Fudan's Econ Dean says the "China Model" has been misunderstood & China should change its narrative
Fudan's Econ Dean says the "China Model" has been misunderstood & China should change its narrative
Zhang Jun says China's economic success comes from super-large market, competition, and entrepurship rather than the state concentrating limited resources or exclusive industrial policies.
The following is a translation of a WeChat blog by Professor 张军 Zhang Jun.
Professor Zhang, Senior Professor in Liberal Arts, Dean of the School of Economics at Fudan University, and Director of the China Center for Economic Studies at the prestigious university in Shanghai, was recently named 2022年度财经思想者 “Financial Thinker of the Year 2022” by Yicai, a major financial media outlet. In his acceptance speech titled 被误读的中国模式 “The China Model Misinterpreted,” Zhang attributed China’s economic success to its full leveraging of market competition and its super-large market rather than the comprehensive government intervention that the West believes to be a crucial reason for such success. And to eliminate such misinterpretations, China needs to make continuous efforts to change its narrative. The following is compiled from the video of Zhang’s speech on the topic.
张军：被误读的中国模式
Zhang Jun: the Misinterpreted China Model
Today I would like to make a brief speech here. A few years ago, Lawrence Henry Summers, a famous U.S. economist and former Secretary of the Treasury and President of Harvard University, said at the China Development Forum that he had never seen a country with an average personal income of only a quarter of that of the US, can have leading tech companies in the world.
In fact, for many years and recently more so, there has been a widely-accepted narrative in the western world that China’s huge success in many fields is down to its non-market strategy and its extensive state intervention, which is unfair, whereby the country has seized unprecedented opportunities for expansion in high-tech, trade, investment, and other fields.
Not long ago, during the Bali Summit, where leaders of China and the United States met, some media outlets from the latter suggested worries about China's non-market economic behaviors that have hurt families and workers in the United States and other countries. But in fact, such a narrative is biased since it deviates from how China’s leading tech companies got there in the past two decades. That the narrative has been widely spread and accepted because, in my opinion, it is “correct” in the western context as it is in line with the Western understanding of China from an ideological perspective. It is also in the tradition of the West’s dogmatic view of China’s political and economic system.
Yet, it contradicts itself. Think about it, if China could make successful companies that are catching up with the US in the field of cutting-edge technology by means of comprehensive state intervention, then those companies should be giant state-owned enterprises rather than private enterprises.
If so, I suppose China would no longer be required to continue structural reform or institutional opening, let alone learn from the systems of the mature market economies. Instead, we have seen the opposite in the past 20 years, where successful companies such as Huawei, Baidu, Alibaba, Tencent, DJI, Geely, BYD, ByteDance, and CATL, etc., are all born and bred from market competition and the hard work of Chinese entrepreneurs before going global.
Today, China is expected to enter the frontiers of various domains such as the Internet, big data, AI, bio-pharmaceuticals, new energy, and so on, behind which the innovation capacity was fundamentally driven by the development of China’s market economy and the rapid accumulation of human and material capital in the past few decades. Nowadays, China owns the world’s most resilient, efficient, and broadest supply chain. That is by no means a result of extensive state intervention and industrial subsidies, nor the result of concentrating limited resources or exclusive industrial policies. Instead, it results from market competition, and the organization behind it is decentralized.
When it comes to domains that exhibit network externalities, such as the state power grid, communication network, rail transit, and other infrastructure fields, China has undoubtedly been exceptionally successful. And even in these domains, in my opinion, China’s planning, investment, and financing in these areas are not achieved by rejecting market competition or excluding private capital but by organically integrating market mechanisms and state intervention which ensures opportunities and returns for investors.
Some economists suggest that the success of the US’s industrial policy is the fact that it exists, but everyone assumes it doesn’t. In contrast, everyone believes China’s economic success is wholly due to state intervention. If there are any successful industrial policies in China, they are probably not the government planning for industries. The most important point is that the industry planning has been driven by regional development and competition policies, which subverts how the West perceives China’s economic success.
In conclusion, I believe that China needs to change its narrative to rectify misperceptions from the West. The most important keywords for the most successful parts of China's economy should be the sheer size of market, talents, economies of scale, competition, innovation, and entrepreneurship.
China’s economic success is attributed to the effective combination of these key factors in China’s super-large market. And that is the advantage of China, a big country, in having the Chinese economy on a super large scale.
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While I do agree that China‘s model may well be misunderstood, I disagree that this is market based. Most obvious contradictions are 5-year plans, the locked capital account, the decision of the 3rd plenum of the 18th central committee and ongoing mass-market manipulation in raw materials by fiscals means as well as ever more wide export restrictions on technologies, which predate the current trade conflict by more than 20 years. In terms of opening up and globalisation it seems, China wants everybody else to open up, while shutting its own doors. In view of current conflicts and the bleak economic outlook, China should take significant, unprecedented, unilateral steps to mend the multitude of non-market conditions. Without concrete action, continuing praying the mantra of openness and globalisation sounds hollow and insincere, resulting in reactions like the walkout during Liu He‘s presentation at the WEF.