Transcript Breslin-China-final

The Chinese Model and The
Global Crisis
Professor Shaun Breslin
Schizophrenia and the study of China’s political economy
International vs domestic
Economics vs politics/society
Schizophrenia and the study of China and the Global Financial Crisis
China thought of as a potential model for others…..
…. but a greater focus in China itself on the failings of the model
assertive china promoting its “core interests” …
….. but also assertions of China’s relative lack of development and challenges to
political and social stability
Multiple voices of China
Not just the monolithic single interest and single view and voice that its
sometimes easier to think it is
Real debates in China over the nature of its global role; what it CAN do and
what it SHOULD do
Managing global expectations?
China and global public goods
Lessons of the crisis
globally powerful but domestically fragile (though perhaps not as fragile as
sometimes appears)
Why Change the “model”?
Context No.1 - The Party’s view of the Party’s position
Sept 2004, 4th plenum 16th CC china’s ruling capacity zhizheng nengli 执政能力
the party as hyper sensitive?
the role of the central party school
a constructed discourse of danger?
CCP = Stability = Growth
democracy = chaos
A new political paradigm – democratisation of authoritarian rule
A new “scientific” economic paradigm
environmental sustainability
social stability (inequality, HEW, migration, etc)
“irrational” development
Yu Yongding on local leaders and “growth”
Roland Berger on overcapacity and duplication
“quality” of export growth – dominance of processing trade
where are the national champions?
Investment and innovation – glass half full or half empty?
Changing notions of security ….
from guns, bombs and bullets to economics and resources
1997 and the Asian regional crisis (crises?)
Though some strong (security) continuities
The unipolar global order, US hegemony and the “China threat”
perceptions of “globalisation”
Wang Yizhou, Wang Zhengyi, Wang Yong etc and the failings of
traditional IR
Wang Hui, Wang Ning, Chen Xiaoming, Zhang Yiwu etc and the
search for “indigenisation” of thinking
saying no, being unhappy and demonisation
“Of the myriad threats identified by these experts as potential threats to China’s
economic security, five core themes stand out: (1) challenges to the competitiveness
of Chinese enterprises and economy, (2) issues relating to the security of resources
vital to the economy, (3) questions to the health of China’s financial infrastructure, (4)
security issues relating to its socio-economic development, and (5) economic security
issues stemming from its embracing of free trade agreements and an open market
economic system. “ Ben Yeung
How export dependent is China?
China in 2007 (ie: pre global crisis)
domestic consumption
investment
net exports
domestic consumption
exports
= 38.6 per cent of growth
= 37.7
= 22.7
= 36 per cent of GDP (down from 60s in 1990s)
= c.39
Anderson - the myth of export dependence because of processing trade
domestic value added
= c20 per cent of GDP
(take out value of imports from domestic sectors = 10 per cent)
Cui and Seyd – misses the increasing importance of “domestic” exports
Cui, Shu and Su – exports a key driver of domestic consumption and investment
Akyüz – exports generate 50 per cent of growth when the export component of
“spillovers to domestic consumption” and the “knock-on effects on domestic investment”
are added in
(the “better” the quality of global engagement, the greater the vulnerability; the
shallower the engagement, the greater the insulation from global shocks?)
Hyper-sensitivity to export growth?
1997 and the response to the decline in the rate of export growth to 11%
Uneven distribution of exports
Low margins in a number of export sectors
Exports, unemployment and rural poverty
“Although the economy has maintained double-digit growth for years, fixed-asset
investment and exports have dwarfed consumption as the two pillars of expansion.
With global recession clearly in view, China must sustain itself by exploiting the
domestic market to offset weaker demand abroad” (People’s Daily 2008)
Yao Yang and the “end of the Beijing Consensus”
Context No.2 – The distribution of (economic) power in China
1980s and early 1990s - growth of local financial autonomy
(though unequally distributed amongst provinces)
1994 onwards – redressing the imbalance
fiscal reforms
fee to tax reforms
reforming the financial sector
towards central regulation
debt to equity and recapitalisation
2004ish onwards – on (not) slowing economic growth
Wen Jiabao on 7% growth in 2007
2007-8 – on (not) changing the pattern of export growth
Monthly % changes in exports (year on year), October 2008-Nov 2009
Source: Ministry of Commerce
China’s response to the global crisis
Fiscal Expansion – not just the $US4 trillion but the combined total of local
government fiscal stimulus plans that collectively announced a barely believable
US$18 trillion worth of stimulus in 2009 …..
….. and other measures for the Promotion of Domestic Consumption – divided into
formal support (subsidies to aid rural consumption, tax breaks on some automobile
purchases etc) and informal (state entities encouraged to buy – and buy Chinese)
Exchange rate policy – a cause of much debate and Sino-US friction in particular….
….. and other measures designed to Protect and Support domestic interests from
international competition. Both European and US surveys have both concluded that
there has been an inward turn and it is harder to do business now in competition
with domestic companies than before the crisis
Monetary policy – 2008 witnessed a dramatic shift from interest rate rises to fight
inflation to interest rate cuts and, through Central Document 18 attempts to restrain
credit growth over the previous five years were removed as banks were encouraged
to lend to keep the economy going. By the end of 2009, new bank loans in China had
reached RMB9.6 trillion with about half funding infrastructure projects via local
investment platforms (difang fazhan rongzi pingtai 地方发展融资平台)
China’s Successes
8.6 per cent growth
From Socialism saving China to China saving socialism
The validity of the “Chinese model”?
Increased influence in Africa, Latin America and Middle East?
Back at the high table of global politics
G20 and IMF quota reforms – but only the start
Zhou Xiaochuan on “super-sovereign reserve currency managed by a global
institution”
Spanish bonds, Greek trade and economic influence in Europe
towards a new round of (SME) outward investment?
China’s foreign currency holdings as diplomatic weapon
mutually assured economic destruction, but deterrent capability
Swaine and China’s “core interests” (核心利益hexin liyi)
maintaining
the “state system and national security”
“sovereignty and territorial integrity”
“the continued stable development of China‘s economy and society”
China’s Monroe moment?
China’s Challenges
From growth to development back to growth again?
Not wholly true cause of Increasing funding for welfare, development of
infrastructure to help develop interior, promotion of rural consumption,
environmental projects etc
but the will and the ability to change course?
The return of (unevenly distributed) local debt
as high as 400 per cent of local GDP ?
On Bubbles and land
investment in real estate equally roughly 11.5 per cent of GDP in 2009
bank loans “underwritten” by rising prices of government owned land
NPLs and bubbles
Not just when, but how to slow growth
m2 expanded again in 2010 – c20%
The politics of currency appreciation
dealing with inflation and dollar denominated imports
doing things on China’s terms and not being seen to bow to pressure
Implications/Conclusions
Lets not exaggerate – its easy to talk in extremes when it comes to china – collapse or
superpower, both by tomorrow morning
Economy easy to expand but harder to control
Importance of local governments – Wen Jiabao, its nothing new and has been
an issue since the 80s
powerful interests benefit from the status quo
How committed is the leadership to really changing pattern of growth
Growth in the DNA of economic actors
Will short term social stability issues always trump long term trajectories
How able is the leadership to change it ?
An outward turn
vulnerabilities and resource security; towards food security?
expect a new wave of outward investment – smaller companies going West
The need for political reform/democratisation with Chinese characteristics
An inward turn?
guojin mintui 国进民退
chambers of commerce and doing business in China
Towards real decoupling?
China as developing country, only 103rd in a league table of global per capita GNP, has
over 150 million people living in poverty, and is reliant on foreign companies to
produce most of its export value
China to focus on its own problems and own people
“China’s primary responsibility lies at home; that is, to develop the country
for the welfare of 1.3 billion Chinese people. Improving the welfare of the
Chinese people is not only the primary responsibility of Chinese state
domestically, but also has tremendous international implications”
Chen Zhimin
Nationalism and the global economy
The appeal of the Chinese “model”
or the decline of the Western hegemonic model?
A Neo-listian developmental state with Chinese characteristics?