A phrase attributed to Napoleon went around the world: “When China awakens, the world will tremble.” Well, China is totally awake and the other countries, especially the West, and within the West especially the United States, don’t know how to deal with the challenge that it poses. In the West, China and, to a lesser extent, Russia are viewed with great concern as powerful rivals for the North Atlantic axis.
There are two types of envy, reader. The evil one, which is that of the US and Europe, leads them to try to stop China’s progress all the time. The benign one admires this progress and wants, as far as possible, and mutatis mutandi, learn from the Chinese and incorporate elements of the process they have been following. I’m taking advantage of a trip to China, where I write from, to get to know this great country a little more.
Bismarck said: “I do not learn from experience – only from that of others.” The Chinese are faithful followers of this maxim, even if they may not have heard of it. The Chinese have learned, for example, from the Latin American experience, unfortunately in a negative way. By observing our strategic mistakes, they saw what not to do. If I could sum up the issue in one sentence, I would say: China, unlike Latin America, has solemnly ignored the recommendations of the so-called Washington Consensus. It thought on its own and built with great success its
own solutions, adapted to national circumstances. The Chinese copied when convenient,
innovated whenever necessary.
Before proceeding to comment on the successful Chinese model, two quick caveats. First: I do not pretend to possess in depth knowledge of a country so complex and so different from ours based on a trip of a few weeks. It is true that I lived for more than two years in Shanghai, when I was vice president of the New Development Bank (better known as the BRICS Bank), now headed by former President Dilma Roussef. But it’s been eight years since I left the
bank, and China has changed a lot since then. Moreover, at the time I lived here, I was so involved in the creation of the new multilateral bank, an ambitious BRICS project, that I had less time than I wanted to familiarize myself with the singularities of a country that, as Henry Kissinger wrote, is not a nation, but a civilization in itself.
Second caveat: admiration for China’s performance should not prevent us from seeing the difficulties that the country faces. I will briefly highlight some of the main macroeconomic challenges, without intending, of course, to exhaust the issue.
One of them is the slowdown in the growth of the economy, resulting from a certain loss of dynamism in exports and investment. Protectionism against China has grown, narrowing or even closing important markets, mainly in the United States and Europe, and threatening to narrow others. In some sectors of the Chinese economy, there has been overinvestment, resulting in unutilized capacity, which China can no longer direct to foreign markets as easily as before.
This slowdown in the economy takes its toll in terms of the labor market. The high rate of youth unemployment, for example, is a social and political problem of the first order. In addition, aggregate consumption is still very low, which reflects several difficulties that the population experiences and that, if not addressed, can erode support for the government. Among the reasons that limit private consumption are the insufficiencies of the pension system and health services. The Chinese government is fully aware of the problem and seeks to improve the national pension and health systems. With the aging of the population, however, the problem becomes more serious, as the demand for retirements, pensions, medical services and medicine increases. Therefore, people continue to save a lot to try to ensure the standard of living in old age. Thus, it is not easy to achieve the government’s long-standing goal of increasing the consumer market and making the Chinese economy less dependent on the
dynamism of exports.
China’s extraordinary success over the past 40 years
These caveats ring true, but they should not obscure the basic fact – China woke up at the end of the 20th century and will not return to the deep slumber of other historical eras. The Chinese economic model has been extraordinarily successful and is not well understood in the rest of the world. How to characterize it synthetically? Maybe starting with what it is not. It is not a pure and simple market economy, that is, it is not a classic or traditional capitalist system. It is not even appropriate to designate it as “state capitalism”, as is often done in Western media, both academic and journalistic. The State has such an overwhelming presence in the economy and society that this expression is misleading. It should be noted that, by adopting it, capitalism is unduly credited, even if “of the State”, a merit that it did not have and does not have for China’s success.
It is also clear that the Chinese model pioneered by Deng Xiao Ping in 1979 is quite different from the Soviet and Chinese models of the time of the centrally planned economy. What was sought in China was to restructure the economy, making room for the market and the private sector, without repeating, however, the mistakes made by Gorbachev in the 1980s, with Perestroika (economic restructuring) and Glasnost (political liberalization).
What did China do (and did not do), based on a careful assessment of the trajectory of the Soviet Union in its final decade and of Russia in the 1990s? Two things, basically. First, the Chinese Perestroika was much more cautious and gradual. There was not, as in Russia, shock treatment in the economy, mass privatizations and abrupt liberalization. The economic opening was done step-by-step, without dismantling state structures and maintaining control over the strategic sectors of the economy. Second thing: there was no Glasnost in China. The Chinese Communist Party remains a single, all-powerful party with great influence on society and the economy. There are billionaires and powerful private entrepreneurs, but they have no political role and are not allowed to dominate public policies. A totally different scenario from what is seen, for example, in the United States, where the owners of money are the owners of power, converting the so-called democracy into a plutocracy (the government of the wealthy).
Another important fact: the fight against corruption takes on fierce proportions in China and reaches prominent and powerful figures when necessary. Unlike in the United States and many other countries, Chinese billionaires have a hard time buying politicians and officials. Therefore, a kleptocracy (the government of thieves) is not established.
Nor do we have in China the kakistocracy (the government of the worst), typical of the United States and Europe. In the West, the political system generally obeys a logic of adverse selection that rewards the most mediocre and those least committed to the public interest. Anyone in doubt about this, can review current and recent political leaders in the United States and Europe. Or consider, another example, the Brazilian political class. In China, a closed system prevails in which leaders are selected based on merit. A meritocracy, therefore. Imperfect, as one can imagine, but enough to ward off the risk of forming a kakistocracy.
The Chinese are human beings, of course, and they also face the need to fight against the domination of the super-rich, corruption and mediocrity. But they have been more successful than the rest of the world in addressing these “human, all too human” challenges, as Nietzsche would say.
The Chinese model
So, what is the Chinese model? Let’s give voice to the Chinese themselves. They characterize their model as “socialism with Chinese characteristics.” They symptomatically use the term “socialism” in place of Soviet or Maoist “communism.” And why do they say “with Chinese characteristics”? This is because, although market forces have great weight here, they operate within a framework strictly controlled by the State and by state agencies and institutions. A popular maxim in China, quoted by Professor Wen Yi in a debate in which I participated here in Shanghai, reflects this well: “the State sets the stage and economic agents perform”.
Two examples, briefly explained. China’s banking system is almost entirely dominated by state-owned banks. Here there are no Bradescos, Itaús or Santanders, nothing like the dominant large Brazilian private banks. The Chinese do not know and do not want to know this type of institution. The banking sector is strategic from a macroeconomic point of view and has always been under the control of public banks. On the other hand, an important aspect is that,
within the rules established by the government and the central bank, these state-owned banks compete with each other, which favors greater efficiency.
Another crucial example. The stability of the Chinese economy rests on a closed capital account, that is, the strict application of controls on the inflow and outflow of capital. There has been some loosening of controls in the more recent past, but China remains reluctant to expose its economy to the surges in capital inflows and outflows that do so much harm in Latin America. This was one of the many points on which China turned a deaf ear to the recommendations of the Washington Consensus. They learned from our unfortunate experience, in the spirit of Bismarck. If they had been guided by Western advice, they would not have achieved what they did.
Continuity in China’s millennial civilization
To conclude, a few remarks on a singularity of China that is crucial, but unfortunately inimitable. It is rarely taken into account that China’s millennial history is marked by extraordinary continuity. The great majority the other ancient civilizations of the various continents did not have the long and uninterrupted duration, of four or five millennia, that characterizes the Chinese civilization. The Egyptians have a remote, not to say fictitious, relationship with the Egypt of the pharaohs and their pyramids. The present-day Greeks have little to do with ancient Greece. Today’s Italians have little to do with the Roman Empire. The Aztecs and Incas were totally obliterated by Spain. Russia also has a continuous civilization, but on the order of 1000 years.
China is a very special case. It has suffered, over millennia, several turbulences, invasions, foreign wars, civil wars, but it has managed, despite this, to preserve a common cultural thread. This is reflected in some aspects of China’s trajectory that are, in my view, central to understanding the country’s success. One of them is respect, more than that veneration of ancestors and historical traditions. This respect for tradition does not, however, block the innovation and creativity of the new generations. The search for the new omnipresent, but it does not imply discarding the past.
Even a radical Marxist revolutionary, such as Mao Zedong, often quoted China’s classical thinkers such as Lao Tse and Sun Tzu. He considered the latter’s main work, “The Art of War”, almost like a second communist manifesto. On the other hand, when Maoism was surpassed by Deng Xiao Ping and his successors up to the current leader, Xi Jinping, there was no outright rejection of the figure of Mao. It appears to this day on all banknotes. His works are read and circulate widely.
Compare this with Brazil. We do not respect and often do not even know our past. This ignorance feeds the tendency to systematically depreciate our history. And this is one of many factors that bring down our self-esteem.
We have a lot to learn from the Chinese
Oscar Wilde said: “Self-love is the beginning of a long life romance”. This self-love is central to individual and national success. The Chinese have this in abundance. But, you see, reader: self-love, and not contempt for others; pride, not vanity or arrogance; respect for oneself and one’s immediate family, yes, but without falling into the selfish individualism so typical of Western societies.
For these and other reasons, we need to study China more and increase our interactions with the Chinese. It is worth the effort to overcome linguistic, cultural and geographical barriers. Without falling into slavish imitation, always taking into account our historical and political conditions, we can learn a great deal from them.
Editor: Zhiyu Wang
