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China's Hu Jintao clings to socialist economy

As China enjoys economic growth, one has to wonder: Why does 'Socialism with Chinese characteristics' work?
Last modified: 12 Nov 2012 18:56
[Photo: Reuters]

Over the past decade, China has experienced economic growth of a nature unparalleled since the 18th century and the Industrial Revolution. This at a time when the rest of the world's economy began to shrink, when unpredicted flaws in the much vaunted system of western capitalism saw a massive depletion in the wealth of many nations and a virtually unmanageable mounting of debt.

At present the United States owes China some $1.6tn - that's the equivalent of $15,000 annual debt for every American family. The capital amount is increasing at $3.88bn a day. Not only is the quality of governance called into account, but also the fundamental basics of a competitive free market system that generations of western economists were adamant would provide the greatest good to the greatest number.

China has not been immune to the global economic crisis - its growth has slowed significantly but even it so remains at nearly eight per cent a year, with latest indices indicating that the lowest point has been passed and the recent period of economic slowdown is over.

So what have the communists got right that the capitalists got so wrong?

The past decade came under review in outgoing President Hu Jintao's report to the Eighteenth National Congress of the Communist Party of China - it was entitled "Firmly March on the Path of Socialism with Chinese Characteristics and strive to complete the building of a Moderately Prosperous Society in all Respects".

Here is found one of many explanations for China's economic success - "Throughout the past 30-plus years of continuous exploration for reform and opening up, we have held high the great banner of socialism with Chinese characteristics and rejected both the old and rigid closed-door policy and any attempt to abandon socialism and take an erroneous path".

So the old ideas of communism reworked, the concept of globalisation embraced, but all within the context of a uniquely Chinese brand of flexible Socialism.

Balancing act

It's a system in which private ownership is allowed, even encouraged, but in which the state retains control of enterprises regarded as essential to national economic security - for example those dealing with natural resources, in banking, or telecommunications. Yet competition within and between these State Owned Enterprises or SOE's is regarded as an essential part of development.

This fine balancing act is addressed in President Hu's report - "Deepening reform is crucial for accelerating the change of the growth model. The underlying issue we face in economic structural reform is how to strike a balance between the role of the government and that of the market, and we should follow more closely the rules of the market and better play the role of the government".

The SOE's produce about half of China's economic output, but the private firms are providing most of the new jobs becoming available. There is a constant flux within the system that prevents either state or private enterprise from establishing run-away dominance. Traditional western economic thought branded SOE's as a blockage to free market economy. In China they are seen as an integral part of the whole, which fuel competitive drive but at the same time establish a regulatory control from within that is far more effective than any controls that may be imposed from without.

There is in this process a built-in series of checks and balances that are constantly fine-tuned by the SOE's themselves under government direction. The concept of self-interest that lies at the heart of the Western Capitalist system is replaced by what China defines as National interest.

The result of all of this - an economy that is as free as the state feels is necessary for growth to be maintained - and growth regarded as key index in measuring the improvement of individual lives. For the first time ever the Presidential report contained targets measured in both GDP and in per capital income - the stated intention to double both by the year 2020.

These targets are easily attainable should the current growth rates be maintained - the underlying message though in stating them that personal and national economic development should run in parallel. What's good for the state is good for the individual.

The rampant and destructive rise of the Oligarchs in Russia displayed a system in which all control was abandoned; the need for the government to bailout banks in the US displayed an economy in which greed outweighed rational self-interest. The lesson in both societies perhaps, that without regulation there will be anarchy.

The model provided by China on the other hand indicates successful growth occurs when it is controlled, when the system is in balance, and when the stated aim is "moderate prosperity" rather than maximum profit.

Follow Mike Hanna on Twitter: @mjahanna