The Real Chinese Economic Model
The Real Chinese Economic Model
Neither communist, nor capitalist, but a whole new beast, a chimera from multiple philosophies
I see a lot of confusion over China's economic model. This is something that has been an open question for me for a while as well.
The official term by the Chinese government is “Socialism with Chinese characteristics”. The link is to the dedicated Wiki page. Which is not helpful at all to actually understand it.
Is it communist? Capitalist? A mix of both?
I will argue that this is a completely novel system, drawing from different inspirations and mixing them in a unique way.
And that for any practical purpose, China is not a communist country.
Why is it so Hard to Define?
The main reason why this discussion is so hard is that virtually every commentator (including myself) is heavily biased.
Anyone caring about the question most likely has strong opinions about communism vs capitalism. Add no less biased in favor or disfavor of China or the USA, and you immediately swim in a sea of propaganda, self-delusion, and misdirections.
So to get it out of the way, here are my own biases:
I am staunchly anticommunist, as I prefer more free and meritocratic societies. Living in Eastern Europe and having first-hand accounts of life under a collapsing communist economy has only reinforced my opinion:
Communism doesn’t work, because it removes incentives for hard work and honesty and breeds corruption instead.
Misallocation of capital + centralization + bureaucracy lead to poverty and shortages.
I am not anymore a staunch believer in capitalism, at least in its modern form.
It seems the prioritization of profit over everything else slowly rots social institutions like family, religion, communities, etc…
Financialized capitalism is unable in most cases to allocate capital toward resilience and long-term objectives.
Just-in-time and degrading infrastructure are just the visible part of this.
Lobbyism and outright corruption allow for monopoly and rent-seeking at large scale, destroying competition, hence destroying efficiency and creative destruction, the lifeblood of capitalism.
If anything, I am more of a distributist, rejecting aspects of both capitalism & socialism. This way you can understand from where I am approaching this subject.
But elaborating on distributism will have to wait for another time.
Chinese Characteristics?
The trick is to break through the intentionally obscure jargon.
First, let’s get something out of the way. A society cannot be “Marxist” with billionaires, a thriving middle class, a large financial sector and plenty of private property.
China hasn’t been communist in a while by now.
So why are Chinese officials so intentionally unclear?
Inertia
One part is for internal politics. The country WAS Marxist. Incidentally, this is why it was starving during the Great Leap Forward.
A lot of the state propaganda is still geared in that direction. A lot of convinced Marxists form a core of patriotic hardliners. It is easier to placate them with empty rhetoric, while the new system emerges. And they provide a dedicated, faithful, and useful group to police internal dissent and man the army.
Over time, “Chinese Marxism” will become a synonym to the “Chinese system that works” for the younger generation. With the Communist Manifesto fading in the background in favor of analyses of Deng Xiaoping’s orXi Jinping's insights.
The same way few Western capitalists today refer much to Bastiat or Adam Smith, outside of the core libertarian believers.
Diplomatic Reach
This might surprise many Americans, but a LOT of people still believe strongly in communism to this day.
The largest opposition parties in France are on the hard left of the classic Marxist/Stalinist/Leninist/Maoist kind. The same holds true in many places in South America, Africa, and Asia.
So by declaring itself “Marxist”, the Chinese government acquires “for free” a big bunch of supporters and power relays abroad.
I will add that many of these people still supporting an ideology that killed around 100 million people are either not-too-bright or dishonest and power-hungry. So they are not difficult to fool and/or influence to China’s advantage.
Lack of a Cohesive New Theory
The last reason is that the new Chinese model has so far been partially improvised. It tried “stuff” and kept what worked.
Irrespective if it was fitting Marxist theory.
Deng Xiaoping summarized it beautifully:
No more cultural revolution, political theory does not make a country powerful or even fed. What China needs is more food, more steel, more technology, and more sovereignty.
So far, no one has come and theorized the emerging model in a systematic way.
Without coining a cohesive doctrine, “Socialism with Chinese characteristics” is as good as any other term for now and avoids pointless internal debate.
Socialism with Chinese characteristics is whatever China is doing now.
The New Chinese Model
An Old Ideological Debate
To understand modern China, we need to discuss briefly the early 20th-century social, economic, and political struggles.
Industrialization brought a lot of economic growth, radical innovation, and increased production.
It also brought 12 hours, 6 days work week in an exploitive labor market. It also destroyed the social structure centered around a village and its church. It destroyed the old craftsmen's social class, opened trade, and made inequality explode.
The emerging ideological struggle would end with the Cold War opposition between capitalism and communism. But in the 1920s, there was a large panel of other political theories, in no particular order:
The common criticism was that modern life was miserable at the human level. You might be “richer” or more productive, but you worked like a slave, social life got worse, tradition disappeared, social order collapsed, the family unit suffered, and it was “spiritually wrong”.
The worst ideologies added a layer of racism or authoritarianism to these legitimate complaints, leading to WW2.
I would argue that this problem is still not really solved, and our societies are still looking for a better form of “modernity”. I mean … have you opened the news lately? Do people look happy with the way things are going?
We just settled for the best among the options after WW2, between capitalism, fascism, and communism.
These other ideas were not all just “a mix of capitalism and socialism”, as simplistic explanations often describe them. Many were too radical to have worked, and others might have worked but failed to gain reactions with enough people or enough rich supporters.
I also wanted to emphasize the intellectual diversity of political thought in the inter-war period for another reason.
If China is neither communist nor capitalistic, it does not automatically make it fascist or a 4th Reich. This is just a silly and uneducated position to hold.
China as a New Third Way
The “moderate Marxism” of Deng Xiaoping started as “let’s learn a little from capitalists”. His main inspiration was Singapore, a formerly poor, Chinese-populated backwater that turned rich virtually overnight.
I am under the impression that for the few decades of Chinese opening, this process stayed more or less the same:
Test in a limited area or economic segment the opening to Western ideas.
See if it works in getting more prosperous.
Backtrack if it failed or if it raised too much political instability risk.
Rinse and repeat.
In that same period, the collective West believed China would slowly turn into a new Japan: capitalistic, subservient, and overall “boring” and Westernized.
Another dominant idea was that China could ultimately not rival the USA. The USSR collapse had shown capitalism to be the end point of economic history. So it either turned into a friendly “normal” country or would regress back to a poor, closed communist backwater.
You see, if the entire mental universe is only failing socialism and successful liberal capitalism, then there is no way China could ever succeed while staying Chinese. It if did so, it would stop being a threat.
Except China started to look at new ideas.
And these new ideas do not fit in the communism-capitalistic spectrum, both children of the European Enlightenment era.
The 3 “Chinese Characteristics”
A Millennia-Old Culture
China is maybe the oldest civilization on Earth. It started farming more or less as early as the Fertile Crescent. And would go on inventing on its own paper, gunpowder, irrigation system, scientific agronomy, advanced shipping, medicine, etc…
To give some perspective to Western readers, China’s had an organized bureaucracy with personalized ID paper for EVERY citizen in Roman times, and it took SEVERAL millennia for anybody else to figure out silk making outside of China.
While sometimes divided between pretenders to the Emperor’s throne, the Chinese State would always reform.
A little as if the Roman Empire was still the hegemon over Europe.
Its culture and state were molded by multiple ideologies/philosophies/religions, of which 3 are especially relevant today, and which I will summarize roughly:
Legalism: Society needs a strong state to survive. Unity is a noble goal in itself, and obedience a virtue. It was a driving force in the early unification of the Chinese state, even with its limitations on morality and social order. A little like Ancient Egypt or Summerian despotism, but without the religious component.
Confucianism: First suppressed by legalists, then somewhat merging with it. The central tenets are family and social harmony. It highly values order and traditions and one’s ancestors. It encourages self-improvement and elevates meritocracy as a superior hierarchy over aristocracy and un-earned honors.
Chinese Buddhism: Born in India, and brought to China by the Central Asia Bactrian Greek state, Buddhism prospered in China before spreading to Japan and Korea. It provided a spiritual transcendence that the other 2 I mentioned failed to offer.
Please note I am leaving out other important influences for brevity's sake, like the Hundred Schools of Thought. Or Taoism which co-evolved with Buddhism to provide the spiritual foundations of Chinese civilization.
Modern China is drawing from all of these sources to organize its society:
CCP’s authoritarianism is not mere Stalinism or a personality cult, it is modernized legalism. The Century of Humiliation (1839 to 1949) followed by the cultural revolution made Chinese people value stability above all.
Social conservatism and nationalism is not reactionary or “conservative” in a Western sense but deeply rooted in traditional Confucianism.
Focus on social good above general prosperity or individual liberty stems not from Marxism, but from ancient religions’ views on society and morality.
Decentralization
Far from the dystopian centralized administration portrayed in the West, China is much more federal and local than most other countries. This is unavoidable for a country so populous and so large.
And a big part of the Chinese success. Shanghai can experiment, and IF the test is successful, then other regions will adopt the idea. And if something fails, it is rarely systemic.
Meritocracy
China is a technocracy: most high-level CCP officials are scientists and engineers. This is highly similar to the old mandarinate system of bureaucratic meritocracy.
Hence a disdain for Western-style democracy. You rise in power because you prove yourself a competent intellectual, scientist, technician, or administrator. Not because you are popular or good at raising money and getting votes.
You might gain obvious risks of nepotism or corruption but also lose the risks of populism, corporate lobbyism, and radical politics.
No CCP chairman will ever come to power because he looks good on camera or is a famous TV reality star.
Conclusion
I did not come to this conclusion alone, this is actually something Chinese propagandists now openly admit (even if they tone down the very real legalist heritage)
The origins of the current modern Chinese system was amusingly summarized by an anonymous Twitter user, as a full circle from Europe learning from China to China learning of its own traditions from the West:
Competition with the West
Does this mean the new Chinese system is perfect? Very far from it. There is no such thing on our green Earth.
Is it superior to “classic” communism? Certainly. Just compare the USSR to modern China.
Is it superior to Western liberalism? Maybe.
For sure, it is superior to most of the systems in place in the non-Western world and looked at with awe in the Global South.
Considering most post-colonial nations failed to Westernize, no wonder they are looking for a new role model. A China dirt poor and starving in 1970, and rich and powerful in 2022 make for a good one.
What is certain is that by now, “socialism with Chinese characteristics” is so Chinese and so little socialist that China is not a communist country. I do not know how future historians will label it, but for now, I will label it “Chinese Syncretism”.
The Good in Chinese Syncretism
efficient industrialization.
rapid and competitive innovation.
stable political system.
retrocontrols and ability to adapt.
strong military and geopolitical influence.
The Bad in Chinese Syncretism
low individual liberties.
occasional centralized failure (real estate bubble, harsh lockdowns).
not-yet proven ability to keep demography stable.
pollution.
inequality.
consumerism.
tendency to closeness and insular culture.
Unfinished synthesis
I think 2 issues will need to be addressed before we can call Chinese Syncretism a success.
Money & inequality
The first is the handling of inequality and the corrupting power of money. This is the Achilles heel of liberal capitalism, as illustrated by overpriced weapons systems, cancerous growth of monopolies and oligopolies, and total domination of corruption lobbyism over the democratic vote.
It is equally a problem for China.
The CCP’s crackdown on emerging monopolies like Tencent and Alibaba is equally motivated by CCP politics than by this concern. Ask most Americans if they would be sorry for Jeff Bezos, Bill Gates, or Elon Musk to become less influential…
But I am skeptical that the problem is solved. Brutal inequality and monopolistic behaviors have been a feature of industrial societies for 200 years, and looking at Western Europe, a welfare state does not seem like a durable solution either…
Basically, the first society that finds how to combine capitalism and its dynamism without the rot of corruption, inequality, and monopolies wins and will dominate the future.
Externalities & lifestyle
The second is consumerism, pollution, and relations to nature as a whole.
Rapid industrialization and lack of spirituality have heavily damaged Chinese society and its environment. I doubt megaprojects like greening deserts will be sufficient to reverse this trend.
I suspect the solution is typically Chinese: exhuming an ancient native philosophy, Taoism, and merging it with the other dominant ideologies already in circulation.
The focus of Taoism is on the individual within the natural realm, rather than the individual within society. Accordingly, the goal of life for each individual is seeking to adjust oneself and adapting to the rhythm of nature (and the Fundamental) world, to follow the Way (tao) of the universe, and to live in harmony.
In many ways the opposite of Confucian morality, Taoism was for many of its adherents a complement to their ordered daily lives. A scholar serving as an official could usually follow Confucian teachings, but in retirement might seek harmony with nature as a Taoist recluse. Politically, Taoism advocates for rule through inaction, and avoiding excessive interference.
Taoism harmony appears to be the counter-balance to the ruthless efficiency of Legalism and Confucianism.
Its promotion of “inaction, and avoiding excessive interference” can be a good concept to limit excessive legalist centralization.
A growing environmental movement in China should be able to rely on this ancient wisdom and maybe avoid the pitfalls of the disconnected from reality Green ideology of the West.
Final Thought
There are plenty of ways to measure a society's success. One is definitely the people flux. You could tell communism was awful from so many people dying just for a chance to escape it.
Modern China is attracting more and more people, including the brightest. And at least for scientists, it seems the US has stopped doing that. To my surprise, the EU ranks pretty high here as well (returns from the UK?).
In any case, the idea of an impending Chinese collapse is absurd.
The USSR was not attracting thousands of willing foreign scientists per year.
Or having rising life expectancy, or growing economy, an exponentially bigger alliance network, etc…