Top financial regulator refutes "state capitalism" accusation, directly
Guo Shuqing said it in a different style, in English
This newsletter focuses on one part of the speech made by Guo Shuqing, one of China’s top financial regulators, at the 14th Asian Financial Forum via video on Monday, Jan 18.
Guo, Party Secretary of the People’s Bank of China and Chairman of the China Banking and Insurance Regulatory Commission, delivered the speech in good English, which can be watched by clicking the video on this page.
Your Pekingnologist decides to bring it to your attention because this is so far, in his opinion, the most direct and detailed rebuttal by a senior Chinese official of the popular narrative that China engages in “state capitalism.” Whether Guo’s argument is convincing to you, that’s for you to decide.
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But before that, some recent history.
It’s not that Beijing hasn’t tried to refute this. As far back as 2012, the People’s Daily and its 海外版 overseas edition - also in Chinese, not in English - respectively dedicated brief commentaries to “state capitalism”.
Zhang Weiwei, head of China Institute with Fudan University and TV/online video personality who said in his official bio that he had a degree from the Université de Genève and that he was a translator for Deng Xiaoping, dedicated one episode of his flagship show 这就是中国 This is China to rebut “state capitalism” in 2019. Too bad the episode and nearly all his discourse are in Chinese targeting the domestic audience.
(Your Pekingnologist always wondered why Zhang and a growing number of Chinese professors whose stated expertise are U.S. and European affairs - implying a good mastery of English - didn’t take their supposedly superior insight or language skills to Twitter or YouTube for foreigners, since they are apparently better positioned to compare China and the West.)
In recent years, the supposedly most comprehensive and authoritative rebuttal of “state capitalism” had come from 求是 Qiushi (meaning seek truth), the theoretical journal of the Communist Party of China Central Committee. Qiushi published a long commentary in September 2018, entitled 认清“国家资本主义”问题的真相 Recognizing the truth about the issue of "state capitalism,” in the byline of 秋实 (meaning autumn fruit/harvest), also pronounced Qiushi. (Based on no inside information, your Pekingnologist speculates that this byline is for editorials since they share the same pronunciation.)
This Qiushi article was too long to translate comprehensively, so here is a digest of the Qiushi article published in English on the CGTN web site, re-titled
Opinion: A clear understanding of the truth of 'State Capitalism'
One of the so-called arguments used by the United States in waging a trade war against China is that it has labeled China's economic system as "state capitalism", which is not new. In fact, this is not the first time for the West to do so.
I. Which economic system is the real "state capitalism"?
State capitalism is reflected in two aspects: First, the control of state power over enterprises. In the words of Lenin, "state capitalism is a kind of capitalism in which the state power directly controls these or those capitalist enterprises in the capitalist system", second, the state's supervision and regulation of capitalist economic development.
As Lenin put it, "monopoly capitalism is changing to state monopoly capitalism because many countries have begun to implement social regulation of production and distribution due to the circumstances."
Although the US is known as the representative of the free market economy and laissez-faire capitalism, in fact, the role of the state in economic development is also very obvious and important in the US. Therefore, the so-called pure free market economy and laissez-faire capitalism never really existed, and the capitalism we have seen in reality is closely interwoven with state capitalism.
II. What is the intention of the "state capitalism" arguments?
The purpose of the "state capitalism" arguments is very clear, that is, to leverage the opposition between the so-called "state capitalism" and "lasses-fair capitalism" to justify capitalism and create favorable public opinion for curbing the development of developing countries, especially China.
On the one hand, they try to shift and conceal people's doubts about the inherent ills of the capitalist system, and ascribe the crisis of the capitalist system caused by the basic contradictions of capitalism to the threat of "state capitalism."
On the other hand, they directly point at socialism with Chinese characteristics, unscrupulously try to distort, smear and vilify the socialist market economic system of China. They attempt to dent people's confidence in the socialist system with Chinese characteristics and the socialist market economic system, and to force China to give up the proven successful development path and socialist system, so as to ultimately curb the development of China.
III. Distort the socialist market economy as economic hegemonism
Market economy and capitalism are two different things. The market economy is a way of resource allocation, which can be combined with the capitalist system as well as the socialist system.
The capitalist market economy and the socialist market economy have something in common- it's the way of resource allocation and commodity economy relations. In the meantime, we must realize that the market economy is a social and historical concept that may show different characteristics in different social systems and at different stages of development.
It is even more mistaken to equate the active role of the government with "state capitalism". The relationship between the government and the market is the subject of the evolution of the modern market economic system.
The government and the market are complementary to and inseparable from each other, which is the law of the development of market economy in socialized mass production.
IV. "State capitalism" in socialist revolution and development
Historically, socialism and "state capitalism" are not unrelated. What China has experienced over the years has shown that once the socialist transformation has been completed, the socialist basic system with public ownership as the main body established, and a socialist society formed, state capitalism as a transitional economic system would complete its historical mission and withdraw from the historical stage.
The socialist economic system with Chinese characteristics and the socialist market economic system with Chinese characteristics have brought into play not only the strengths of the market economy but also the advantages of the socialist system.
It has realized the proper combination of the government and the market, fairness, and efficiency, development and stability, and autonomy and openness, has promoted sustained and sound economic and social development, and has made great achievements that have attracted worldwide attention, benefiting all Chinese people and making important contributions to the development and progress of mankind.
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Below is the Monday, Jan. 18 rebuttal by Guo Shuqing, in a different style (the highlights are by China Banking and Insurance Regulatory Commission):
Twenty years ago, it was said that China was not a market economy and needed a transition. More recently, they accused China of state capitalism. because China has a strong public sector and its industrial policies distort the market. This is a big misunderstanding. Here let's make five points of clarification.
First, the private sector now accounts for 60% of China’s economy, while before 1978 there was hardly any. If there were so-called state capitalism and state protection, how could this be achieved?
Second, China’s industrial policies have been consistent with the market-oriented reform. At the end of 1970s, China encouraged light industry and lifted import restrictions on consumer goods. From TV sets to washing machines, and from sedans to trucks, the large inflow of foreign goods made China an “Expo of Brands of All Nations”. Since late 1980s, our main policies have been to prevent duplicated constructions resulting from over competition. In the past 10 years, we have closed down lots of high-energy-consuming, high-polluting and over-leveraged companies. Thanks to open, fair and full competition, China now has the widest range of industries in the world.
Third, SOEs in general are subject to negative subsidies from the government budget. The average tax on SOEs is almost twice of that on private companies. SOEs have in fact undertaken more social responsibilities. Actually, one of the important drivers for long-term and rapid growth of private and foreign firms is tax concession. The SOE-related government budget has been mainly used to resettle redundant workers, subsidize social security and public services.
Fourth, banks and SOEs are financially independent from each other. Chinese banks are among the most profitable banks in the world. This couldn’t be possible if they had been providing subsidies to SOEs over the long term. The credit market is also highly competitive. And banks’ ownership has long been well diversified. Under such background, tunneling interests to SOEs is impossible, even for banks with a big state ownership.
Fifth, the strong competitiveness of Chinese products is not due to lack of labor protection. China is a socialist country. The Constitution and other laws provide strong protection for people’s interest, allowing employees to participate in corporate management and labor union activities. The Employee Representative Conference of China’s medium and large companies is rarely seen in other countries. In the past 10 years, income of Chinese workers has grown rapidly. Migrant workers have their income doubled. We don’t think strikes and demonstrations are good ways to solve labor disputes. Through consultation and oversight by multiple parties, win-win results can be achieved for both employees and employers. Therefore, people’s wealth and welfare can grow in tandem with economic development.
NOTES:
1) Guo’s rebuttal of the “state capitalist” accusation here is more direct and targeted, compared with what is cited in the beginning. Some more details could be even more helpful. But since this is a speech, and this part is only a small part of the speech which also touches on the important issue of Hong Kong, it’s understandable. Hopefully, there could be more elaborations based on Guo’s speech, and in this style.
2) Your Pekingnologist compared the Chinese version of Guo’s speech, as provided by the central bank and banking & insurance regulator on their web site, to the English version which he delivered, and found some very minor differences in tones - probably just lost in translation?
For example, the Chinese version of Second, China’s industrial policies have been consistent with the market-oriented reform. is 第二，中国的产业政策总体上与市场导向改革保持一致。which literally translates as Second, China's industrial policy has *generally* been aligned with market-oriented reforms.
The Chinese version of Actually, one of the important drivers for long-term and rapid growth of private and foreign firms is tax concession. is 私有工厂和外资公司长期高速增长，一个重要原因是税费优惠。which literally translates as An important reason for the long-term high growth of private factories and foreign companies is the tax benefits (the “actually” is gone).
3) Some of Guo’s points sound novel to your Pekingnologist.
a) THE ALL-IMPORTANT SOEs
The popular narrative in English has always been that SOEs have been sucking resources in the form of cheap land, easier credit, etc., from the economy at the cost of the private sector.
But Guo said the average tax on SOEs is almost twice of that on private companies. SOEs have in fact undertaken more social responsibilities. He didn’t elaborate on how much those more social responsibilities would translate to yuan/USD and thus fit into an equation in economics, but his point on SOEs are taxed twice as much as private companies must have come from some scholarly work or serious studies.
Besides, the original Chinese wording is 税负. 税 means tax, and 负 means burden. Your Pekingnologist is not totally sure if he means tax burden or tax and (other) burdens, and the official translation settles on the former.
The SOE-related government budget has been mainly used to resettle redundant workers, subsidize social security and public services is also interesting since maybe Guo means “subsidies” in this form do not benefit SOE operations per se? Or that these “subsidies” would have to be financed in some way by the government even if SOEs are not involved?
b) INDUSTRIAL POLICIES
The popular narrative in English seems to your Pekingnologist has always been focused on a few eyebrow-raising industries, such as automobiles, steel, and more recently microchips. Is Guo effectively arguing that a look at China’s industrial policies should also involve a much broader range since he mentioned many other easily-neglectable manufacturings.
This may be too far-fetched: is the non-existence of an industrial policy in one industry also in fact an industrial policy, thus part of industrial policies?
c) What about the paragraph starting with Fourth, banks, and SOEs are financially independent from each other sound to you?
d) The strong competitiveness of Chinese products is not due to lack of labor protection sounds pointed. Reportedly, the last-minute back and forth between Brussels and Beijing in the end of the year 2020 for the China-EU Comprehensive Agreement on Investments focused on provisions related to labor rights.
It also should be noted that some Chinese voices, including Prof. 秦晖 Qin Hui with Tsinghua University, have long been saying China’s economic expansion partly relies on a low human-rights advantage. Maybe not targeting that, but Guo made sure to counter the point. Plus, We don’t think strikes and demonstrations are good ways to solve labor disputes.
4) Overall, Guo rests his case on China’s record - the private sector now accounts for 60% of China’s economy; China now has the widest range of industries in the world; In the past 10 years, income of Chinese workers has grown rapidly; Migrant workers have their income doubled…
Penned by Zichen Wang, founder of Pekingnology, a personal newsletter that does NOT represent the views of anybody else.
Errors may well exist, so suggestions for corrections and feedback are welcome - feel free to reply or send an email to zichenwanghere@gmail.com .