China Model, Beijing Consensus, State Capitalism

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Mapping China Working Paper Series, 2017, No. 3

China Model, Beijing Consensus, State Capitalism, East Asian Developmental State or Varieties of Capitalism? On the issue of conceptualizing China’s politico-economic system

Written by

Aya Adachi

Abstract

China’s rapid economic development has inspired many scholars to write about how it was achieved and which role state-industry relations played in fostering growth. The diversity of the vast literature on the topic has brought forward various conceptual ideas, including the China Model, Beijing Con- sensus, as well as positioning of the Chinese case within the debate of State Capitalism, East Asian Developmental State and Varieties of Capitalism. This Working Paper presents a literature review on the various conceptualizations of China’s politico-economic system and maps out the ontological scopes of the “battle of ideas”. When referring to and basing an argument on one of the concepts, balancing between the issue of conceptualizing the political economy of China as a whole and accounting for the sum of its highly diverse parts has profound ontological implications on subjective assessment in an analysis.

Aya has obtained her MA degree in International Relations at University of Groningen and a BA degree in Economics and Politics of East Asia at Ruhr University Bochum. She is currently working as a freelance consultant for Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH in Beijing.

1. Introduction ownership, liberalization of inward directed China’s rapid economic development has in- foreign direct investment and others. The spired many scholars to write about how it was function of the Beijing Consensus seems to achieved and which role state-industry relations solely provide an alternative and therefore played in fostering growth. Competing ideas on appears very vague without its constitutive rela- how to make sense of China’s development tion to the Washington Consensus. In search has resulted in a staggering amount of literature. of a definition of the Beijing Consensus, Matt In the following the debate around the China Ferchen has analyzed not only the discourse Model, Beijing Consensus, State Capitalism, outside of China, but also how the Chinese East Asian Developmental State and Varieties Communist Party and competing groups of the of Capitalism are discussed. In section two, the New Left and liberal public intellectuals, have paper refers to literature on state-industry rela- shaped the debate and interpreted the Wash- tion that is removed from the before evaluated ington Consensus (Ferchen 2013). He demon- dominant classifications and lays out relevant strates that the variety in definitions of the Bei- institutions and actors before conclusions on jing Consensus and the China Model reflects profound ontological implications on subjec- the battle of ideas in how best to explain state- tive assessment are drawn. industry relations.

China Model or Beijing Consensus Generally, the debate of the Chinese politico- Debates about the China Model or Beijing economic system has been shaped by three Consensus have received wide attention, how- currents of thought that differ in ontological ever, there seems to be little agreement in and scope: state capitalism and Leninist organiza- outside China over the characteristics of a dis- tion principles; Listian ideas on development tinctly Chinese model of development. Under- and the East Asian developmental state; and stood as an inherently social and political con- the varieties of capitalism scholarship. cept, the very idea of Beijing Consensus seems to have been constituted by the “other” – the State Capitalism and Leninist organization rather unchallenged and naturalized Washing- principles ton Consensus, which embodies a neoliberal First, it can be argued that the Chinese system set of policies, such as fiscal discipline, trade is state capitalist, which means that the state liberalization, deregulation, privatization state has control or ownership over key sectors of

the economy such as steel, coal, electricity ing effective industrial policy and has inspired transport and financial industries, allowing it to a number of scholars to argue, that the China steer the overall of the economy through price model has much in common with these Listian control. In line with conceptualizing the Chi- ideas of development, according to which state nese politico-economic system in state capital- capacity allows crucial plan rational interven- ist terms, it has been argued that the Leninist tion into society in order to foster and protect institutional legacies of the hierarchical and infant industries (List 1910/1841). However, dual structure of the state and the party have comparisons of the Chinese economic devel- provided the CCP with a strong capacity to opment to those of Japan, South Korea, Tai- formulate industrial policy (Collins & Gottwald wan and broad theoretical ideas on develop- 2014; Dickson 2008). According to the Lenin- ment by Friedrich List shift the focus away ist guiding principle of democratic centralism, from the role of the one-party state apparatus the penetration into all areas of society enables to the more abstract concept of state capacity the party to be informed about ideas and ongo- (Breslin 2011; Strange 2011; Heilmann & Shih ing issues from the bottom-up while being in- 2013; Boltho & Weber 2015). clusive of these concerns when making deci- sions from the top-down (Lenin 1906). This Varieties of Capitalism guiding principle was misused as centralism Third, the varieties of capitalism scholarship is during the era of authoritarian planned econ- an important contribution to the body of com- omy (1949-1976) making the state apparatus parative political economy and has recently ineffective in formulating functioning industrial been used more frequently to study the Chi- policy. However, the bottom-up informational nese economy (Peck & Zhang 2013). As the resources provided by the reach of party have name implies, the approach of varieties of cap- grown in importance following the gradual italism, conceptualizes different forms of capi- political and economic decentralization. talism clustered around two poles, with the liberal market economies archetypically mod- East Asian Development State and Listian eled after the US on the one end, and the co- Ideas of Development ordinated market economy modeled after Second, the aspect of embeddedness of the Germany and Japan on the other (Hall & state in society has also been a key concept of Soskice 2001). Varieties of capitalism is an the East Asian Developmental State in explain- eclectic approach that uses multiple levels of

analysis: it places emphasis on contradiction 2011). Therefore, polymorphous style of gov- rather than national institutional coherence; ernance has also created a bifurcated scholar- uses relational aspects that allows inclusiveness ship on China’s variety of capitalism. of mutual interdependencies between local economies over endogenous and separated All of these three groups of scholarship strug- logics; explores intersecting and connective gle to tackle the difficulty of conceptualizing processes, such as neoliberalization, not only the political economy of China as a whole, as carriers of convergence tendencies but in while also accounting for the sum of its highly the context of combined and uneven devel- diverse parts, which include the interpenetra- opment (Sheppard 2011; Jessop 2012). Placing tion of “offshore” markets, supply chains and China in this debate is beneficial in terms of hence, other forms of capitalisms.1 The role of being able to compare the Chinese case within regional differences and disaggregating econ- a single framework and thus linking it to the omies have gained traction among scholars and broader discussion; and vice versa, China’s have been coined the “subnational turn” in unique features may innovate and advance the comparative politics (Rithmire 2014). varieties of capitalism scholarship. However, when attempting to utilize the varieties of capi- 2. Development in multiple changes and vary- talism framework one is confronted with stag- ing speed and spatial dimension gering challenges, as China is highly diverse in More broadly and generally, the Chinese polit- regard to multi-level governance with different ico-economic system has moved away from a central-local government relations, Leninist central planned economy and has undergone institutional legacies, uneven growth and socio- multiple changes in varying speeds and spatial spatial inequality. The offering of varieties of dimensions since reform and opening. While capitalism formulations on China thus far are the state continues to maintain ownership and heterogeneous and none of them have pre- control over key industries of the economy, it sented a distinct Chinese variant. While Witt gradually removed authority over some sectors. and Redding for example claimed that China As a way to manage risks in such an enormous fits the classification of liberal market economy territory with a vast population, the govern- (Witt & Redding 2014). Fligstein and Zhang ment gave up central control in varying degrees defined China as an idiosyncratic case of coor- and provided local governments with a certain dinated market economy (Fligstein and Zhang 1 Hongkong, Taiwan and Free Trade Zones (e.g. Shen- zhen & Shanghai) 4

scope of action to let them participate in de- versal made TVEs immediately less attractive signing economic policies that were more fit to as vehicles for economic growth, but created serve local conditions. In particular, local gov- new incentives for putting forward a new form ernments have increasingly enjoyed discretion of real estate developmentalism (Breslin 2012). in implementing policy, which has allowed The regulatory structure entrusts local authori- them to consider interests of local businesses ties the ability to control who is allowed to op- (Hillmann 2010). By tying revenue growth to erate and who is not through licensing (Chou the career progression of local officials in con- 2006). junction with fiscal decentralization, local gov- The hukou regime, the household registration ernments were incentivized to developing the system provided the central government with a regional economies. mechanism to manage migration of workers Despite liberalization private business contin- from the countryside to cities (Chou 2006). As ued to face harsh restriction. Instead, Town this hukou system only offers rudimentary and Village Enterprises that originate from the protection against land deprivation, vulnerable Mao era were readjusted, increased in num- farmers are exposed to arbitrary power of local bers and played a crucial role in the overall officials and developers (Fewsmith 2009). economic growth in China until the mid 1990s While labor-union mobilization has been gen- (Oi 1995). However, this local developmental erally controlled in the shadow of the CCP enthusiasm also created industrial overcapaci- under the disguise umbrella organization All ties and struggle with inefficiency and was China Federation Trade Union (ACFTU), therefore reformed and privatized in the mid trade unions on the local level are able to pro- 1990s (Naughton 2007). vide some support to workers whose rights Following an increasing struggle of taxation have been violated (Ding, Goodall & Warner between central and local government, fiscal 2002). reform was introduced in 1994 which reduced the subnational share of national tax revenues Furthermore, an important practice in dealing from 70 to 40 percent in conjunction with fur- with fostering economic growth and creating ther decentralization of public expenditure diversity in state-industry relations is policy responsibilities (Montinola, Qian & Weingast experimentation, which has been used to test 1995). By increasing the budgetary and pat- ideas on a smaller scale (e.g. Special Economic ronage resources of the center, this fiscal re- Zones) that were then applied across the coun-

try (Heilmann 2009, 2007; Heilmann & Perry or administrative branches. While SOEs are 2011). Thus, the policy-making that has tied to administration and managed by the emerged can be described as being dialectically State-owned Asset Supervision and Admin- shaped by an interplay of central as well as istration Commission (SASAC), other entre- local forces (Heilmann 2009). China’s interre- preneurs also regularly interact with local offi- gional differences in historical legacies, re- cials to get their voices heard. source endowments, leadership capacities and local politics considerably shape both local Local business associations and chambers of government’s performance and plurality in commerce play a limited but increasing role in economic development models more generally. coordinating interests of private enterprises. As they have non-hierarchical and flat organiza- As a result of China’s variegated development tional structure they are not under the control policies various shapes of firms with different of trans-sectoral associations. Furthermore, forms of ownerships and diverse relations with they often overlap, compete against each other the government have merged, which include: and are horizontally separated (Kennedy 2005). SOEs in key sectors; Town and Village Enter- These business associations are required to prises; Joint Ventures, foreign invested enter- register with the government and staffed with prises; private firms with state owned shares; some government officials, due to which they and start-up companies in strategic sectors that are often assumed to not have sufficient au- enjoy preferential treatment (e.g. ICT). In fact, tonomy. However, precisely these constraints it is almost futile to determine the exact owner- push associations to interact with the govern- ship structure of Chinese business corpora- ment, through various direct and indirect tions (Breslin 2012; Walter & Zhang 2008). channels. These government-business interac- Despite substantial liberalization of most eco- tions depend heavily on the different econom- nomic sectors, the state is able to use the lack ic circumstances of individual firms and the of transparency in market conditions, regula- industry to which they belong. tions, fiscal responsibilities, and first and fore- most the financial system to support and pro- The dynamics between central and local gov- tect private enterprises. All of these forms of ernments have also created tensions within the enterprises have in common, that they main- political elite. These issues have increasingly tain a close relationship to relevant ministries challenged by the implementation constraints

and competing parochial interests. The role of These recent developments may indicate some the NDRC has been strengthened to serve as changes in state-industry relations and are im- an interface of development interests and grew portant for future analysis. Furthermore, this in capacity in the midst of the global financial recentralization of power signifies the tautolog- crisis in drafting crisis responses (Heilmann & ical nature in assuming that China will inevita- Shih 2013). The NDRC originates from the bly become a market economy following liber- former State Planning Commission and later alization. Thus, rather than basing the idea of State Development Planning Commission, and China Models on the perpetuated idea of state- was restructured in 2003 to work with all cen- market dichotomy, the two constitutive ele- tral level ministries related to the economy in ments should be ontological conceptualized as order coordinate the horizontally divided one entity, in which state-industry relations are economy. Despite these efforts to coordinate constantly shaped and reshaped by actors trig- development policies, issues of overcapacities gered by changes in external and internal cir- and local government debt have increased as cumstances. result of crisis response and constitute a loom- ing threat to the Chinese economy, which in- 3. Conclusion creased the strain on relations between central If the debate surrounding the Chinese eco- and local governments (Cheng 2015). In this nomic development provides any lesson at all, light, the presidency of Xi Jinping can be re- it lies in how these contributions epitomize the garded as a reclamation of control over society myriad of complexities that constitute the Chi- and the economy to the center. Since Xi nese economy. Therefore, it is important to Jinping took over the presidency, measures remove oneself from the dominant classifica- haven been taken to restructure decision- tions of the China models, and weigh the making, including the locus of economic poli- complexity of state-industry relations more cy-making: early on, Leading Small Groups generally against identifying the important as- equipped with executive authority were intro- pects and areas that vary on the analysis at duced and have caused a shift in the process of hand. policy-making towards Beijing and the CCP When referring to and basing one’s argument (Ahlers & Stepan 2016; Naughton 2016). on “the” China Development Model, Beijing Consensus, East Asian Developmental State or State Capitalism it is important to be aware of

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