Chinese “capitalism” has arrived in small steps, says expert in Sri Lanka

ECONOMYNEXT – China’s transition to a market economy is not the result of a single plan but of a series of small changes that have empowered people at the local level to make their decisions, said an author and a expert who had closely studied the People’s Republic.

“China’s transition from a socialist economy to a market economy is not the result of any government reform,” said Nang Wang, co-author of “How China Became Capitalist” with Nobel Prize winner Ronald Coase on an online forum by Colombo-based Night Watch Company.

“From the point of view of the Chinese leadership, the purpose of reform was not to turn China into a market economy or to turn China into a capitalist society. Even today, China claims to be a socialist country.

China began to change its economy in 1979, after years of central planning and collectivization that weakened the economy in an effort led by Deng Xiaoping, a purged “right-winger” who returned to power after the president’s death. Mao and the “gang of four”. ‘was sidelined.

During the first purge, Deng was believed to have been tortured and thrown from an upper storey window, leaving him a paraplegic for life.

Knowledge gap

When China initiated reforms, it lacked technology and basic knowledge of the market system.

As a result, in 1979 China sent delegations around the world, including Hong Kong, Japan, Singapore, Europe, Canada and the United States, he said.

The Chinese Communist Party did not have a master plan for the policy of reviving its economy.

Instead, he made a few “small” changes to empower people at the base to make decisions.

Before the reforms, the Chinese economy was dominated by state ownership and central planning.

One of the first reforms concerned collective agriculture, which had failed to feed the population.

China allowed private agriculture, although the land remained state property.

Farmers were allowed to cultivate whatever they wanted, even if the land belonged to the state.

“Little by little everyone tried to do private farming and it spread,” Wang said. “Beijing has adopted private agriculture as a national policy and food security is no longer an issue now. “

The Communist Party authorities carried out the market reforms in two stages.

The first step, in the late 1970s and early 1980s, involved the decollectivization of agriculture, opening up the country to foreign investment, and allowing entrepreneurs to set up businesses.

However, a large percentage of industries remained state owned.

The second stage of reform, in the late 1980s and 1990s, involved the privatization and contracting out of much of state industry.

In 1985, China appointed Goh Keng Swee, the architect of Singapore’s economic transformation and the right-hand man of Prime Minister Lee Kwan Yew, who had retired as deputy prime minister on health issues as as special adviser to the Council of State (cabinet) on coastal, economic development analysts say.

The lifting of price controls in 1985 was a major reform, and the lifting of protectionist policies and regulations soon followed, although state monopolies in sectors such as banking and oil remained, Wang said.

An in-depth approach

Wang said Chinese leaders realized in the late 1970s that sweeping policies bought by past socialist regimes had failed China with dire economic consequences, and the country had failed to feed its growing population. .

“During the reforms, many of these practices that worked in China started in local areas by peasants, by local governments,” he said.

“Beijing quickly adopted them in its policies to modernize the Chinese economy. China at the start of the reforms did not want to get rid of socialism. China wanted to modernize to strengthen socialism.

Later, the Chinese government privatized many bankrupt state-owned enterprises and allowed privatization while maintaining control over the way people think.

Although it is a state-controlled economy, the state has withdrawn from the economy, but not completely.

The private sector that was illegal in the 1970s is now allowed and over 90 percent of urban jobs are now generated by the private sector.

“The Chinese economy is increasingly market-oriented.

China also reformed its central bank in the late 1980s as inflation rose, the exchange rate collapsed and foreign exchange reserves dwindled, analysts said.

In 1993, the exchange rate was set at 8.2 per US dollar under Zhu Rongji, Deputy Prime Minister and Governor of the Central Bank, a protégé of Deng. He was previously mayor of Shanghai, a center of economic growth and transformation.

Deng was once famous for saying that the Zhu was the only man “who knows the economy.” Zhu refused to devalue the Yuan during the Asian financial crisis in response to calls from Western Keynesian mercantilists.

The largely credible exchange rate anchor led to a constant collapse in interest rates and abundant domestic capital as high inflation subsided. Foreign exchange reserves have also increased.

Tight control

Western analysts have believed for years that the Chinese people, after enduring decades of hardship under Mao Zedong, the founding father of the People’s Republic of China (PRC) in 1976, would tolerate one-party rule in exchange for a increased income and greater social freedom until a newly prosperous nation would also demand political freedoms.

But the opposite has happened.

Income levels surged, but China’s authoritarian rulers consolidated their power.

President Xi Jinping could be a leader for life after the term of office is lifted. Deng has imposed term limits on civil servants at many levels.

The Chinese people continue to demand from the party, but the old assumption that prosperity inevitably spurs democratization is called into question.

China’s reform has been pushed under tight one-party government control and with many state-owned enterprises

Wang said China still controls the way people think and the media.

“The way ideas are created is very much controlled by the government. University professors do not have full control over the textbooks they teach in their subjects, Wang said.

But Wang sees both the advantages and disadvantages of a single ruling party with tightly controlled decision-making.

Controlled thinking has destroyed innovative thinking in people, he says.

“It’s hard to compete with the Americans when it comes to innovation,” Wang said.

“People don’t have that kind of freedom to innovate. “

Accelerated infrastructure

However, China could speed up decisions and build economic infrastructure very quickly.

“When I went to Chicago in 1993, they were wondering if there should be a third airport. And this airport is still on paper, ”Wang said.

“In the meantime, China has built several hundred new airports. It is the efficiency of the Chinese political system.

“You cannot take for granted that democracy (popular vote) is the best way to run a political system,” he said, adding that although the Chinese have no direct way of expressing their discontent, they still have the “means to participate indirectly” in the political system.

Popular vote also often leads to nationalism like Hitler in Germany and several other nations that gained independence when empires split up in Eastern Europe (Austro-Hungarian / Ottoman Empire), Africa and Asia (Western Powers ) who obtained universal suffrage after the dissolution of the empires. show.

Lessons for Sri Lanka

Sri Lankan chief architect PodujanaPeramuna (SLPP) and current finance minister Basil Rajapaksa has openly said he wants the party to look like the Chinese Communist Party (CPC).

Since Gotabaya Rajapaksa was elected president in 2019, Sri Lanka has turned more to China, which has helped the current government, from loans to trade and infrastructure to vaccines.

Wang said China’s struggle to modernize the economy could also be something Sri Lanka could look into.

“From the limited knowledge I have, SL is well positioned to take advantage of China’s economic advice with close relations with India to realize their economic potential,” he said. (COLOMBO / August 13/2021)

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