How the Chinese economy can find its mojo back

January 29, 2024 22:26

The past four years have been incredibly difficult on the Chinese economy. What some (perhaps many, indeed) had expected to be a swift and substantial recovery post-COVID, has fizzled out, giving way to one of the worst routs in stock and equity markets seen in recent history. Questions have been raised across the board concerning the tenability and viability of the Chinese economy, with many prophesising, prematurely and with limited nonetheless, that China had ‘peaked’. Given this, how can China, as a collective, as an economy, and as a manufacturing powerhouse, regain its mojo after the past four years of tribulations?

For answers, we should look no further than the year 1978. A little over 45 years ago, China stood at a crossroads. Freshly emerging from the death of Chairman Mao Zedong and the arrests of the conspiratorial Machiavellian Gang of Four, the 956 million-strong country found itself confronted by a critical choice – what next, and wherefore next? Mao’s death and the tumultuous decade that had preceded it, with some of the most cantankerous and horrifying episodes of contemporary Chinese history having taken place during those fateful ten years, had left the country scrambling for a ‘normative vacuum’ – a new source of legitimacy, and one that would enable the pre-existing institutional arrangements and government in China to continue and stay on as the de facto representatives of its people.

The post-Mao state was in search of a legitimating narrative. Given the dynamics of the rapidly evolving Cold War (though Mao had presciently seized upon the window to seek a reset and rekindling of relations with the US, and rightly distanced the country from the increasingly bellicose, moribund Soviet Union), a largely stifled and petrified civil society split asunder by factionalist intrigue and infighting, and an ossified bureaucracy, there were many questions that Hua Guofeng – Mao’s anointed successor – had to grapple with promptly. Under him, reforms were trickling in, but they weren't coming nearly as quickly as needed.

After a decade of protracted political struggles and upheaval, a new generation of visionary leaders, helmed by Deng Xiaoping and enabled by pragmatic moderates who saw the need for change, spearheaded by the military and revolutionary titan Ye Jianying - found their way into the Party leadership. Having been subject to the wanton excesses of political purges by covetous and suspecting rivals, Deng knew that China had only one path forward: modernisation through embracing technocratic reform and the market economy, one undergirded by an invisible yet elegant hand that would bring China to the world. He continued Mao’s adept foreign policy and sought to bridge the gulf with the West, in order to bring into China the much-needed foreign capital, skillset, and insights that would then be transformed and incorporated by the country’s very own brightest and best, propelling the country towards much-needed urbanisation and skilled industrialisation.

Unfazed by conservatives and ideologues who resisted change, experimentalists took to revamping the Party-state's relationship with its people, augmenting the pre-existing governing ideologies with an imperfect but largely effective indicator of economic growth. GDP growth replaced fealty and adherence to stipulated doctrines, and was in turn combined tactfully by Deng with Mao’s vision for a modern, resilient, and enduring China – a China that could stand up to those who had once bullied it into submission, and took advantage of the magnanimity of the Chinese people to exploit the country for resources and riches.

At the 3rd Plenary Session held in December '78, China embarked upon the unprecedented journey of reform and opening-up: a truly extraordinary for many, similarly situated nations who had been seeking to shift from ideologically driven doctrines and dogma, towards what Stefan Dercon terms the ‘development bargain’. The ruling party set up free trade zones, economic experiments, and brought on board international partners and injections of liqudity through joint ventures. Agrarian reforms in the 1980s immensely improved household incomes. Financial innovation and urbanisation in the 1990s unleashed immense productivity gains. China joined the WTO in 2001.

Forty-five years on, there is no single recipe for a China rebound. Davos has got one thing right: rebuilding trust matters. Deregulating markets, enriching middle-class households through focussed wealth transfers, protecting entrepreneurial and consumer rights through rule of law, and affirming a conciliatory and balanced foreign policy, however, would go a long way. Empowering the private sector, urbanising and educating in a bottom-up manner that encourages emphatic thinking, and balancing targeted industrial policies whilst encouraging SMEs and start-ups to run free, there is much that is already happening, and there is much more that could come.

The Blossoms in Shanghai in spring are usually a propitious sign. I have full confidence that China can and will reorient itself towards a more productive, more genuinely entrepreneurial, and more growth-friendly future. Whether it be black or white, a cat that catches mice is a good cat. It is premature to deem China a complete success, but it is yet equally premature to write it off. What is needed here, is constructive, pragmatic critique – one that places at the front and centre the entrepreneurial and creative savviness, the indomitable spirit and flexibility of the Chinese people. The 1.4 billion Chinese people are not just the best China story there is to tell, but also the sources of China’s diqi. May the logic of bottom-up experimentation and ethos of risk-taking innovation prevail against all odds!

Assistant Professor, HKU