A contrarian view of the economic miracle

In Will China Fail? The Limits and Contradictions of Market Socialism, author John Lee takes on the growing parade of China experts who offer optimistic scenarios for the nation’s ‘peaceful rise’ and the continued success of its economic reform process.

Such experts, says Dr Lee, suffer from ‘a well-intentioned but self-induced China blindness’ because they do not give adequate weight to the inherent flaws in the nation’s ‘market socialism’ or the politics behind it. The ultimate goal of economic reform is ‘regime maintenance’, rather than growth or social good, and the nation’s current development model is ‘unsustainable’ unless accompanied by political reforms that are unlikely to be forthcoming.

So, where optimists look at China and see an economic powerhouse, an increasingly responsible member of the international community, and even an alternative model of political-economic development – the so-called ‘Beijing Consensus’ – Dr Lee sees ‘an uncertain and struggling giant’ governed by a ‘fearful and paranoid regime’ that ‘desperately hangs on to power’.

On the economic front, he sees a growth rate that masks a ‘predatory, dysfunctional and grossly inefficient system’ of market socialism. Of particular concern, in his view, is the banking ‘crisis’, namely, the high percentage of non-performing loans; misallocation of capital, much of which props up state-owned enterprises; and the SOEs themselves, which are largely the cause of the first two problems, since they continue to receive significant ‘policy’ loans which they are often unable to pay back.

Dr Lee gives little credence to optimistic scenarios or official promises because he believes that the economic problems ultimately require political solutions – which the Communist Party will not undertake for fear of undermining its hold on power.

His argument that the current economic ‘miracle’ cannot be sustained without accompanying political and social reform is well-taken. But his claims that ‘China is a country in a profound mess’ governed by a ‘fragmented regime’ that ‘hangs on the best it can’ as its people stagnate or grow poorer is thoroughly overwrought. To support these statements Dr Lee points to increasing incidents of social unrest and the growing clout of the New Left – but both phenomena can just as easily be interpreted as evidence of a more confident citizenry and a changing social contract spurred by the party’s recognition that it must address such issues as corruption and the growing wealth gap.

Dr Lee’s explication of the ‘flaws’ in the nation’s political-economic model is valuable and worth reading. But his claim that this model is failing is unsupported by the evidence he offers. It may be dangerous to underestimate the challenges China faces – but it is equally risky to underestimate its will to overcome them.

Sheila Melvin is a writer on business and culture in China.