A Chinese puzzle

LSE Professor Keyu Jin explores China's economic trajectory , and the challenge of moving from its successful 'old playbook' to a nuanced 'new playbook' in the face of evolving global dynamics

The New China Playbook: Beyond Socialism and Capitalism

Author: Keyu Jin

Publisher: Penguin Random House

Pages: 305

Price: Rs 899

The meteoric rise of China over the last 40 years has been unprecedented in history. “How did they do it?” and “What next?” are two questions often asked in this context. In this eloquent book, Professor Keyu Jin attempts to answer both questions: First, by unravelling the formulae that led to China’s rapid and sustained growth spurt and, second, by highlighting the policies now needed (“the new playbook”) to overcome its current problems in delivering prosperity to its people.

Professor Jin’s credentials in attempting this challenging task are impressive — her father, Jin Liqun, is President of the Asian Infrastructure Investment Bank, and she was educated at Harvard and teaches at the London School of Economics. So can we expect her — in her own words — “to engage with China in a measured and effective way, critique it with relevance and ask good questions”?

The old playbook is straightforward. In the first six chapters, Professor Jin explains, with clarity, China’s demographic policies (and their various unforeseen consequences), the symbiotic relationship between China’s public and private sectors, how its financial system works (with its pitfalls), and how the provincial and central governments together with the Communist Party govern the country. For well over 30 years, this “China model” produced high economic growth, urbanisation and poverty reduction. But it came with huge costs — environmental degradation, rising inequalities, corruption, a massive debt overhang and growing youth unemployment. Further, an economic strategy driven by massive investment and an export orientation meant that the consumption needs of the public took second place. No wonder that China’s then Premier Wen Jiabao described the country’s economic situation as far back as 2007 as “unstable, unbalanced, uncoordinated, and unsustainable”. Something different was required, and hence the need for a “new playbook”.

Except that, defining this new playbook is much more tricky, as Professor Jin finds out. Take the case of science and technology (chapter 7). Increasingly, it is innovation that improves productivity rather than throwing money and resources at the problem. Innovation, in turn, hinges on either technological adaptations of current knowledge or breakthroughs in the basic sciences and foundational technologies. China is very good at the first; indeed, of the 25 most valuable technology companies in the world, China has nine, versus 11 in the USA. In areas such as green energy and electric vehicles, China leads the world.

Professor Jin describes the whole-of-nation approach that China has launched to mobilise money and talent towards rapid advancement in basic sciences and fundamental technologies. But that may not be enough. China needs deeper changes in institutional arrangements to promote scientific creativity, such as basic educational reforms to reduce the pervasive influence of rote-learning, along with greater autonomy of governance in universities and research institutes. This last step is particularly relevant given the “technology war” between the US and China, since the free and mutual circulation of scientific ideas is a crucial ingredient in promoting global innovation. However, might such steps reduce the Communist Party’s degree of control on Chinese society below its comfort level? Are the pressures facing China sufficient to overcome risk-aversive apparatchiks in the Party? Professor Jin does not address these issues.

Similar is the situation in the financial sector. China’s equity and bond markets are underdeveloped, and independent market players and financial intermediaries — especially foreign ones — are few and far between. A mature, well-regulated and vibrant stock and bond market is necessary not only to channel funds for China’s own development, but to realise China’s ambitions for its currency to play a commensurate role in world trade. Professor Jin quotes Niall Ferguson — “money is trust inscribed” —  and points out that the faith that markets have in China’s institutions and government is what will determine that trust. Once again, this implies a trade-off between the Party’s need for control set against the possible turbulence arising from more open markets. Professor Jin again misses this chance to delve deeper into China’s political economy and power structure.

And that is a pity. A dialogue is needed in China today between economic rationalists like Professor Jin and those who calculate the risks and opportunities inherent in the exercise of political power. For the “new playbook” to be effective today, it needs to be a novel combination of these two elements. A simple adoption of liberal western economic ideas by China is not the answer. Indeed, governments around the world are rediscovering industrial policy and economic controls in their frantic search for economic growth and human welfare whilst facing global trends like climate change, geopolitical upheavals and disruptive technologies. Here, China is a key player, so any schadenfreude at China’s woes might be both premature and impractical for us as global citizens. But neither can China return to its old playbook of the massive deployment of government resources. Its polity now needs to be more selective, nimble and agile but still effective — in Muhammad Ali’s boxing metaphor, to “float like a butterfly, sting like a bee”. China’s ancient symbol was the dragon, a chimera composed of the parts of five different animals. A truly “new playbook” — a similar creative combination — could be its contribution to posterity.

The reviewer is a corporate coach and an honorary fellow at the Institute of Chinese Studies, Delhi