
  3. Skeptics: This final group believes that China’s state capitalist model of an open economic system coupled with a closed political system is unsustainable. They see it, furthermore, as a threat both to itself and to those countries who may seek to follow its development example.

Domestic Disagreement

The official government position is that China’s growth since 1978 is a result of highly pragmatic domestic policies promoting development and stability and a foreign policy favoring multilateral action and respect of sovereignty, Ferchen explained. Nevertheless, he added, within the party two camps have emerged with rival viewpoints on how China should behave in the future.

  • New Left: The New Left is worried about disorderly markets and wants the Chinese state to provide stability. They believe China should continue rejecting Western liberalism.
     
  • Liberals: Liberals, on the other hand, consider the state to be a source of unfairness and inefficiency and believe China should liberalize financial and property markets, thereby reducing monopolies and corruption.

Challenges Ahead

  • Domestic Challenges: Ferchen listed some of the chief domestic challenges facing China, including:

    • Excessive dependency on foreign exports to sustain domestic economy;
    • Increasing demands of Chinese people for social services;
    • An aging population;
    • Environmental consequences of rapid industrialization;
    • And inequality between urban and rural and coastal and inland populations.
  • International Challenges: He also identified two particularly critical international challenges facing China. The first is the uneven dichotomy between China’s deep economic involvement in resource rich countries and its hands-off foreign policy toward those countries. Often, he said, Beijing will preach respect for national sovereignty but fail to acknowledge pre-existing involvement of private Chinese firms in that nation. He added that China must work hard to enhance its global influence through soft power.

Lessons from China

Despite these challenges, and despite the lack of a coherent China Model that other countries could follow, Ferchen identified three aspects of China’s economic plan that could serve as examples for developing countries:

  1. Commitment to development as a national goal
  2. Emphasis on infrastructure development
  3. Experimentation and flexibility in political policies
Source http://carnegietsinghua.org/2012/06/12/chinese-economic-model-policies-and-best-practices/eywb
 

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