Capitalism With Chinese Characteristics

Capitalism is Religion

Capitalism is Religion

Is there really capitalism with Chinese characteristics or does capitalism work the same everywhere? There’s a new Chinese economy conspiracy theory: the Chinese government is paying all six men who own and control our Western media to keep their dying newspapers and TV channels from collapsing and dying of irrelevance. But as long as those dying media keep lulling us with soothing bullshit about China’s ‘fake’ stats and ‘stolen’ IP, the wider China’s lead becomes.

Fake Stats? China’s stats are increasingly accurate and among the most conservative. History, our own eyes, and the acceptance of China’s stats by agencies like the CIA, WTO, OECD, The World Bank, IMF, et al., tell us so.

And since China’s growth has been speeding up, every Chinese will produce – and be paid – twice as much this year as ten years ago. Their share of the pie is a steady 50% of a rapidly rising GDP, while the US is 43% of a stagnant GDP. They’re getting a squarer deal and they know it.

Where’s China going? You don’t need a crystal ball. A rearview mirror will do: China’s going back to the future. Does anyone who knows China (or even a single Chinese!) imagine that they’re going to take their foot off the throttle before they’re earning more than Koreans; have a GINI like Japan’s, air like New York’s, and…here’s the funny bit…literally everything else.

How can they become predominant in everything? Easy. There are 1.4 billion Chinese. The Chinese are about 5 IQ points smarter than us, too (even Kissinger admitted this – on camera!) which means they have about 300,000 geniuses running around looking for problems to solve. (We have about 10,000). That’s enough geniuses to allow China to specialize in everything. Simultaneously. Which is what they’re doing. They’re becoming self-sufficient in everything, while developing sufficient capacity to sell 20% of their output abroad very profitably.

Across a wide swathe of industries – from genomics, supercomputing and hyperspectral imaging to trains, dams and canals, China’s IP already leads the world. The broadening of China’s ‘product lineup’ is continuing rapidly, as they enter one market after another and retain more of the value of their exports. In the past ten years their share of the value of exports has risen from 50% to over 70% today – and is still rising fast.

Sometime this year they’ll unveil an even faster supercomputer, but this one will be powered entrirely by Chinese chips. Suddenly Intel is sharing IP with them. How long before China becomes self-sufficient in processors? They’ll redouble their productivity by 2025. That’s when their first cosmonauts will settle into their permanent moon base.

Our media are lying to us about this tidal wave of smart, hard-working, cooperative people and the smart things they’re doing together. Why? What’s to be gained by under-reporting what’s going on in China?

For example, the author of this piece is Peter Eavis, formerly of the WSJ and prior to that a Christian pastor. His assertions are just that: assertions. He provides no sources for them and the authority he quotes, Christopher Balding, an associate professor at the HSBC School of Business at Peking University, must be an ally of Michael Pettis, of Peking University’s Guanghua School of Management. Both have demonstrated a remarkable ignorance of how the Chinese economy works (Pettis famously bet The Economist that China’s growth in 2015 would be 3-4%). Neither they, not any Western ‘economist’ has ever been right about China’s economy. Not once.

USA China GDP per Capita

USA China GDP per Capita

I mention this not to denigrate Mr. Eavis, Dr. Balding or Professor Pettis. They’re competent people (Pettis’ analyses of EU are superb) but because they’re being paid for being negative about China’s economy. Professor Pettis’ spots dangers in China’s economic future – which the CCP then accounts for into its planning process – to ensure that Pettis’ predictions never come true. Talk about symbiosis.

I’ve been visiting China since 1967 and have compared the media’s “China” with the actual China. I meet with Chinese friends every weekend to review their news and tell them news about China – mostly technology – they’ve missed. I hear news of their relatives from home, after they come home from Tomb Sweeping at their ancestral villages, or a historical documentary on CCTV last night. I hear them marvel at how far they’ve come from childhood poverty to visiting grandkids regularly (on a jet plane!) and how all the relatives have cars now. It’s what you would expect if China’s doing as well as China’s stats suggest.

I visit second-tier cities in the hinterland to see if the Government’s promises are being kept. Is the infrastructure in place? Housing? Stress levels? People’s attitude in hotel checkouts, waitresses, cops, taxi drivers, ticket-takers. People with few skills and low incomes. Problems show up there first.

As of last November, in Kunming, they’ve all got time to hang out, crack jokes, tease each other, practice their English, chase you down to return your change…as you would expect if things are on the up and up. A national good mood. When you talk with them they boast about their new subway – a sign of modernity in this remote provincial city: “Yes, once Kunming’s GDP reached $45 billion (as I recall) construction started immediately. The subway’s starting to over-fill already. They’re talking about a second line”. My companion was a self-employed woman who doesn’t own a car but sends her son to a private school and has traveled to Australia. So Kunming looked like it should look if the Chinese Government is telling the truth.

Compared to Kunming, 26 million-strong Shanghai  looks like a wealthy city that’s declaring half its income. It’s in another league. It’s a world city.  Shanghai’s school system is the best in the world. By a huge margin. Every educator on earth is studying its methods but, before Western educators get permission to ‘go Shanghai’ and start re-training teachers, every school system in China will have made the switch and be graduating classes of kids like Shanghai’s. Think of the contribution to GDP that will make.

For forty years, 99% of articles about China’s economic future have predicted imminent doom for the Chinese economy. Yet neither doom nor destruction has occurred. Indeed, neither snow nor rain nor heat nor gloom of night stays Chinese economists from the swift completion of their appointed rounds. They make their numbers year after year.

The Economist and Capitalism with Chinese cCharacteristics

I’ve been reading The Economist since 1975 and have found it to be insightful in many areas – especially the environment and technology – but deficient in the area of its claimed expertise: economics.

The Economist completely failed to anticipate the GFC, for example, or give space to professionals who predicted it and identified its causes. These were not amateurs, but heads of prestigious economics institutes like the Center for Economic and Policy Research, whose detailed warnings were sent to The Economist every week for two years before the crash.

China Wages Chart

China Wages Chart

While it’s understandable that The Economist might miss a single elephant, it’s hard to grasp how it missed an entire herd: China’s economy. Why has it continued to be wrong about the world’s biggest economy? Since 1975 The Economist has predicted 56 ‘hard landings’ for the Chinese economy. None happened, of course, yet the magazine kept repeating this prediction every few months, decade after decade.

In sum, The Economist has no credibility whatever regarding China’s economy and even less on other aspects of that country. It appears to be a source for propaganda and little else. If this sounds harsh, consider The Economist’s editorial before the invasion of Iraq: “The Case For War” and remember – The Economist had had a reporter in Iraq for 40 years.

China’s Export Led Growth Model Wasn’t Always So Export Led– Dean Baker

Wonkblog has an interesting interview with Patrick Chovanec, an economics professor at Tsinghua University’s School of Economics and Management in Beijing on China’s current economic problems. At one point Mr. Chovanec refers to:

“China’s growth model for the last 30 years, which has been a classic export-led growth model.”

Actually China’s growth over the last three decades has not been consistently export led, or at least not to the same degree as was the case in the 10 years leading up to the economic crisis.

china economy

As can be seen, until 1997, the year of the East Asian financial crisis, China had relatively balanced trade. It did run substantial surpluses in several years, but its trade surplus averaged just 0.3 percent of GDP from 1980 to 1996. By contrast, in the years from 1997 to 2008 the surplus averaged 4.5 percent of GDP. There clearly was a qualitatively different story of growth in the period from the East Asian financial crisis to the 2008 world economic crisis. It is misleading to imply that the Chinese economy had the same dynamic over this whole period. Read more…

Feeling the Stones

If we combine a planned economy with a market economy, we shall be in a better position to liberate the productive forces and speed up economic growth.  Deng Xiaoping

Experts struggle to make sense of our own economy, let alone to understand a much larger, older, culture with a Communist government, that speaks Chinese. Every prediction by our experts about the Chinese economy for the last 30 years has been wrong. Completely wrong. So what’s the secret of China’s success?

No country has ever grown so fast for so long or lifted so many people out of poverty. China’s government is the most popular on earth, and the most successful.  So, how does China Combine a Planned Economy with a Market Economy?

You start with very smart planners: professional problem-solvers who know how to interpret data. Like really smart engineers and scientists.  Then:

  1. Make sure your professional, smart planners are honest. Very honest. No bribes. No “lobbying”. No hanky-panky.
  2. Give your professional, smart, honest planners complete independence from undemocratic media (media owned by rich men).
  3. Don’t try to make your professional, smart, honest, independent planners “popular”. Engineers and scientists are the most boring people on earth. They’ll never be popular.
  4. Connect your professional, smart, honest, independent planners to the electorate so that they can get feedback before–and after–they implement their policies.
  5. Don’t rush them. Forget 24-hour news cycles. Try 24 months.
  6. Even professional, smart, honest, independent planners make mistakes. Give them the benefit of the doubt so that they can revise their policies and try again.
  7. Send your professional, smart, honest, independent planners to the provinces for 5-10 years. If they can manage a province of 100,000,000 people, maybe they can handle national government.
  8. Own controlling shares in all the important industries, like banking and communications, to ensure that they act for the national, and not just private, good.
  9. Make sure that your least fortunate citizens are gaining the most. If they’re gaining then everybody’s gaining.
  10. Turn the market loose.

This is what China does. Any country could do the same. Policies and crises come and go but professional, smart, honest, independent planners can solve practically any problem.

To understand the history of capitalism in China (which dates to the 16th. century) I strongly recommend

China And Capitalism, by  David Faure

Best Price $31.85 _or Buy New $32.18

David Faure is Professor of History at the Chinese University of Hong Kong. Less than 100 pages long, his book is well-written, clear, and made thoroughly enjoyable by the examples which he provides. Here’s one: Unlike Western Europe, where by the eighteenth century business incorporation was increasingly governed by a law with the explicit recognition that gaining a profit was rightful and legal, eighteenth-century Chinese corporations remained ritual entities, established not directly to serve the interests of their members, but ostensibly to provide sacrifice for gods and ancestors. Compared to Europe, the Chinese corporation would have been akin to the medieval monastery, built for religious purposes but maintained as a powerhouse of economic growth, managing land and hostels, providing services–not without charge–for living and dead, and networking with kings and peasants. (pp. 96-7)

Since we opened with a quote by Deng Xiaoping (the father of this approach), let’s close with another: his advice to the Chinese people on how to proceed with this complex experiment: Cross the river by feeling the stones. 摸着石头过河.


Before 1949, more than 90% of the people in China lived in severe poverty, more than 80% were illiterate, the average lifespan was 35, few people owned land, and the risk of death from famine had been an annual threat for more than two thousand years. In fact, most rural Chinese were treated as if they were beasts of burden and not human.
Today, about 13% live in severe poverty and those people mostly live in remote, rugged, difficult to reach areas of China.  The lifespan is now about 73 years andHelen H. Wang writing for (February 2011) reported that China’s middle class is already larger than the entire population of the United States and is expected to reach 800 million in fifteen years (2026). In addition, no one has died of famine since 1961.

CHINA'S ECONOMYChina, the world’s strongest economy, requested and has just received a checkup from the world Bank.

By doing so China opened its books to an institution that is dominated by the USA and Europe.

The Bank predictably recommended that China follow America’s example, but the significance lies in the invitation itself.  That the world’s fastest-growing, second-largest economy would subject itself to ‘foreign’ scrutiny and examination is remarkable. Let’s hope that the USA follows China’s example.
Another of the Bank’s recommendations, that China avoid the “middle income trap” represents a remarkable misreading of China’s ambitions.  Deng Xiaoping’s stated goal, reiterated by his successors, is a “moderately prosperous country” (小康; pinyin: xiǎokāng: a Confucian term describing a society of modest means) for two reasons:
  1. The planet’s resource limits will not afford more than that for an additional 1.3 billion people.
  2. It is un-Chinese, vulgar, and antithetical to the Tao.

When Deng launched the Opening Up reforms, he warned that “some flies get in when you open the windows” and that one of those ‘flies’ would be inequality.  This, remember, was at a time when China had the best coefficient of equality–as measured by the GINI index–on earth.


Since then, the growth of China’s economy accelerated dramatically.  But so has inequality.  (The growth of the United States’ economy has slowed during that time and its GINI ranking has fallen steadily, to the point where the 2012 figures will probably be worse than China’s, and close to Brazil’s).

China is now addressing the problem head-on.  After years of public discussion, the Central Committee just added a new evaluation criterion for local governments:  how much has your province improved its GINI score in the past year?  (Remember that provinces have populations of upwards of 100,000,000 people: larger than most countries on earth).

Provinces, which have also been discussing this for years, are already responding. Chengdu is leading the way with an interesting approach to low-income housing that is is financed partly by increased taxes on high-income housing.  We will see much more innovation as this program gets rolling.

REGIONAL INEQUALITYChina’s inland provinces have lagged behind their coastal cousins in economic development since the Opening Up program began, causing annual mass migration and disruption of family life in the inland provinces.

The CCP has been working to ameliorate this situation for years, by constructing infrastructure for the inland provinces that would support development there: railways, subways, highways, airports, pipelines, fiber optic cables, power stations, universities, and even the relocation of entire industries.

Those efforts are now bearing fruit.  While annual growth in the coastal provinces has slowed to 5-6%, inland growth is accelerating, with key provinces growing 15-17%. This has led to labor shortages (and dramatic wage rises) in coastal areas as more and more inlanders stay home and find good-paying jobs nearby.  Isn’t it interesting what honest, competent governments can accomplish?
DEMOCRACY: Premier Wen says China needs political reform, warns of another Cultural Revolution without it.
The premier said he knows the people take an interest in not only what he has to say and what his ideas are, but also what results his efforts can bring.
“Even with a single breath, I’m still prepared to dedicate myself fully to advancing China’s reform and opening-up cause,” Wen said.
The premier said China will unswervingly implement the rural villagers’ self-governance system and protect their legitimate rights of direct election.
The practices at many villages showed farmers can succeed in directly electing villagers’ committees, he said.
Wen said if the people can manage a village well, they can do well in managing a township and a county. “We should encourage people to follow the path to experiment boldly and withstand tests in practice,” he added. “I believe China’s democracy will develop in a step-by-step manner according to the national circumstances and the trend is unstoppable by any force.”

Those efforts are now bearing fruit.  While annual growth in the coastal provinces has slowed to 5-6%, inland growth is accelerating, with key provinces growing 15-17%. This has led to labor shortages (and dramatic wage rises) in coastal areas as more and more inlanders stay home and find good-paying jobs nearby.  Isn’t it interesting what honest, competent governments can accomplish?

Wen said if the people can manage a village well, they can do well in managing a township and a county. “We should encourage people to follow the path to experiment boldly and withstand tests in practice,” he added. “I believe China’s democracy will develop in a step-by-step manner according to the national circumstances and the trend is unstoppable by any force.”–Xinhua

For an excellent discussion of the “China model”, Chinese governance, and democracy in China, watch this interview with Eric Li at the Aspen Institute.

Written by Godfree
Visiting China and studying it since 1967. Interested in its culture, politics, education and economy.