The Magazine

A Model to Avoid

The dark side of Chinese state capitalism.

Oct 24, 2011, Vol. 17, No. 06 • By YING MA
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The gains were sizable. According to a study published by the National Bureau of Economic Research (NBER) in March 2011, the air quality in Beijing improved by 29.65 percent during the Olympic Games “as compared to one year before any Olympic-motivated action.” But only a year after the games, the study’s Chinese and American researchers concluded, roughly 60 percent of the improvement in Beijing’s air quality had evaporated.

Elsewhere in the world, the study notes, improvements in air quality have resulted from a long process that “largely depends on the dynamic interplay of government policies and private compliance.” In China, on the other hand, the problem was tackled with an authoritarian campaign of white-hot intensity, but the environmental gains could not be sustained.

For all its warts, fans still credit Chinese state planning with having delivered breathtaking economic growth for over three decades. The accomplishment is tremendous and is a tribute to the hard work and entrepreneurial spirit of the Chinese people. But even here, admirers overestimate the power of the state and underestimate the power of the market. 

In his book Capitalism with Chinese Characteristics, economist Huang Yasheng of the MIT Sloan School of Management argues that reforms that have worked elsewhere—such as private ownership, financial liberalization, improved property rights security, and even some degree of political constraint—were essential to the successful takeoff of China’s economic revolution in the 1980s. On the other hand, he observes, the slowing of market reforms in the 1990s had a direct impact on the quality of China’s economic growth, even if not on the actual rate of growth.

In an essay updating his book, Huang writes that between 1989 and 2002, a period when China’s market reforms slowed and statist intervention increased significantly, per capita GDP in China grew at a real rate of 8.1 percent a year, but during the same period, Chinese personal income per capita grew at an average of only 5.4 percent a year. “The gap is thus huge,” he writes, “between GDP growth and the performance of a metric that directly tracks the actual living standards of the average Chinese person.” 

Meanwhile, China’s most dramatic statist turn has come in the aftermath of the 2008 financial crisis, when the country’s massive stimulus spending flooded into the state sector. 

Yao Yang, director of the China Center for Economic Research at Peking University, spelled out the drawbacks of state intervention even while lauding the accomplishments of the China model at a conference earlier this year: Excessive state participation in the economy squeezes out the space for regular citizens to increase personal consumption, and overly concentrated government power harms the people’s welfare. President Obama might take note. 

Amid the endlessly repeated assertion that China will inevitably dominate the 21st century, it is worth remembering that the country not only continues to persecute religious believers, jail political dissidents, and censor the media, but also is home to immense waste and abuse. As a U.S.-trained economist turned high-ranking Chinese government official has observed, China’s economic inefficiencies result directly from its political contradictions. 

The United States, despite tortuous political wrangling over issues ranging from the debt ceiling to job creation, remains capable of making broad political compromises, forging lasting consensus, and giving its citizens a voice. As U.S. policymakers enlist Chinese authoritarian-chic to justify their own grandiose big-government plans, American taxpayers should know that Chinese-style state intervention comes at a price they cannot afford and brings severe infringements on liberty they will resent.

Ying Ma is a visiting fellow at the Hoover Institution and the author of Chinese Girl in the Ghetto.

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