Staying on Target
China's flailing attempts to move away from GDPism
The speed at which things are ostensibly changing in 2023 is incredible. Even with twitter crumbling into a colossal wreck, the discourse races: climate change is upon us, AI’s development is accelerating, and neoliberalism has been buried. China is hardly immune. The end of zero COVID was a flash; the million plus who died as the virus ripped through the population remembered only individually.
But how different is China on this side? Are we extrapolating more change than is really present because the world’s vibes feel so distinct from the great before?
I argue in a new piece at Noema that China seems determined to stay on target: Why Does China Remain Locked on Growth Targets
I’ve covered related ground in Seeking Truth and Hiding Facts but also last fall—Is China Losing GDP Religion?; Why China Aims Too High—before the end of zero COVID. The overall thesis is that China’s limited quantified vision worked well, until it didn’t. A few numbers came to define Chinese politics, until they did not count what mattered and what they counted didn’t measure up. But just because something stops working, doesn’t mean that there’s a better replacement just waiting in the wings.
Mary Gallagher wrote an excellent essay for the China Leadership Monitor comparing Xi’s Common Prosperity rhetoric with Bo Xilai’s governing in Chongqing. ChinaFile put together a nice discussion on the theme as well. The key takeaway is that despite all the words of supporting domestic consumption, there’s very little in the way of action to build the social safety net that would allow Chinese to spend instead of save. Gallagher put it well, reading Xi’s statements as tantamount to a “resolute refusal to build a welfare state.”
The result is this contradictory amalgam, where officials on the one hand welcome foreign investors but on the other raid foreign consultancies that run due diligence.
The country failed to hit its growth target in 2022, but rather than drop the practice of identifying growth targets as anachronistic for an era of common prosperity, at the annual National People’s Congress in March, the announcement came in: 5%.
The dilemma facing Xi and the Chinese party-state is how to demonstrate that it can thrive both after COVID and in the face of America’s attempts to slow it down — while simultaneously transitioning to a more sustainable political economy. Xi’s new economic team, with Premier Li Qiang at its head, seems committed to playing the old hits. Li has been nearly desperate in his attempts to signal that China is open for business, rolling out the red carpet for foreign CEOs. Many of the “Red New Deal” crackdowns are being reversed. Some video game restrictions have been lifted. But such reassurances are a hard sell when Chinese business tycoons like Ma remain abroad.
The first quarter’s economic statistics in many ways paint a complicated picture, but a growth focus remains omnipresent. The property market has stayed in the doldrums, and fixed-asset investments provided robust growth only through state intervention. While private sector investment grew only 0.6% year-over-year, state investments jumped fully 10% amid discussions of local governments planning nearly $2 trillion in major projects for the year. Debt once again accumulated as fiscal income remained flat, but spending ballooned by 6.8%.
Playing the old hits makes a lot of sense, but everyone knows that the single-minded focus on the targets is wearing on everyone. What are officials supposed to do? How should they proceed in the absence of some numerical target that they are aiming for?
It’s become something of a Monday tradition on that dying bird site to discuss (or debate) a post from the New Left Review’s blog “Sidecar” (it is possible that I’m the only person that observes this as a tradition at this point). Yesterday, being a Monday, the sharp Anton Jager offered up this post by Cédric Durand.
For the most part, it’s fine. Neoliberalism did hollow out state capacity in much of the developed world, and more than that destroyed any muscle memory, any belief that building the infrastructures of society mattered. What irked me a little was the too casual mention of China as not only the adversary that required tossing off the albatross of neoliberalism but also the state-that-gets-it, an example pointing the way forward.
The West’s embrace of industrial policy is explicitly motivated by Chinese productive prowess. Yet one cannot overstate China’s singularity. There, state capital is dominant thanks to public ownership in strategic, upstream sectors of the economy – the ‘commanding heights’ in Leninist terms. As well as enjoying formal property rights to key assets, a highly specific form of state-class organization allows the CCP to exercise some control over the country’s general developmental path. Its culture of internal discipline is crucial in assigning politicians dual identities as masters of capital and servants of the party-state. This provides a firm foundation for public planning, allowing private accumulation to coexist with market-shaping forces such as credit and procurement policies. The CCP’s public-private network is also highly adaptable, enabling the government to implement major policy changes relatively quickly. Following the 2008 financial crisis, political instructions were immediately passed down to party members in anticipation of the huge state stimulus package, resulting in a much more rapid and effective fiscal response than in the US or EU.
This discussion evinces no recognition of the wastefulness of Chinese stimulus in particular or of its investment broadly. If the rich world builds like China has, a lot of underutilized factories and empty houses will be constructed, trillions of dollars wasted producing things that exist in accounting spreadsheets and thus add to GDP but are about as wasteful as digging a hole only to fill it up again. More deeply though, Durand is using China as a cudgel, critiquing the regulation of capitalism under democracy. But I think this underestimates the limits on Chinese state discipline of corporations. The party-state got serious pushback on (1) zero COVID and (2) various common prosperity crackdowns and has backed down, at least in this split-personality version that I describe in the essay. Yes, the Jack Ma’s of the world are pushed aside, so the party-state retains strong ability to politically destroy potential challengers, but directing the market to pursue particular ends is a harder sell, to Chinese officials, Chinese investors, and the world.
Obviously, Chinese industrial policy has been successful in myriad ways, including bringing down the price of solar power in what will likely be the most important tool to decarbonize the planet. But here’s my advice to Western thinkers looking for how to navigate a post-neoliberal world without spending time actually considering Chinese political economy: this is not the state you’re looking for.
Thanks for this very useful post.
Mary Gallagher's article is an insightful take on Xi vs populism.