The New China Playbook: Beyond Socialism and Capitalism by Keyu Jin

Keyu Jin is Professor at the London School of Economics.

The book gives a humane and nuanced insight into China.

Necessity of State Intervention in China

"When markets are inchoate and disorderly, heavy-handed state interventions may be more effective than when markets are deeper and more mature."

"Symbiosis between the state and the private sector can be especially useful in an economy with immature institutions and imperfect free markets, a theme that runs throughout this book."

This could change in the future.

"A wise state needs to know when to recede into the background, and where it should loosen its control and let the economy ride its natural ebbs and flows."

State officials driven by more than altruism

"support provided by local government officials to private firms was not altruistic. In addition to increased political clout, there were private benefits, which in the past often took the form of gray income or illegal bribes."

"This was the old model of state-private collusion. Call it cronyism, corruption, or the grease that lubricates the wheels of the machine of the local economy, but whatever the label, the idea is the same: take a cut from firms in return for offering a helping hand."

"Such tight linkages between government and business are not unique to China, but the pervasiveness of it is. Its conglomerate model may remind us of Japan’s keiretsu network and the Korean chaebol system, but nowhere are equity links as intricate and commonplace."

"Still, bad actors are a problem whenever and wherever large sums of money are involved without proper oversight."

The Mayor Economy

The author talks about the 'Mayor Economy'. Local officials implements policies of the central party. They are incentivized to boost the economy and rewarded when successful.

"the mayor economy. In recent decades, pioneering local government officials have rushed at a frenetic pace to expand their local economies, transforming former fishing villages and farmland to technology hubs and industrial centers. These officials vie with each other for primacy in everything from economic growth to foreign investment, from the number of industrial, trade, and horticultural exhibitions to the size of cultural events like concerts and film festivals."

"When foreign officials and business executives come to visit China, they are invariably impressed by the enthusiasm of provincial governors, municipal and county mayors, and even village chiefs as they rattle off awesome statistics about local industry, agriculture, services, import and export growth, and most especially the measures they are taking to improve their investment climate and ease of doing business. In China, the mayor economy rivals the market economy in importance."

China's economic model "offset the rigidities of a central authority and its institutional deficiencies by giving tremendous economic authority and autonomy to local governments."


However, there are "Complex and nuanced mechanisms embedded in the system".

Incentives

"Effectiveness is certainly a key factor in this process. As political scientist Francis Fukuyama notes in his book Political Order and Political Decay, a meritocratic bureaucracy is essential to the success of a modern state."

The 'meritocratic bureaucracy' needs to be incentivized.

"As in any large corporation, designing an effective incentive structure is crucial."


The author does not elaborate on what the 'complex system of mechanisms and incentives' are.

Corruption

"China’s central authority is well aware that corruption gnaws away at a system like termites, doing no apparent damage to the structure until it suddenly collapses.

On taking power in 2013, President Xi lost no time in launching the most sweeping anti-graft campaign in the nation's modern history. Some 2.3 million officials at various levels have been punished for violating party rules or state laws."

The author gives several examples, statistics, and anecdotes of corruption in China. The author also includes examples where corrupt officials were punished.

Waste: GDP Worship

Drive for growth leads to waste as well. Unnecessary projects are funded.

"When a colleague of mine joined an official trip visiting a county in northeast China, the local mayor led the visitors to an imposing bridge and pointed out that it had been built under his direction, going on and on about the grand scale and cost of this project. Finally, one of the guests could not help observing aloud that the bridge spanned a stretch of dry, flat land."

"'What is the bridge for, exactly?' the guest asked. The mayor chuckled and said, 'Do not worry. The central government has agreed to dig a river underneath it.'"

The author calls it 'GDP Worship'.

"GDP worship has often led to excessive urban reconfiguration, sometimes at great cost to cultural and historical sites."

Censorship in China

"A study published in The Journal of Economic Perspectives looked at 13.2 billion blog posts on Weibo between 2009 and 2013. To their great surprise, American researchers found that many sensitive issues were openly discussed. Even the most contentious subjects—including ethnic conflict, scandals involving local government officials, anecdotes about top leadership, political protests, and most recently, US–China relations—were widely broached.

For example, there were millions of posts on collective action events, such as protests and riots, which are highly sensitive subjects. Posts can even predict actual organized protests in the following days."

Chinese Innovation: from 1 to N

Chinese innovations sweet spot is 'from 1 to N'. These are evolutionary innovations such as a better smartphone or cheaper solar panel. This is China's sweet spot.

China is not good at 'from 0 to 1' innovation. This is 'fundamental breakthroughs and creative adaptations'. Example would be electricity or quantum computing.

"The Chinese are particularly good at making existing technology both better and cheaper."

"Fundamental innovation places high demands on civic society. First, the general populace needs to prosper, or at least to be "rich enough." Only then can it move beyond products that are "good enough"—that make incremental improvements on existing technology. China is not there, at least not yet."

"Another hindrance China faces is that in a country with now 1.4 billion people, the only feasible means of identifying talent is to rely on standardized testing, which emphasizes quick, tidy answers. Although this does highlight certain kinds of facility, it doesn’t identify or reward the kind of deep analysis or out-of-the-box thinking that contribute to breakthrough innovation. So far, neat problem-solving and rote memorization have been more important to a Chinese student’s future than creative thinking and imagination."

Social Credit System

There is a Social Credit system in China.

"In China, a large number of people have even signed up for the (so far) opt-in social credit system, which gives you bonus points for being a good citizen (by paying bills on time, volunteering to help the poor, and committing a “heroic” act, for example), and deducts points for poor behavior, which includes anything from committing a traffic offense or participating in illegal protests to not visiting aging parents regularly.

Higher scores can earn you cheaper public transport fares, a short security line in subways, or tax breaks. This may all seem mystifying to the Western eye, but many ordinary Chinese citizens find the scheme attractive with its numerous practical benefits."


"For China, it would be unrealistic to seek to displace the US as the world’s sole superpower. For the US, it would be fanciful to assume that its economic and military hegemony will extend into the indefinite future."

"It is unlikely that China will actively seek conflict.

Nor will it seek convergence, knowing full well that the gulf that divides these two nations in terms of values, beliefs, and systems will never fully close. It does not aspire to be the world’s 'shining city on a hill', nor do its ambitions include exporting its ideology or foisting its development model on the rest of the world, knowing full well that its experience and formula can inspire but not be duplicated.

This has been a historical tradition: even at the height of its preeminence in the world up until the Industrial Revolution, China did not seek to spread values or make efforts to proselytize the relevance of its culture and institutions. In the words of Henry Kissinger in his book On China, 'China did not export its ideas but let others come to seek them.'"








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