Why the Financial Times is misreading China

By Heiko Khoo
0 Comment(s)Print E-mail China.org.cn, December 11, 2018
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The night view of Shanghai on Nov. 2, 2018. [Photo/Xinhua]

The recent Financial Times (FT) editorial on China (Nov.28) is deeply flawed; however, most economists, journalists and politicians in Europe and America share its view. 

Unfortunately, their outlook, understanding and strategic vision for China is clouded and distorted by capitalist values.  

The editorial sets the scene by reference to the "recent slowdown" in the Chinese growth rate, which "slipped" to 6.5 percent. In all capitalist countries, predicted GDP growth rates tend to vary from the actual results, often dramatically. 

This is because profit-seeking and profit-maximizing entities drive capitalist production. Therefore, the economy is unplanned at the macro-level, even though companies largely engage in detailed enterprise-level planning. However, under capitalism, external competition and many other market conditions are largely unknown or unknowable. 

Another important factor is politics, which can modify the external environment in ways that can either encourage or discourage investment.  

Therefore, when the FT experts examine China's growth rate, they simply ignore the fact that the 6.5 percent GDP growth figure corresponds to the forecast in the national 13th Five-Year Plan (2016-20). 

So, why do they ignore this? The explanation is to be found in the fundamental assumption that China is a capitalist economy. If this is true, its forecasts surely cannot be more accurate than those made by the leading economic experts analyzing Europe and the United States. 

Thus, stock market gyrations, property bubbles, a drop in consumer confidence and political turbulence, mean that "the best laid schemes of mice and men, often go awry," to use the words of the poet Robert Burns.

As proof that China is a capitalist state, the FT editors claim that, "Private enterprises in China are the economic mainstay, contributing about two-thirds of output and investment and the lion's share of jobs." 

When challenged, former FT Beijing Bureau chief, James Kynge, cited Chinese official statistics showing that 60 percent of GDP and fixed asset investments come from the private sector. However, these figures are not so clear-cut as he imagines. 

Since the mid-1980s, studies of China's ownership structures by experts like Joseph Stiglitz and Ya Shenghuang have revealed many fuzzy and indeterminate ownership forms; and this has perplexed the economics professionals ever since.

Nevertheless, there is a much more fundamental problem with the FT claim that "private enterprises are China's economic mainstay" and "drive" ITS prosperity. The figure of 60 percent tells us absolutely nothing about the character, size and influence of the remaining 40 percent that comes from the State-run sector. 

The FT claim that the private sector is the mainstay driving the economy is based on the capitalist mythology that all exchanges carry equal weight and therefore anyone can make it in a capitalist free-market system – so, 60 percent must be more important than 40 percent. 

To counter this argument, let us turn to the 13th Five-Year Plan. The National Reform and Development Commission drew up the Plan. The combined resources of the Party: national and local governments; the State bureaucracy; and publicly-owned banks and enterprises are all mobilized to realize the targets and objectives. 

This common purpose unifies the combined weight of China's political, bureaucratic and economic power, in ways that are unthinkable in capitalist economies, except during a general mobilization for war. Therefore, by looking at China this way, we can reveal why the 40 percent of the economy in public hands is able to act as the macro-level organizing "brain" driving investment and growth. 

China has been able to harness the benefits of private capitalism both internally, and through its participation in the world economy, over the last 40 years. However, the decisive factor has been the continued dominance of the public sector of the commanding heights of the economy. And it is precisely this advantage that has enabled China to contain and overcome the impact of dramatic market contractions, particularly after the Great Depression, whose impact continues to plague the world capitalist economy today.

This is why, despite FT advice, China will staunchly defend article 7 of the Constitution of the People's Republic, which states: "The State-owned economy, namely, the socialist economy under ownership by the whole people, is the leading force in the national economy. The State ensures the consolidation and growth of the State-owned economy."

Heiko Khoo is a columnist with China.org.cn. 

For more information please visit:http://china.org.cn/opinion/heikokhoo.htm

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

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