China Economic Review

Carl Minzner discusses China’s economy after the age of Deng

Since the arrival of Xi Jinping to the presidency, the path of Chinese policy seems to have taken a U-turn. Markers of liberalisation seen in China over the past 30 years are slipping away as the party reinforces its centrality in business, media and the everyday lives of individuals.

According to Fordham University academic Carl Minzner, the authoritarian turn in Beijing not only has enormous political implications, but will also have far-reaching, long-term effects on China’s economy. In his latest book, End of an Era, he argues that abandoning the policy consensus set in place by former leader Deng Xiaoping risks harming China’s prosperity and derailing the country’s rise as the world’s superpower-in-waiting.

In a conversation with China Economic Review, Minzner lays out why he thinks the growing role of Beijing in the economic and political spheres could mark a turning point in the country’s history.

 

Carl Minzner is Professor of Law at Fordham Law School, and author of “End of an Era: how China’s authoritarian revival is undermining its rise”.

CER: In End of an Era, you write that in recent years China has been “closing down.” What do you mean by this?

CM: Ironically, we are at a time when China’s impact on the outside world is possibly the greatest it has ever been. However, I do think that China is closing itself from outside influences.

While on the one hand it’s certainly true that the party has become more sensitive to outside, particularly Western influence, this isn’t solely the state’s policy. There is also a considerable motivation from Chinese citizens away from the 1990s mentality where everything foreign was golden – international schools, American brands – towards a greater satisfaction with life in modern-day China. We see this in TV shows, domestic box office numbers, even in academic standards and attitudes towards learning English.

But the government’s stance is without a doubt more inwards looking. Thinking back to the 1990s, in the run-up to China joining the WTO, there was this big hang-up on meeting international standards, which filtered down all the way through society. At this time, foreign ideas acted as both a stamp of quality and a useful way to address latent problems in Chinese government like monitoring local officials and tackling corruption. Now, on the flipside, there is a little bit of a suspicion attached to what is ‘foreign.’

Despite China’s increasing global presence, there has been a heightened sensitivity since the end of the reform era towards what comes in. China wants to export itself, its culture, its brands, its governing style, to other countries, but the internal setup needs to remain Chinese. This is one of the big shifts we’re seeing take place at the minute.

 

CER: What were the economic/political conditions that led to this retreat from liberal reform?

CM: The first thing to clarify is that the title of the book is ‘End of the Reform Era,’ not ‘End of Reform.’ So, if we talk about the reform era, the post-1978 society which clearly demarcates itself from the Maoist period that preceded it, there were three defining characteristics: economically – rapid growth; ideologically – a certain degree of openness to the outside world; and politically – a relative degree of stability marked by partial political institutionalisation. This is not the same thing as liberalisation, just that the rules of the political game post-78 became much clearer and organised from what had existed before. This included no cult of personality, decentralisation of power to a wider group of individuals, clearer rules of succession, and the lack of basically anything that resembled a mass movement.

If you compare all three factors with today’s China, it’s clear that such a period is coming to an end. China’s economy is slowing down, the party has changed its tone towards foreign ideas and influences inside the borders, particularly in business and academia, and of course those partially-institutionalised rules of the game are coming undone.

 

CER: How did the reform era shape China’s economic development?

CM: If you’re describing the full sweep of the reform era in China, one of the big events has been the re-emergence of deep inequality. From the pre-reform era society where inequality was high but China was universally poor, through the mid-1980s when China had a much more equal society under Deng Xiaopeng and was getting richer, until the 1990s when we see almost US-level inequality arise.

Take Shanghai, for example. Thirty years ago, anyone who was an average state employee would have received some sort of government-sponsored housing as part of their compensation package. Fast-forward to the “privatisation” of land by the end of the decade, and these workers, in essence, own their own apartment. When the property prices in a place like Shanghai triple, quadruple, quintuple in the early 2000s, anyone on the property ladder was at an enormous advantage and could sit back while their net worth kept going up and they were free to think about second properties and other investments.

Migrant workers from rural areas, however, had a different experience. Yes, during the agricultural reforms of the 1980s they saw their wealth improve somewhat, but by the 1990s more and more of China’s growth is being channelled and enjoyed by a narrower slice of the population. And what do you see going on in your daily life? School fees for your children are increasing, rural healthcare had pretty much fallen apart by the 1990s, the hukou system prevents you from sending your child to a school in another region, and so we begin to see the phenomenon of the ‘left-behind’ children. All these multiple, very real impacts on the lives of individuals are a direct consequence of a movement away from economic and social policy reforms over the course of the last three decades.

 

CER: How does the party reconcile this skyrocketing inequality with its Marxist roots?

CM: Since 1978, Beijing has jettisoned many of its earlier socialist practices. In 1980s and 1990s, rural communes were abandoned, market pricing introduced, and negotiations opened to facilitate China’s entry into the global free trade club of the World Trade Organization.  But one of the biggest shifts away from anything resembling Marxism is best embodied by the party’s adoption of the theory of the ‘Three Represents’ in the late 1990s – essentially redefining the Communist Party itself as a vehicle to represent the newly emergent capitalist class. So, in a society where the divide between rich and poor – even if you believe the official statistics – has surged over the course of the reform era to levels resembling those in Mexico, Peru and the United States, and where 1% of the population owns one-third of the wealth, Beijing’s nominally socialist ruling authorities have aligned their interests with the wealthy and middle-class urbanites over those of the migrant workers and rural poor. 

That being said, this doesn’t mean that there has been an abandonment of the classic socialist goals of, say, providing social welfare. This goes back before Xi Jinping, to Hu Jintao and beyond. Leaders are very aware of the looming gaps that were left in society during the 1990s and know that this has to be addressed through active means, such as the removal of school fees or improvement in access to healthcare.

The problem that repeatedly arises for policymakers, however, is an inextricable tension between the urban middle classes and the rural populations when you have to ask one group to sacrifice some of its wealth to benefit the other. Shanghai and Beijing benefit from extreme preferential treatment compared to the poorer provinces, because they are willing to resist when social welfare picks at their pocket in some way. This is well demonstrated by university places. Residents of these two cities enjoy very high quotas for entrants into the best schools, disproportionate to their populations, as there is pressure on the government to keep it this way.

 

CER: In the book, you compare China today with other East Asian nations a generation ago. What are the structural differences between the Chinese mainland and Taiwan that have restricted it from making the same transition to a liberal market economy?

CM: The short answer is that the CCP authorities in Beijing have a much greater dominance over all sectors of life in mainland China than the Nationalist Party (Kuomintang – KMT) ever did in Taiwan.

Even at its most authoritarian, the Nationalist grip over Taiwanese society was subject to important limits. Taiwan’s post-World War Two economic boom years saw the emergence of entrepreneurs and firms with but loose ties to the ruling KMT apparatus. A range of religious groups, particularly the Presbyterians, escaped its full control. Such things created important constraints on the KMT’s controls and helped contribute to a rebalancing of economic and political actors in society. So, for example, Nationalist Party-owned enterprises and their role in the economy are steadily marginalized as Taiwan undergoes transition in the 1980s, 1990s and early 2000s.

In contrast, on the mainland, the CCP’s grip has been much stronger – largely because the pre-1978 period witnessed the eradication of all organized national social and economic structures outside of its own walls. This means that the party power structure ends up generating a much stronger gravitational attraction vis-a-vis all of the resources and entities that develop in the reform era boom that follows after 1978. Sure, it doesn’t look that way initially in the 1980s and 1990s. Indeed, that’s the period where observers start to imagine that various pieces of mainland Chinese society, whether civil society groups or private firms, might somehow attain escape velocity and exit the party’s orbit. But by the late 1990s, you see pretty clearly with the development of the ‘Three Represents’ that the party intends to co-opt and absorb private entrepreneurs.

And by the early 2000s (as mentioned above), you see the revival of state-owned enterprises and the role of party committees in private enterprises and society at large, and the increasing difficulties of private firms in terms of getting access to loans. That’s the inverse of the Taiwan example – it’s how the political controls start to steadily reabsorb the space for markets and private enterprise, as state corporatist models and Leninist party controls increasingly balloon within the mainland Chinese economy. 

A few things to watch will be the functioning of the real estate market and the space available for private tech companies to see how far these trends continue. Overwhelming short-term demands for maintaining social stability are steadily forcing Party authorities to extend their controls back into areas from which they had partially stepped back in the late 20th century.

 

CER: What do you think about the recent promises from Chinese policymakers regarding greater reforms?

CM: For market reforms, I don’t think this round of pledges will be any different from those made in previous years. The government considers state control, social stability and the state economy as paramount, so this really reduces its margin of manoeuvrability when it comes to market liberalisation. How do you reconcile the desire to bolster the role of a communist party in the economy with looser regulation and openness to foreign multinationals?

There are some very interesting governmental reforms going on, though, such as the mass restructuring we saw back in March. This was essentially ‘re-partyisation’ of the bureaucracy – a merger of party and state institutions that gives the new body a wider remit with a much stronger party presence, reversing the norms set in the early 1980s when the party decided to grant more management freedom to the state bureaus.