Mainstream, VOL LV No 8 New Delhi February 11, 2017
Xi Jinping’s China
Sunday 12 February 2017, by
After having some serious hiccups last year in its long march to a market economy with Chinese characteristics, the synod of the top Mandarin bosses has confabulated for resuscitating the second largest sagging economy of the world by mid-December in their annual stock-taking of the national economy. They call it ‘supply side’ reform thus not altogether rejecting the supply side economics in the style of Milton Friedman but introduce some serious tinkering into it. The reform is aimed at cutting over-capacity, de-stocking, de-leveraging, lowering costs and improving weak links. This is expected to yield substantial results in cutting the over-production and over-capacity in steel, iron, and coal next year with a focus on trimming the ‘Zombie Enterprises’, as expressed in the statement issued by the Central Economic Work Conference. The meeting was important as it was attended by President Xi Jinping and Prime Minister Li Keqiang, amongst others, from the top bureaucracy of the regime.
One of the big concerns was the bubble of the ‘real state market’, which has taken toll of the welfare state measures of the government to provide housing for the masses. Though the Chinese Government declarations are couched in rather low key, the actions are big ticket. The Central Economic Work Conference gave a warning that houses are built to be inhabited, not for speculation. As an ameliorating step the land supply is going to be increased to reduce the pressure from the rising prices. Thus a mechanism is being devised to tackle the issue.
The state-owned enterprises are in for massive change since they were considered the main vehicle of the emerging socialist economy in the Maoist as well as post-Mao period for some time. By a rough estimate even today these constitute the mainspring of the economy. China has about 150,000 state-owned enterprises holding more than 100 trillion yuan in assets and employing over 30 million people. The proposed diversi-fication in the share structure holding will make it what we call in India the public private partnership. The economics meet suggested mixed ownership reforms in the electricity, oil, natural gas, railways, civil aviation, telecommunication and military industries.
The reform was overarching the monetary and fiscal policies that would boost the real economy and reduce the outflow of capital. Private investment, however, has declined substantially at 2.9 per cent; it is 0.4 per cent above the first three quarters but it is substantially low compared to the growth rate of 20 per cent in peak years. Along with it the Central Committee of the Communist Party of China and the State Council jointly released guidelines to protect all properties.
While reducing the capacity of the basic industries like iron, steel and coal, it was decided to take calibrated steps towards changing the national strategy of building the capacity in high-end manufacturing. Li Wei, the Director of the Development Research Centre of the State Council, said that innovation is the key to advance the economy. He informed that most of the over-capacity is in the outdated techno-logical area and that will be wiped out soon by the innovated new technology.
China is the world’s largest coal consumer and Shanxi province, from where President Xi Jinping hails, is the largest coal producer and they have already taken steps to close down the mines. Though alternative employment will be a problem but China will have to brace for it. It is reported that 80 per cent of the over-capacity has already been wiped out.
The one problem that will dog China for quite a time is the indebtedness of the provinces and it won’t be easy to get out of it. But at a time when China is changing gear, there is bound to be some dislocation particularly when Europe has slipped into a long haul of decline. The United States, which was the main engine of the world, is also dissipating and no amount of ‘Make America great’ will fit the bill.
As a matter of fact both Nehru and Oscar Lange, the noted Polish economist, talked about creating intermediate economies but whereas Lange considered mixed economy as an intermediate step waiting to go towards Soviet-style socialism, Nehru always held mixed economy as a stable and permanent structure with the public sector in commanding heights as a dynamic model. It was very much true in the Indian context largely because of a semi-feudal society and too diversified a national space to take a leap. Nehru held to his article of faith in plurality and democracy as the viable model for all the developing world. But he could not navigate it in spite of a fool-proof resolution of the Avadi Congress in 1955 on the ‘socialistic pattern of society’.
The tragedy of Nehru was that he did not have a captive political apparatus like the Communist Party of China; rather he had an incoherent assemblage of multiple interests and voices under the ageing banyan tree of the Congress Party. Besides, it was a largely dysfunctional statism run by a bureaucracy which was sometimes colonial and sometimes worked in the spirit of the remnant feudal mores and clap-trap that accompanied his transformative agenda; yet he had to transform almost singlehandedly a colonial state, society and political economy into a modern post-colonial entity, a stupendous task, which Mao did with so much ease.
The modern Chinese history was impacted heavily by Mao Zedong and the Chinese Communist Party under his control. Later on Deng Xiaoping largely opened the doors of a rather closed ‘barrack communism’ which was replete with many adventurous feats like the ‘Great Leap’ in the Maoist past, but was equally unaware of the consequences of opening of the Pandora’s Box. Xi Jinping is now entrusted with the task of landing safely the Chinese juggernaut on a more viable and caring ground in the long suffering history of the common Chinese people. Perhaps Xi Jinping is going to be more lucky as he is inheriting a state which is now creating a new mode of dirigiste to bring about a mixed economy but under the benign shadow of a rock-solid state.
Prof Dipak Malik, who is the Director Emeritus of the Gandhian Institute of Studies, Varanasi, was recently in China.