Chinese model and the doctrine of mean

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By Zheng Yongnian (China Daily)
Updated: 2009-05-14 07:40

As the economic crisis batters the world, many experts have started a debate on economic models. A number of these experts regard the Chinese economy as a model distinct from those of the US or European countries.

The debate has thrown up three important topics. First, the Chinese economy seems to be more robust than others despite the financial tsunami. Though China has not been immune to the global economic crisis, its capacity to cushion the impact appears stronger than that of Western economies, as well as Japan and the "Asian Tigers".

Second, the means used by China to fight the crisis have generated curiosity. Though the Chinese government's approach seems to have no substantial difference with those of others, it has been more effective till now than the ways chosen by the Western governments. While the Western economies contract, a whiff of economic resurgence has been blowing in China, as a result few governments in the world are more upbeat about their economies than China.

Third, people are forecasting the role of China in the future global economic order. The crisis has not only revealed the faults of the global economic and financial system, but is also calling for reforms. In the reconstruction of the global economic order, the monopoly of the West will be replaced by broader participation both of the developed world and the developing economies. Since China will definitely play a crucial part in overcoming the crisis, people are eager to know what is its understanding of the future order and what it expects its role to be in it.

China's capacity to cushion the impact of the crisis, its means to recharge the economy and its role in the new world economic order are closely related to the economic model China has followed for the past three decades. That's why so many people are interested in the Chinese model. Many developing countries want to learn from China, while the developed ones are worried that the Chinese model could become the alternative to that of the West.

But what exactly is the Chinese model? I think the Chinese model is a composite or mixed economic system. Its features include a mixture of ownerships, a combination of foreign and domestic demands, and the balance between the State and the market. The mixed economic model embodies a Chinese philosophy - the doctrine of mean. Guided by that philosophy, China has avoided extremes in the past 30 years. Neither neo-liberalism nor the traditional planned-economy socialism has dominated its economic practices.

China is the very incarnation of mixed-ownership economy. In the age of reform and opening up, China has allowed various types of ownership, including private ownership, foreign capital and joint ventures. But it has shunned hasty and complete privatization, and instead chosen a step-by-step trial-and-error approach. While reforming the sclerotic State-owned enterprises (SOEs), it encouraged the emergence and development of other types of ownership and gradually granted legal protection to all.

The competition among enterprises with different kinds of ownership has improved overall productivity. As the government's powerful economic leverage, the SOEs implement its counter-crisis policies. While the Western governments possess only financial tools and no economic leverage, the Chinese government has both.

The Chinese economic development model has been export-oriented. But China is a huge country, where different regions have opted for different paths of economic development. Local economies that meet domestic demand have risen in many regions, too.

For instance, Zhejiang province, with the highest per capita GDP among all the provinces on the Chinese mainland, has acquired its economic development dynamics from within. Though Zhejiang welcomes foreign investment, too, its main development engine has been domestic private capital. Private enterprises have grown and matured over the past few decades and can now compete with foreign capital. Zhejiang's products meet the demands of the domestic market first, and its exports are only an auxiliary aspect of its economy. The Zhejiang model is more stable, creative and sustainable than those depending on exports. The relationship between labor and capital in the province is better than that in other areas, too, because local capital pays more attention to corporate social responsibility.

But Zhejiang is not the only place in China where economic growth is domestic oriented. Shandong province is another case, where exports add up to only a small part of the total output. Though the relationship between the State and the market has always been a topic of discussion among academics and within the government, the global economic crisis has brought the subject to the forefront.

The Chinese economic model combines the forces of the State and the market both. Before the reform and opening up, China used to be a planned economy where the State was omnipresent. After the reform began, China started gradually moving away from planned economy and introducing market mechanism. But it did not go to the extreme of making the market omnipotent. Though market-worshiping neo-liberalism has influenced some Chinese academics, it has not dominated the decision-making process.

The financial sector is an example of how China has maintained a balance between the State and the market. After the Asian financial crisis of the late 1990s, China learned a lesson from its neighbors' experience that lax financial regulation exacerbated the crisis, and began reforming its financial regulations. Those reforms have made China's financial sector better equipped than its Western counterparts to face the global financial crisis.

But despite its merits, the Chinese model has its faults, especially in its threadbare social safety net, which requires painstaking work to build. China needs to learn a lesson from the global financial crisis, and continue to improve its model by following the doctrine of mean.

The author is Professor in East Asian Institute, National University of Singapore. The article was presented at the Shanghai Forum.

(China Daily 05/14/2009 page9)