Modern China needs better understanding

There is an urgent need to develop a more specific understanding of China, given its importance in the world economy. Although a huge amount is written about China, hardly any of it grapples with the defining characteristics of Chinese society.

Most China analysts assume that it is essentially divided into two sectors: the state and the market. While many emphasise the the market’s role, others stress what they see as the positive role of the state.

For free-market economists, the private sector provides the dynamism for the Chinese economy. To the extent that the state intervenes, it causes problems such as overheating and overinvestment. Such thinkers tend to argue that China’s rapid development since the late 1970s is not exceptional when compared with similar growth spurts in, for example, Japan or South Korea.

There are several problems with this view. China has grown spectacularly over the past quarter century, despite the state’s heavy role. Given the enormous size of China’s population, this growth record is particularly impressive. No doubt China has weaknesses but they are not convincingly accounted for by free marketeers.

Statist views of China are not convincing either. Advocates of this outlook often argue the provision of basic health and education services by the state has played an important role in economic take-off. Although the state has played a part, the rapid growth of China is clearly linked to the introduction of market reforms.

The problem with both views is that they counterpose the state to the market. The state is seen as encroaching on the private sphere, intervention that is seen as good by some and bad by others, while the market is viewed in essentially timeless terms.

Such an outlook fails to identify the specific characteristics of Chinese society. For example, what are the social laws that regulate economic behaviour? Is production primarily based on the profit motive or is there some other force driving economic output?

Looking back at the Soviet Union, its defining feature was its lack of any mechanism for the allocation of labour time. It did not work according to the laws of the market, nor did the dream of a socially organised economy come true.

In retrospect, it eventually collapsed because of its lack of any driving force. If anything, the surprise is that it lasted so long, rather than its demise in the 1990s.

Not that China is the same as the Soviet Union. The market was more thoroughly destroyed in the Soviet Union after 1917 than it was after the Chinese revolution. But it is time to identify the key drivers that define contemporary Chinese society.