Two prominent Chinese economists, Lin Yifu and Zhang Weiying, recently engaged in heated debates in public forums as well as in print and on social media about the government’s industrial policy.
The outcome of the debate could shape China’s economic path in the next five to 10 years.
Zhang started the war of words with a speech titled Why Industrial Policy Is Set To Fail at the Yabuli China Entrepreneurs Forum.
The speech was widely seen as targeting Lin. In response, Lin wrote Economic Growth Can Only Succeed With Industrial Policy.
Zhang then published an article titled Four Mistakes Lin Yifu Made In Industrial Policy. Lin wrote another article to counter Zhang’s allegations.
Zhang, a free-market advocate and follower of Austrian and British economist F. A. Hayek, believes the government should not intervene in the free market, and should give up control of monetary policy.
“I just realized that I went even further than the Chicago School of Economics, and am closer to the Austrian School of Economics,” he once said.
Zhang shot to fame in the 1980s, when, at the age of 25, he published an article proposing a dual-track pricing reform.
The idea was adopted by the central government and paved the way for China’s opening-up.
China’s economy was in a bad shape back then as the nation shifted away from a planned economy.
Zhang had been very influential over the nation’s economic policy over the following decade.
By contrast, Lin, 63, is a former Taiwanese military officer who defected to the People’s Republic of China in 1979.
He focuses on development economics and studies how government can help in promoting economic growth. Lin’s economic views are strikingly different from Zhang’s.
Lin is known for his New Structural Economics, a theory that says government must find the country’s comparative advantage and use industry policy to promote economic growth.
He believes free market often fails and creates chaotic situations which takes too long to self-correct.
Lin’s ideas applies to developing countries in particular.
In 2004 he was appointed chief economist of the World Bank for his contribution to helping developing nations emerge from poverty.
After the 2008 financial crisis, both the United States and Europe faced subdued growth, which most people believe reflects the constraints of a free-market economy.
By contrast, numerous Asian economies like China and South Korea achieved strong growth by using both the “invisible hand” and government supportive policies.
Lin’s theory became more popular.
Lin became a key government adviser after President Xi Jinping and Premier Li Keqiang rose to power.
Sidelined for years, Zhang is probably trying to make a comeback by challenging the mainstream economic policy as the nation’s economic growth continues to falter.
This article appeared in the Hong Kong Economic Journal on Oct. 3.
Translation by Julie Zhu
[Chinese version 中文版]
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