To the west, China is a waking economic giant, poised to dominate the world. But, argues Will Hutton in this extract from his new book, we have consistently exaggerated and misunderstood the threat - and the consequences could be grave
Monday January 8, 2007
The emergence of China as a $2 trillion economy from such inauspicious beginnings only 25 years ago is such a giddy accomplishment that the temptation to see its success as proof positive of your own prejudices is overwhelming. And the west's broad prejudice is that China is growing so rapidly because it has abandoned communism and embraced capitalism. China's own claim - that it is building a very particular economic model around what it describes as a socialist market economy - is dismissed as hogwash, the necessary rhetoric the Communist party must use to disguise what is actually happening. China proves conclusively that liberalisation, privatisation, market freedoms and the embrace of globalisation are the only route to prosperity. China is on its way to capitalism but will not admit it.
But the closer you get to what is happening on the ground in China, its so-called capitalism looks nothing like any form of capitalism the west has known and the transition from communism remains fundamentally problematic. The alpha and omega of China's political economy is that the Communist party remains firmly in the driving seat not just of government, but of the economy - a control that goes into the very marrow of how ownership rights are conceived and business strategies devised. The western conception of the free exercise of property rights and business autonomy that goes with it, essential to any notion of capitalism, does not exist in China.
The truth is that China is not the socialist market economy the party describes, nor moving towards capitalism as the western consensus believes. Rather it is frozen in a structure that I describe as Leninist corporatism - and which is unstable, monumentally inefficient, dependent upon the expropriation of peasant savings on a grand scale, colossally unequal and ultimately unsustainable. It is Leninist in that the party still follows Lenin's dictum of being the vanguard, monopoly political driver and controller of the economy and society. And it is corporatist because the framework for all economic activity in China is one of central management and coordination from which no economic actor, however humble, can opt out.
In this environment genuine wholesale privatisation is impossible and liberalisation has well-defined limits, as President Hu Jintao himself brutally reminds us. The party, he says, "takes a dominant role and coordinates all sectors. Party members and party organisations in government departments should be brought into full play so as to realise the party's leadership over state affairs". It may be true that party organisations in the provinces (some with populations bigger than Britain's) and in the chief cities are jealous of their autonomous local political control, but all retain the discretionary power to do what they choose and override any challenge or complaint from any non-state actor - or, indeed, from state actors if they cross the will of the party.
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