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China's most famous economist warns against state control
China’s decision makers should avoid expanding the state’s control because it would create “crony capitalism,” professor Wu Jinglian said
China’s economy needs to move away from its export-led, extensive growth model but policy makers should avoid strengthening state control and transforming the economic model into one of state capitalism, outspoken professor Wu, who was an adviser to China’s leaders in the 1980s and 1990s, said during a speech in London.
The reforms started in the early 1980s to free up China’s economy and give more room to the private sector to grow have helped unleash resources, moving 200 million rural workers to the cities, and have improved technologies and management as Chinese companies learned new skills from foreign investors, Wu said.
But reform “has not been fully implemented” as “the current system retains barriers from the old system”; “state companies still occupy the ‘commanding heights’ of the national economy,” the government retains the power to allocate land and other resources and the rule of law is not strong, he added during a presentation on China’s economy at London-based Chatham House.
A semi-controlled, semi-market driven system creates two major problems: it is hard to move the economy away from the investment-driven, extensive growth pattern as the incomes of the majority of people grow too slowly so domestic consumption cannot be boosted, and “rent-seeking behavior” and corruption risk spreading into society as a whole, he warned.
“This kind of economic pattern needs to be changed,” Wu added.
There are two trends possible, one in which the government will gradually reduce intervention in micro-economic activities, turning the economy gradually into a modern, market one, based on the rule of law and the second in which the government actually strengthens control, transforming the economic model into state capitalism, according to Wu.
‘CRONY CAPITALISM’
“In China’s case, state capitalism would become crony capitalism,” he said.
“These are the two trends. Unfortunately, since the [turn of the] 21st century, the second trend has become more prevalent.”
“If there is more intervention of the government in the market, it would lead to corruption and rent-seeking behavior,” Wu warned. “This is a vicious circle. The more the government will intervene, the bigger the corruption will be.”
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“The damage caused by the authoritarian development model is increasingly clear,” Wu added, pointing to the example of the construction of high speed rail, in which a minister lost his job amid corruption accusations after a rail crash that killed 40 people, and to the downfall of Communist Party high-ranking official Bo Xilai, who was expelled from the party after he was accused of taking bribes.
Wu said there were signs that the communist party wanted reforms that would free the economy more and said that at the 18th congress the reformists were gaining momentum even though “it is hard to understand for people who are not in the know.”
“We can see there are a lot of positive things coming out of leaders’ comments, newspaper editorials,” said Wu, who pointed to an increase in transparency as crucial for the way forward.
The 18th congress “wants to have reforms not only on the economic side but also political reforms. It has stressed the rule of law,” he added.
Introducing the rule of law has three aspects: awareness of the concept of “rule of law” – in other words, the rule of law being above leaders – creating a good legislative system – on which progress was made in recent years – and enforcing the law, which, according to Wu, is the most important aspect.
“On this, the situation has got worse and worse in the recent years,” Wu said.
The main obstacle to reform is the fact that “we don’t have a roadmap for the next steps of reform and we do not have consensus on political reform yet,” he said.
“Once we have the master plan we need to implement it and follow the roadmap.”
