LONDON – The year 2021 marked the start of a new paradigm for the Chinese economy. China is in the process of shifting from a model that primarily promotes GDP growth to one that emphasizes efficiency, consumer welfare and protection, climate change mitigation and protection of the environment. the environment. The growth of Chinese companies will be less unrestrained and more regulated and monitored. The goal of building a global manufacturing powerhouse evolved into the pursuit of techno-nationalism. Chinese leaders believe their country is on the verge of transforming into a truly “modern socialist economy.”
China is not alone. Whatever epithet they apply to their respective political systems, and despite bilateral tensions, China and the West face similar challenges. Both face growing income disparities, the limitless growth of big tech companies, and a growing rift between the elites and the grassroots. But, unlike the rest of the world, China has decided to tackle these problems head-on.
During the year 2021, the Chinese government took 20 to 30 major steps to regulate and discipline a range of leading companies, from consumer platform companies to education companies. The motives for these interventions were antitrust, data security and social equality – and sometimes all three at the same time.
While these sweeping measures have attracted many exaggerated comments in the international press, they have only scratched the surface of the deeper transformation that is underway. Regulatory and enforcement measures are both necessary and welcome in a country where the prospects for business growth and their contribution to GDP have long taken precedence over consumer welfare and protection.
The changes introduced in 2021 represent a “coming of age” for the Chinese economy, signaling that people matter more than aggregate numbers. Under the new heading of “common prosperity“, The government’s official goal for the coming decade is to create the conditions for the growth of a large and prosperous middle class, better opportunities for all and more” empathetic “behavior on the part of Chinese companies. The unbridled Western-style capitalism which resulted in a “middle class squeezeIs to be avoided in favor of a more “olive-shaped” income structure.
Forty years ago, Deng Xiaoping lifted the ideological taboo on the pursuit of individual profit to allow some people to get rich first, then let the rising tide lift all the boats. Chinese leaders today believe it is time to let the tide rise. COVID-19 has exposed the inequality between the haves and have-nots. Big tech companies got even bigger and more powerful during the pandemic. With everyone confined to home and comfortably glued – the elites to the masses – attention has turned to national issues and the need for national self-reliance and independence.
Contrary to popular belief in the West, China’s push for greater regulatory oversight is not motivated by a simple desire to crack down on the private sector indiscriminately, reduce the size of billionaires, or limit international access by consumers. Chinese companies. There were 407 public listings of Chinese companies in 2021, and more than 83% of them were private companies, not state-owned companies.
Common prosperity is linked to the larger goal of social harmony. One of the greatest ironies of contemporary Chinese society is the hyper-competition in education, which has left parents anxious and children miserable. Families spend an enormous amount of time and money on extracurricular activities, filling children’s schedules with things they don’t necessarily need for the modern economy. The phenomenon has been compared to a crowded theater in which a few people decide to stand up to get a better view, force everyone to do the same. In the end, no one is better off.
Now that most Chinese have embraced digital life fully, there is growing concern about the misuse of personal data. In a few high-profile cases, such abuse has cost people not only their personal wealth, but also their lives. In addition, the Chinese tech giants have shown little concern for the well-being of employees, leading to demotivation among overworked young people who had hoped to start a family and are now “lying flat” (no longer surpassing themselves in their work. ).
Chinese authorities have recognized the social tensions and vulnerabilities that accompany unchecked market-induced growth. While the market failures and inequalities of the new digital age are not unique to China, China’s approach to tackling these issues is characteristically different from that of most other countries. For starters, the responses are often faster and more dramatic. In contrast, U.S. policymakers have done next to nothing to curb Facebook, for example, despite serial revelations of the company’s questionable practices and frequent reminders of the deep societal problems its business model has caused.
A second difference is that China is unlikely to adopt the type of large-scale welfare state found in some European countries. The country considers hard work a national and traditional virtue. And, unlike the United States, the richest 1% are not castigated, although some individual humiliation (or worse, when it comes to offenses) sometimes plays a part. Chinese leaders want to eliminate only “unfair” sources of inequality, such as barriers to entry, excessive monopoly powers and loopholes that allow “illegitimate income”.
An appropriate criticism is that China’s efforts to regulate businesses and limit their growth ambitions will kill the incentive to innovate. But this argument ignores the fact that Chinese entrepreneurship is motivated by more than monetary reward. Becoming “important” through a committed career or a major contribution to society is a way of “glorifying your ancestors”, as the Confucian saying goes. Driven by a larger goal, Chinese entrepreneurs nimbly adapt to changing circumstances while tenaciously pursuing their goals.
Additionally, for every hapless billionaire who needs to be ‘persuaded’ to contribute more philanthropically, there are many more happy millionaires who genuinely welcome the new regulations on the size and reach of large corporations, as they will improve their own chances of success. become billionaires.
Risks and Rewards
The road ahead for China is strewn with pitfalls. No country of similar size has fostered a political economy that is both equitable and capable of fully harnessing dynamic innovation and efficiency. There are risks associated not only with de-globalization but also with further globalization that excludes China. Another big risk, some foreigners say, is that policies designed to transform the investment climate and the business environment will make matters worse or become overkill. And an even greater risk is that ideology takes precedence over prudent economic management, reversing the mental unblocking that has enabled the shift to a fully-fledged market economy over the past 40 years. But that is unlikely to happen.
Fortunately, the past year also brought many favorable market developments, from BlackRock launch its first Chinese fund on the Hong Kong stock exchange being authorized to offer A share futures contracts. Foreign players are preparing to expand the reach of foreign-funded institutional investments in China, proving that greater economic liberalization can coexist with tighter regulatory oversight. In addition, since the phase one trade agreement with the United States, China has approved 28 financial licenses and 100% of all tariff exemptions demanded by American companies. Despite the Sino-US tensions and the disruptions linked to the pandemic, trade and financial flows have been maintained.
China has also stepped up its climate commitments and announced that it will end external funding for coal-fired power generation. With awareness of the problem growing among businesses and households, the People’s Bank of China, local governments and financial institutions have committed to supporting small businesses, and regulators have released a taxonomy of green bonds as part of the a broader effort to integrate climate issues into macroprudential management. Climate diplomacy remains an important channel through which China can strengthen its ties with the rest of the world and demonstrate global leadership. This means both working with advanced economies and helping other developing countries meet their net zero emissions goals.
Like many other countries, China will need to be mindful of various short-term cyclical issues over the coming year, including the slow recovery from the pandemic, rising debt and default risk, disasters. more frequent natural resources and low investment and consumption. But under the natural ebbs and flows of market economies, the country will move towards greater serenity, tolerating lower growth rates with an emphasis on quality and greater cyclical volatility. Most Chinese will regard the sacrifices made to achieve “common prosperity” as both necessary and wise.
Keyu Jin, associate professor of economics at the London School of Economics and Political Science, is a young global leader of the World Economic Forum. © Project Syndicate, 2021
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