Peking University Economics Professor Zhang Weiying’s early October 2018 (and promptly erased by net censors) article “Understanding the World Economy and China” (excerpted in translation on Andrew Batson’s blog) argued that China’s economic development has occurred in spite of rather than because of the so-called Chinese economic model. Prof Zhang stated that “The China economic model theory doesn’t fit with the facts. China’s high growth over the past 40 years has come from marketization, entrepreneurship and the technological accumulation of the West for three hundred years, rather than the so-called “Chinese model”.
This June 2018 article by Professor Zhang does argue that the so-called China model does seriously harm China’s international relations but does not directly attempt to discredit the “China model”.
Zhang Weiying is not alone in his concerns. Another economist, Shen Hong of the currently-being-strangled-by-the-Party Unirule Institute, a private economics think tank, makes similar points in an article translated by Andrew Batson on his blog in the article The US-China trade war as a conflict of values.
One of Professor Zhang’s arguments is that China needs to built a truly rule-by-law and democratic political economic system if it is ever to displace the United States as the world leader. This argument, which harnesses nationalism to the cause of promoting democratic reform, may be calculated to win more minds to the cause of reform but may well be true.
Interesting too is Professor Zhang’s article what might be perceived as an overly assertive in-your-face style of US leadership rather than the fact of US leadership is a major part of the problem as seen from China.
It reminds me of an article that Chinese General Liu Yazhou wrote about ten years ago arguing that “China needs to become a much more democratic country — only then can it be a strong country that western powers will not dare try to push around.” General Liu Yazhou, once a senior commander of the PLA Second Artillery (missile forces) and now an academic at the PLA’s National Defense University has written many intriguing articles, some available online such as an examination of the cultural roots of Chinese politics in “Re-Commemorating 1644: The 360th Anniversary of the Jiashen Year” and Great Critics are Often Great Patriots and John Garnaut’s 2010 article “Chinese general backs the American dream”.
General Liu Yazhou, unusually out-spoken, has some protection (what the Chinese call a backstop houtai) as the son-in-law of former PRC President Li Xiannian. Professor Zhang Weiying perhaps not so much, although the lines of the permissible are often changing and vague, though more tightly drawn over the past few years.
When I lived in China, sometimes people told me that the US was always trying to keep China down. My answer was that if that were so, the US should encourage Chinese to keep their Communist Party in power and for the Party to take a harder line on dissidents. If Professor Zhang and General Liu are correct, perhaps the US is not being clever enough (if it really wants to keep China down).
Zhang Weiying: The Future World Order Depends on What China Does
June 26, 2018
Sino-US relations are the most important bilateral relationship in the world. This year, the United States launched a trade war. The two countries have been bickering for a long while about economic issues. Many worry how this will affect global stability. These days a big picture perspective on Sino-US relations is especially important to prevent things from descending into chaos.
Famed economist Zhang Weiying in his speech at the Symposium on Sino-US Relations at the Institute of World Politics and Economics of the Chinese Academy of Social Sciences discussed the fundamentals of Sino-US relations. This article was published in the International Economic Review. Zhang Weiying revised and authorized its publication here.
Zhang Weiying, Economist, and Professor in the National Development Research Institute at Peking University
Zhang Weiying: Over the next twenty to thirty years, the United States will not be overthrown in its world leadership role. For the very reason that today China is incapable of assuming world leadership, US global leadership position is in China’s interests. The demands that world leadership responsibility places on a country in various areas are enormous. China is now incapable of assuming them.
Throughout modern world history, the United States is the country that has exercised global leadership the most. This happened because the American society is vigorous and is very capable of correcting its own mistakes. Moreover, the United States attracts the world’s most talented people. This melting pot laid the foundation of American strength.
I have on several occasions suggested to American politicians that they read two books.
The first book is Adam Smith’s The Wealth of Nations published the same year that the American Revolutionary War broke out. The shape of the world these past two hundred years is basically the extension of the ideas in The Wealth of Nations to the entire world. The reason American politicians should read this book is because the United States is now becoming more protectionist. No country, if it were closed rather than open, could lead the world. A closed United States would lack legitimacy as a world leader.
The second book is Laozi’s Tao Te Ching. The United States is gradually changing from a country with uniform or roughly similar leadership values to a country in which coexist multiple or even differing leadership values. Under these circumstances, the US needs to understand how “the powerful state is inferior”. Assuming a lower profile is the best way for the United States to lead the world. The current US leadership style is to support freedom and democracy at home, autocracy abroad, and is characterized by an overbearing style. No country can challenge the leading role of the United States, but the U.S. does need to changes its leadership style. What China cannot accept is not the world leadership of the United States but the way the United States conducts itself as the world leader.
The last two centuries utterly transformed the entire world as the world went through a Great Divergence and then the current Great Convergence. Demographic and economic data show that up to two hundred years ago, the correlation coefficient between the population and the GDP of a country was essentially one. The correlation between the two fell sharply during the 19th Century (the Great Divergence), reaching its lowest level in the 1970s. Then it gradually rebounded to around 0.55 in the early 21st century (the Great Convergence). Whether this trend towards convergence continues will greatly affect what leadership in international relations will be like in the world to come.
My point is that the structure of international relations and the position of the United States within it largely depend on what China does. If China continues to make mistakes, the status of the United States will be become even stronger. During the past two or three years, my attitude toward China’s development has changed from optimism to cautious optimism. This is first of all because some things that were originally considered irreversible have now been reversed. This includes reversals in the economic system. The government has been intervening more in the economy. There are even new price controls, the return of the economic planning system, and the “advancing of state-owned enterprises and the regression of private enterprises”. In government during the 1980s, everyone competed to take charge and to be a trailblazer. Now, everyone wants to avoid taking responsibility and to keep quiet. The whole spirit of the country has changed fundamentally.
China made its transformation from one type of economy to another a macroeconomic, monetary and fiscal stimulus issue. But what the transformation of the Chinese economy has really meant is opening up the market and relying on the spirit of economic entrepreneurship. In its domestic market, China’s most notable achievement has been a tremendous development of transportation and the accompanying very large drop in transportation costs. Although this has physically unified the Chinese market, the problem remains that transaction costs are still extremely high.
The Chinese system makes market transaction costs very high. High transaction costs constrain entrepreneurship and prevents the transformation of the Chinese economy from being fully realized. Moreover, the influence of statism is very strong. China’s state-owned enterprises have become an important factor in Sino-US relations. Maintaining the state-owned sector which these state-owned enterprises inhabit will not be good over the long term for China from the international strategic perspective and will constrain China’s opening up to the outside world.
China’s future development will depends to a very large extent on the reform of its political system. The big difference between China and India in terms of development is that India first democratized the political system and then liberalized the economy; China first liberalized the economy and has left reform of the political system as an issue for the future. From a sequencing perspective, I think China’s approach is better. However, it does carry huge risks, because reform of the political system will be essential sooner of later. India has already passed this test. China has not.
I believe that over the next three decades, China should, during the first fifteen years, first focus on judicial reform – on the establishment of a society ruled by law – and then, during the next fifteen years, focus on democratization. Justice should come before before democracy, because the rule of law is the foundation of social stability. In the long run, China needs to explore new pathways. These explorations may be inspired by the example of Hong Kong. China should also study the experience of Taiwan and Vietnam. China can start with political reforms in areas such as functional constituencies (professional groups), with democracy within the Chinese Communist Party and perhaps then it may be able to gradually complete the transition to democracy over the next 30 years.
There are many disagreements between the US and China. These are mostly bilateral disagreements. There are conflicts of interest arising from competition over resources and in geopolitics. There are also conflicts of values. Sino-US relations generally revolve around these two kinds of conflicts. For example, the Taiwan issue is a matter of interests. The United States often competes for its interests in the international arena under the pretext of defending values.
Sometimes the United States also faces conflicts in its own interests and values. For example, United States supported people like Mubarak who were dictators and stood for things that were contrary to American values. If a problem arises in those countries, there is certainly too a conflict between US interests and US values. From what I can see, the United States has finally chosen to subordinate its interests to its values in order to solve problems in the Middle East. It will no longer blatantly support those dictators. This conflict within the United States itself disturbs the entire international community and also affects Sino-US relations.
As far as conflicts of interest go, many US entrepreneurs, economists, and leaders all fundamentally believe that the economic benefits that can be attained through mutually beneficial cooperation are much greater than what can be gained by clashing. Our economic interests still largely depend upon cooperation. Therefore, the main differences between the two countries arise from differences in their politics and in their core values. How should these conflicts be resolved? Some solutions might simply resolve conflicts at the level of international relations, but these solutions might be very difficult for people domestically to accept.
From this perspective, many problems in Sino-US relations ultimately come down to the establishment of a democratic government in China and the reform of China’s political system. The path that China takes towards true democratization is both very important and very dangerous. It may move toward the rule of law and democracy as we expect, but then again, it may slip backwards into something ever worse than before.
We now face two major challenges, one is populism (including socialist egalitarianism) and the other is nationalism. By now the legitimacy of China’s leaders, after decades of economic development,can longer be based on its conquest of state power. Continuing economic reforms too are no longer an adequate support for its legitimacy. The only way to legitimate China’s political leadership is by promoting reform of the political system. If sufficient courage, determination and political authority is not put behind political reform, and the leadership instead resorts to populism and nationalism, the situation could become very dangerous. If that happens, major reforms will not be able to be carried out and China may well retrogress. We can well imagine that if lower-level officials feel free to misbehave and commit any crimes they like and higher leaders do not have enough authority to correct them, then a trend that propels China backwards against the tide of history may well prevail. The confluence of the problems of nationalism and populism would make acting rationally much more difficult in China.
Today we often do not address issues neither according to market logic nor in the spirit of the rule of law. Instead, by considering public opinion and other means, we make a moral judgment. Later, we do not consider the legality of the method that we have chosen to handle the issue. In short, reform of the Chinese political system is the critical factor influencing China’s future development.
My conclusion is that the question of whether or not there will be changes in China’s political system over the next decade will have an important effect on China’s future development. As for the United States is concerned, the leadership of the United States will be very difficult to challenge for some years to come. China will very likely economically surpass the United States, but this does not mean that China can challenge the United States and lead the world. The US economy surpassed that of the United Kingdom in 1890, but United States leadership was only established after World War II.
U.S. leaders overly politicize economic issues, making many issues difficult to address. For example, it is still not clear whether the appreciation of the renminbi would benefit the United States. But it would have at least two effects on the United States: first, American consumers would pay higher prices and the United States would face faster price increases; second, it would have a huge impact on the profit structures of large international companies. Especially for multinational companies and companies that have famous brands, because they are in an oligopolistic market, they enjoy relatively high profits. Renminbi appreciation would squeeze out some of the profits that those multinational companies enjoy. This would in turn impact the structure of the entire enterprise.
As to China’s international relations, China has no ally that openly and firmly supports it in the world. Compared this with the United States, which has the open support of many allies in the international community. Thus it would be hard for China to challenge U.S. leadership.
I believe that ideas and ideologies influence history. Therefore my attitude is both pessimistic and optimistic. I am pessimistic because the spread of ideas and ideologies is very slow. I am optimistic because our thinking is changing in subtle ways. The ideas of young people are now already very different from those of their elders.
The connection between the PRC and the United States began with relations between our governments. Now people-to-people ties play a large role, including the roles of private enterprises, scholars, media. The United States attaches great importance to the power of civil society. These forces in civil society all affect the way that the world views China. They affect Sino-United States relations as well. The diplomatic power of people in civil society had become the track two of international exchanges.
If we compare a country to an enterprise, from the perspective of the Theory of Evolution, any country after it evolves to a certain extent will encounter some force that obstructs its development. No big tree can grow all the way up to heaven! I do not believe in the decline of the United States. However, its international status will begin to decline relative to what it was before. If China can continuously promote market-oriented reforms, steadily carry out political reforms, and adopt appropriate strategies in diplomacy, the U.S. dominance in the world may not last long. However, if China goes the wrong way, then whatever changes there may be the relative statuses of the United States and China, they can only be very insignificant ones.
过去200年，世界经历了一个巨大的变革，从大分流（Great Divergence）到大趋同、大融合（Great Convergence）。数据显示，在200年之前的漫长的历史中，一个国家的人口和GDP的相关系数基本是1，19世纪之后两者的相关性剧烈下降（大分流），20世纪70年代达到最低水平，然后又逐渐恢复到21世纪初的0.55左右（大融合）。这种大融合的趋势是不是会继续下去将会对国际关系的领导格局带来巨大的改变。