Chapter 6 Can China's High Economic Growth Sustain?

Regarding the economic miracle created by China's reform and opening up, some people believe that China has found a development model suitable for its own national conditions through hard work, active innovation and bold practice. They call this model the "Beijing Consensus."How do you view this summary?What are the overlooked factors behind China's economic miracle?Can China's high economic growth continue? ◎Reporter: Institutional economics believes that property rights protection system, rule of law, and responsible government are essential elements for economic development.However, despite these imperfect conditions, China has still achieved an "economic miracle".Is China creating a new model of economic development?How do you evaluate the "Beijing Consensus"?

Chen Zhiwu: The conclusions of institutional economics are not for the highly imitative manufacturing industry, because the manufacturing industry does not have high requirements for the institutional environment.For example, when I was a child in the countryside of Hunan, I would occasionally be scolded by adults with my friends for stealing cucumbers from other people's homes.However, it’s just stealing some cucumbers and watermelons, not going to steal furniture, rob, or seize the house.It can be seen that there are of course strict protection norms for the main property, but in that environment, the norms of property rights and contract rights are not based on the formal rule of law, but on invisible rules.When the scope of life and transactions is limited to acquaintances, and the usual products and property are basically tangible objects, then the "substance" of the object itself provides a certain degree of protection for property and transaction relations.Therefore, whether there is a rigid impersonal rule of law is not decisive.

But to develop the service industry, especially the contractual economy such as the financial service industry, and establish an intellectual property system, the situation is quite different.We always say that the profits of China's manufacturing industry are too low, and the money is taken by Western brands. But think about it the other way around, why can't China create its own brand?This is because China's property rights protection system is too poor. I have a friend who is a lawyer in the United States and specializes in patent litigation representation.He told me that in China, if you buy a company’s product (such as a computer) and then sue the manufacturer, when you go to the court, even if you show the invoice to prove that you bought it with real money, and the computer you show is also the brand of the other company, the Chinese court It does not necessarily admit that your computer is really manufactured by the defendant company, and the brand owner will not be liable on the grounds that the computer is counterfeit, and judges and lawyers will accept this reason.If you tell American lawyers about such cases, they will find it incredible.Because in the United States, even if a person buys a computer without a receipt, as long as it is a certain brand, that brand owner must bear the responsibility and compensate the consumer.Of course, brands can go back and sue the counterfeiter if it is a fake, but that's another story.As long as China's judicial logic is like this, the protection of brand intellectual property rights will continue to be problematic, and it will be difficult to cultivate the value of Chinese brands, and money will continue to be taken by Western brands.

As for the "Beijing Consensus", I think it's too early and too anxious. China's economic development still needs a longer period of testing.Everyone has their own ambitions, and some people are excited about the "Beijing Consensus", but I have nothing to say.But it is worth mentioning that over the past 60 years, the international academic community has repeatedly made the mistake of drawing conclusions too early and leading the world astray.One was an over-admiration of the early Soviet model. In the 1930s, the economy of the Soviet Union was also growing at a rate of more than 10%, while the West was experiencing the Great Depression. The huge contrast caused many people to start advocating state-owned and planned economies. Leftist economists believed that the death knell of capitalism Hence the ring.

Beginning in the 1940s, Keynes and many other economists put forward the theory of strengthening government intervention and regulation, which was promoted in market economy countries including Western Europe and the United States, and many independent developing countries after World War II also learned from the Soviet Union. Implement a planned economy.But by the late 1970s and early 1980s, this state-owned or controlled economic model was unsustainable, and privatization had to be restarted.Only then did Reagan Economics and Margaret Thatcher transform the British economy, and there was also a climax of privatization around the world in the following 20 years.The reason why so many countries have gone back and forth is because they made premature wrong conclusions about the Soviet Union's economic model, which brought bad consequences to the world.

The other time was about the East Asian model.When I first came to the United States to study in 1986, almost every university’s business school was looking for scholars who understood Japanese economy and culture to give lectures, and they were all studying the role of Asian-style government industrial policies and government regulation on economic development.After the Japanese economy began to decline in 1990, few business schools teach Japanese management or economic models today.By the mid-1990s, the "Asian Economic Miracle" was hot again, and everyone talked about the advantages of the East Asian growth model.However, the Asian financial crisis in 1997 destroyed many people's jobs.What will be the fate of today's "Beijing Consensus" in the future?Let us judge for ourselves or leave it to history.

◎Reporter: What does China's "economic miracle" mean to people in other parts of the world? Chen Zhiwu: Although made in China pollutes China's environment and the labor income is low, it does increase China's economic growth and at the same time increase the welfare of people in other countries, allowing them to buy more and better products with less money .But it's a different story for manufacturing in other countries.Due to the competitive pressure from China, coupled with the strong substitutability and weak bargaining power of blue-collar workers, in many countries, some workers have been deprived of employment opportunities, which has aggravated labor conflicts in other countries to a certain extent.For example, due to the cost pressure from China, the shareholders of General Motors and Ford Motor Company in the United States are very angry, because the wages and benefits of workers previously set are too high and the conditions are too good, so the US auto industry is facing huge pressure to survive .

◎Reporter: In order to understand China's "economic miracle", I think we can go back to the original path choice.Without understanding the initial choice, there seems to be a lack of a basis for consensus. Chen Zhiwu: Many people attribute China's economic achievements to market economy, opening to the outside world, demographic dividend, hard work and other factors. In fact, these are all correct. They are very important, but they are not fundamental.Because in the late Qing Dynasty and the Republic of China, China also had a market economy and was forced to open to the outside world. The population accounted for a higher proportion of the world's population than today, and the people were equally hardworking, but it did not produce success in the economic sense of today.

Why is China's economic achievements in the past 30 years particularly outstanding?This is because China's economic growth during this period was based on mature modern industrial technology and a free trade system, and these two basic conditions did not exist in the late Qing Dynasty and the Republic of China.Today, about 85% of China's GDP comes from modern industry and service industries, including energy, finance, manufacturing, transportation, the Internet, computers, etc., and all of them come from the West; Do not open the free trade system established by the West.Therefore, rather than saying that China's economic miracle is the result of the Chinese people themselves, it is better to say that it is the result of the modernization of the world.

Of course, this is only a basic condition for China's economic miracle, because India, Russia, Vietnam and other countries also have these conditions, but they have not produced the same economic miracle as China.This is because China and the above-mentioned countries had different national conditions and conditions at the initial stage of this round of globalization, which made them choose completely different development paths. First of all, since the 1950s, China has experienced a series of political movements and man-made disasters such as the Great Leap Forward and the "Cultural Revolution".By the end of the 1970s, the crisis in all aspects of Chinese society was already very serious, and it might collapse if there was no change, which forced people to conduct a thorough reflection.The "cat theory" put forward by Deng Xiaoping may be difficult to accept in other left-leaning societies, but it became the guiding ideology of reform and opening up in China, and reform and opening up has also become the consensus of the whole society.The reason for this is that people have the inertia of maintaining the status quo. As long as the crisis is not imminent, people tend to go down the existing path.But by around 1978, the facts had proved that China's system at that time could no longer be maintained, and under such circumstances there was little resistance to fundamental reforms.

India, on the other hand, established a democratic system after independence in 1947, with power checks and balances, elections, and a certain degree of rule of law.We know that the purpose of a democratic system is not to find the best objective decision, but to prevent bad decisions made by centralists from harming society.In this sense, a democratic system lies in minimizing the frequency of bad decisions, in maintaining the status quo, and in harmony and stability.Unless there is a crisis in society, a democratic system is not conducive to the emergence of drastic reforms.After India's independence and the establishment of democracy, its society has always been dominated by the left, opposing marketization and globalization, and implementing a planned economy.Therefore, until 1993, it was difficult to choose a reform path of marketization and globalization. What's more, according to the figures calculated by the World Bank based on purchasing power parity, China's per capita GDP in 1980 was US$440, while that of India was US$668.With such an income level and no social crisis, although mature industrial technology and global trade order were delivered to India's doorstep as early as the 1980s, India's reform drive is obviously not as sufficient as China's.The absence of China's Great Leap Forward and "Cultural Revolution"-style crisis is India's happiness, but it has also become the reason for delaying its reform.Therefore, after seeing China's rapid development in 1993, India felt the pressure and began to abandon the planned economy and choose economic liberalization and opening up. ◎Reporter: How does Russia compare with China?After all, there are similarities in the pre-reform system. Chen Zhiwu: We must first see that there are no more than two sources of catalysts for economic development in various countries: endogenous and exogenous.The former mainly relies on the increase of domestic demand to stimulate its economic growth engine. After the increase of domestic demand, it needs the supporting development of all walks of life to meet domestic demand. The United States and most Western European countries are taking this path.However, the endogenous growth model has high requirements on the domestic political system, legal system, commercial system and people's sense of security. Otherwise, when these systems and mechanisms are not in place, domestic demand will be difficult to generate. The exogenous growth model, whose development is driven by the demand of the external market, Japan, China, and the "Four Asian Tigers" are following this path.The advantage of this model is that in the early stage of development, the country does not necessarily need to carry out major system reforms, and the effect will be quick.Over the past 30 years, China has developed its economy through human rights conditions, labor conditions, and environmental overdrafts that do not take into account costs. This is the path that China has taken.The reason why China was able to choose this model after 1978 was determined by China's population, labor costs, and basically formed industrial base. However, Russia cannot choose an exogenous growth model, and it cannot choose China's gradual reform path.Russia has a population of 200 million, and its per capita GDP was US$8,000 in 1980, almost 20 times that of China at that time; in 1990, its per capita GDP was about US$9,000, while China had a population of 1 billion in 1990, with a per capita GDP of US$1,300.Therefore, China can choose to become the world's factory, but Russia is impossible, because it does not have the same population endowment as China, and labor costs are too high.As a result, Russia is forced to take the path of endogenous economic development, which requires it to start with system reforms, otherwise domestic demand will be difficult to start.This is the starting point difference between Russia and China when they ended the planned state-owned economy. Russia’s choice of reform path was not because Russians were stupid and did not choose the path of processing trade, as some economists believed, but because of the The starting point is different.They were much richer than China at that time. I wonder if this is Russia's luck or its misfortune? ◎Reporter: The "Beijing Consensus" has not been discussed for a few years, and Chinese manufacturing has encountered many difficulties.Do you think China's high growth rate is sustainable? Chen Zhiwu: It can be sustained, but it depends on whether the system serving the state-owned economy can be further reformed and the development of the constitutional rule of law.Since joining the WTO in 2001, China's exports have grown rapidly.In the United States, except for families with very high incomes who pursue brands, most of the daily necessities of the middle class and the poor are made in China, ranging from curtains, quilts, TV sets, computers, and furniture.The furniture industry in the United States was originally concentrated in South Carolina and North Carolina, but now it has been overwhelmed by cheap furniture made in China. The original furniture manufacturers have turned into import and export traders. At Yale University where I am, there are all kinds of people from many countries, and they all show great interest in China.On the one hand, this shows the influence of Chinese manufacturing, and on the other hand, it also shows that the potential for China's exports to be tapped is getting smaller and smaller, and it is no longer realistic to expand the export market on a large scale.Coupled with the rise of trade protectionism and the rise of manufacturing industries in other developing countries, China's existing foreign trade-led economic model has come to an end, and its sustainability is getting worse and worse. The next step must be driven by domestic demand. In addition, China's state-owned system and government control system also determined that in the past, the whole country could focus on mobilizing resources, building transportation networks and large-scale industrial projects, which have always played a key role in the development of manufacturing and industry.However, concentrating resources and income in the hands of the government through the state-owned system also brings many disadvantages.First of all, China does not always concentrate all its resources and financial resources on infrastructure and industrial construction. After all, China’s infrastructure is extensive and its industrial capacity is seriously overcapacitated. It is impossible to always concentrate resources on these image projects; secondly, the infrastructure Facilities and industrial projects consume too much energy, resources and the environment. With the sharp rise in global resource prices, the economic model based on industry and infrastructure has become unsustainable, and environmental damage can no longer be expanded.In order to reduce energy consumption and reduce dependence on exports, China's economy must change its economic growth model in order to continue to grow. Only by increasing domestic demand and vigorously developing the service industry, that is, the tertiary industry, can there be hope for sustainable growth.The development of these industries requires more institutional guarantees, a rule of law environment, and human creativity. Although there have been many developments in these areas, they are not enough. ◎Reporter: It is generally believed that an important factor supporting China's economic growth is the comparative advantage brought by low wages.But at present, the wage level of China's manufacturing industry is higher than that of India, Vietnam and other countries, but its competitiveness is still higher than that of these places. How should we view this phenomenon? Chen Zhiwu: There are two reasons for this: one is the scale effect.The wage level in China has only risen in recent years. In the past 20 years, there were still a lot of investments. Because of relatively complete infrastructure and a complete industrial chain, these investments will not go away for a while; New investment is a hindrance, so Intel chooses to build a new factory in Vietnam; in addition, the impact of rising wages is not immediately reflected, and investors have to evaluate it. Under the influence of a series of factors, I think the pressure on China's manufacturing industry is great, and it will increase in the future. In the future, if China's high growth rate can be sustained, I think we should start from the following two aspects: The first is to continue to promote the reform of state-owned property rights, so that ordinary people can also share in the benefits of state-owned assets.In the United States, in addition to wage income, people also share the benefits of economic development through the appreciation of assets such as real estate, stocks, and businesses.Therefore, under private ownership, as long as the U.S. economy grows a bit, people will not only see an increase in labor income, but also an increase in the value of private property held in their hands. This is really the so-called "double harvest".With the "Double Harvest", it is no wonder that the domestic demand in the United States is not strong.Under the state ownership of land and major means of production, most Chinese only have labor income and do not really own asset wealth.This is why China's economy has grown so fast and so much in recent years, but domestic demand has grown much slower, and the due wealth effect cannot be seen.Without asset-based wealth, how can ordinary people have the wealth effect brought about by asset appreciation?So even if the public ownership system develops and the country becomes richer, it has nothing to do with private individuals.The value of state-owned land and state-owned assets is now about 10 trillion yuan per year, and the per capita is almost 8,000 yuan, but no normal Chinese thinks that they can spend an extra 8,000 yuan a year because of this. In addition to the fact that 75% of China's asset appreciation is monopolized by the state, the distribution of income between the government and the private sector is also rapidly moving closer to the government.From 1995 to 2007, after deducting the inflation factor, the government’s fiscal revenue increased by an average of 16% annually, while the disposable income of urban and rural residents only increased by 8% and 6.2% respectively; in 2007, the government tax revenue increased by 31%, while the urban and rural residents Disposable income only increased by 12.2% and 9.5% respectively.Therefore, no matter how fast China's macroeconomic growth is, the income in the hands of the common people grows at a much slower rate than the government's fiscal revenue. Of course, private consumption and domestic demand are insufficient. When so many assets and income are in the hands of the government, and when these resources and income are decided by officials how to spend them, they tend to invest money in high-rise buildings, landmark buildings, infrastructure and various image industrial projects , That's why China's economic growth is driven by investment rather than consumption.However, if asset wealth is returned to the common people, the items that the common people spend money on are completely different from those of the officials. They will pay more attention to livelihood issues such as children’s education, elderly care, tourism, etc., which will be converted into demand for consumption and the tertiary industry. .That is to say, when the government holds the decision-making power over the main assets and income of a country, it is bound to be beneficial to industrial development, infrastructure, and image engineering. The heavy chemical industry will be the most favored, and its economic growth will be driven by investment; When the resources and income of a country are mainly decided by the people how to spend them, they will prefer the needs related to people's livelihood and consumption. This is bound to be the most beneficial to the tertiary industry and light industry, which is of course conducive to the development of the tertiary industry. This economic growth is more driven by consumption.This is why the Chinese economy and the Soviet economy both emphasize the chemical industry, while the American-style private economy emphasizes the tertiary industry. The second is the rule of law and democracy.From the Wenchuan earthquake, we can see that democracy is not only abstract, but also specific to the lives of ordinary people and the lives of ordinary people. It involves the question of how and where to spend the government's financial expenditure and construction investment. It is a question of spending more on image projects or spending more on school buildings. ◎Reporter: What are your concerns about China's current development? Chen Zhiwu: It is human nature to "see the coffin and not shed tears". Although the situation is grim, the possibility of fundamental self-examination and innovation is getting smaller and smaller as the existing system can be maintained.Especially since the beginning of this year, the whole people have joined the tide of self-defense and self-proclaimed nationalism, and will not listen to any harsh advice.Under such circumstances, it is difficult for others to stop what kind of path China will take.It's going to rain, and your mother is going to get married. Many times, even if you know that there will be a tragedy, there is nothing you can do.A person who sings praises to China all day is not good for China's progress. It is the easiest thing in the world to say nice words.Those who are more valuable to China are those who talk about "China's collapse theory". We can look at them from a constructive perspective, study the direction and reasons of the collapse they said, and see what can be done now. Let China avoid possible pitfalls.